What is a land contract?
A land contract is an installment sale: the buyer pays the price over time and receives the deed later. In Virginia, the Residential Executory Real Estate Contracts Act covers one only where the purchaser occupies or intends to occupy the property as a primary residence, and it excludes vendors including real estate licensees, banks, credit unions, licensed mortgage lenders and certain owners of no more than two single-family dwelling units.
An installment land contract is not the purchase contract you sign to buy a tract
People use "land contract" for two different papers. One is the ordinary purchase contract for a lot or a tract: the buyer puts down a deposit, both sides work toward a closing, and the deed passes when the price is paid at the table. The other is an installment land contract, where the buyer pays the price over months or years and the seller hands over the deed only later.
The ordinary kind, and what happens to the buyer's deposit under it, is covered in earnest money on a land purchase contract. This page is about the installment kind. The difference that matters most is where legal title sits while the price is being paid, and a third arrangement, seller financing with a deed of trust, sits between the two.
| Ordinary purchase contract | Installment land contract | Seller financing with a deed of trust | |
|---|---|---|---|
| When the deed passes | At closing | Later, on the terms of the contract | At closing |
| What the seller holds while the price is unpaid | Nothing is unpaid after closing | The title, until the deed is delivered | The buyer's promise to pay, secured by a recorded deed of trust |
| Signed writing | Required to sue on it (Va. Code 11-2) | Required to sue on it (Va. Code 11-2) | Required to sue on the sale, and on a credit promise of $25,000 or more (Va. Code 11-2) |
| Recording | The deed is recorded after closing | The contract itself can be recorded; recording needs the seller's acknowledgment (Va. Code 55.1-612) | The deed and the deed of trust are recorded |
Recording matters more for the installment buyer than for anyone else in that table, because the buyer is paying toward land still titled to someone else. Under Va. Code 55.1-407, a written contract is void as to purchasers for value without notice and lien creditors until it is recorded in the county or city where the property lies, and the same section says mere possession of real estate is not, by itself, notice to purchasers for value of the possessor's interest. The short definition is in the glossary entry for land contract.
Chapter 30 reaches only a purchaser who occupies or intends to occupy the property as a primary residence, and only covered vendors
Virginia has a statute written specifically for installment contracts, and it reaches only one kind. The Residential Executory Real Estate Contracts Act, Chapter 30 of Title 55.1, covers an installment land contract, lease option contract or rent-to-own contract under which a purchaser acquires a right or interest in real property, other than a right of first refusal, "and occupies or intends to occupy the property as his primary residence."
It then carves out vendors. Under Va. Code 55.1-3001, the Act does not apply where the vendor is a natural person, estate or legal entity owning no more than two single-family residential dwelling units in Virginia (unless it is an agent, affiliate, subsidiary or parent of an entity owning at least one more), a real estate licensee, or a bank, savings institution, credit union or licensed mortgage lender.
Where the Act does apply, Va. Code 55.1-3002 sets protections that cannot be waived by contract:
- The contract is subject to the Virginia Residential Landlord and Tenant Act.
- The purchaser may exercise the option to buy at any time before it expires, and no fee or penalty may be charged for exercising it early.
- Where the only default is unpaid rent or other money, the vendor may terminate and recover possession only if the delinquency remains outstanding more than 30 days after notice is served.
- The vendor may not forfeit the option payment, meaning the amount paid for the right to buy at a specific price within a specified time, though it may be applied to amounts the purchaser owes under the contract or as a court directs in an interpleader.
- The contract may be recorded in the clerk's office of the circuit court where the property lies.
The Board for Housing and Community Development is directed by Va. Code 55.1-3003 to develop and make available best practice provisions for these contracts on its website. One point in the Landlord and Tenant Act pulls the other way: Va. Code 55.1-1201 lists occupancy under a contract of sale by the purchaser, or a successor to that interest, among occupancies that are not residential tenancies. How that exclusion meets Chapter 30's own rule on a given contract is an attorney's reading. A house that already has an ordinary tenant in it raises different rules, set out in selling a house with a tenant in it.
When the buyer will not make the land a primary residence, the contract's terms and the general recording rules carry the load
Land with no house on it is where the Chapter 30 definition does its real work: it turns on the purchaser occupying, or intending to occupy, the property as a primary residence.
An installment contract on a wooded tract bought for hunting, or on pasture bought to expand a farm, where the buyer will not live on the land, does not meet those words, so the Act's non-waivable protections are not what governs it. A buyer who plans to build a house and live there later presents a closer question: whether that is an intent to occupy "as his primary residence" under the statute is for an attorney to read, not for a page like this to decide. Either way, calling the arrangement unregulated would be wrong; the general rules still apply.
A signed writing
Va. Code 11-2 reaches an installment contract as it reaches any contract to sell real estate, and that statute is covered in what documents you need to sell land.
The seller's acknowledgment
To record a contract for the sale of real property, Va. Code 55.1-612 requires the seller to acknowledge the signature, except for contracts recorded after the seller's death under the separate statute that governs those.
Recording where the land lies
Recording in the county or city where the land lies brings in the 55.1-407 rule described near the top of this page, including that the buyer's possession alone is not notice.
For a tract in Carroll County, that recording happens at the circuit court clerk's office; the counter and the costs are covered in where to record a deed in Carroll County. The payment schedule, what counts as a default, when the deed is delivered and who pays the taxes in the meantime all live in the contract, which is why its drafting is an attorney's work. A stand-alone option contract, where a buyer pays only for the right to buy, is a different instrument again, covered in what an option contract on land is.
Weighing an installment contract for the sale of your land?
Tell Lowell about the tract and what the buyer has proposed. He can talk through the land and the sale, and the contract's drafting, recording and tax reporting belong with your attorney and CPA. No cost, no obligation.
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Questions this raises
Can an installment land contract be recorded in Virginia?
Yes. For contracts under the Residential Executory Real Estate Contracts Act, Va. Code 55.1-3002 says the contract may be recorded in the clerk's office of the circuit court where the property lies. More generally, recording a contract for the sale of real property requires the seller to acknowledge the signature under Va. Code 55.1-612, and an unrecorded written contract is void as to purchasers for value without notice and lien creditors.
Does a rent-to-own agreement on a house fall under the same Virginia law as a land contract?
It can. Chapter 30 of Title 55.1 covers installment land contracts, lease option contracts and rent-to-own contracts alike, as long as the purchaser occupies or intends to occupy the property as a primary residence. The Act does not apply when the vendor owns no more than two single-family dwelling units in Virginia (unless affiliated with an entity that owns another), is a real estate licensee, or is a bank, savings institution, credit union or licensed mortgage lender.
When is a land contract sale reported to the IRS?
The IRS instructions for Form 1099-S say a transfer under a land contract is reportable in the year the parties enter into the contract, not the year the deed is finally delivered. Who files, and how the payments are taxed to the seller over the life of the contract, are questions for the settlement agent or attorney and a CPA.
Where this page's facts come from
Every rule, office and figure above traces to one of these. Rules change; check the office before you act on one.
- Va. Code 55.1-3000, Residential Executory Real Estate Contracts Act definitions Virginia General Assembly
- Va. Code 55.1-3001, vendors to whom the Act does not apply Virginia General Assembly
- Va. Code 55.1-3002, protections, default and recording Virginia General Assembly
- Va. Code 55.1-3003, provisions published by the Board for Housing and Community Development Virginia General Assembly
- Va. Code 55.1-1201, occupancies that are not residential tenancies Virginia General Assembly
- Va. Code 55.1-407, recording and purchasers for value without notice Virginia General Assembly
- Va. Code 55.1-612, acknowledgment, including contracts for the sale of real property Virginia General Assembly
- Va. Code 11-2, contracts that must be in writing Virginia General Assembly
- Instructions for Form 1099-S Internal Revenue Service