Subleases & Assignments

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Subleases & Assignments by Mind Map: Subleases & Assignments

1. General Concept

1.1. When T transfers her interest to another T (T1), it is either an assignment or a sublease. .

1.1.1. These different types of transfers result in different relationships among L, T, and T1.

1.1.2. These are relationships in both property and contract terms, to wit, “privity of estate” and “privity of contract.” The different privities require different conditions to exist and they result in different rights, duties, and remedies

1.1.3. May freely transfer a Term or Years or Periodic Tenancy Tenancy at Will is not transferable

1.1.4. May only transfer if no express provision against in lease agreement.

1.2. The Two Privities

1.2.1. Privity of contract It basically means parties have made promises to one another and can enforce them (and they generally are the only ones who can enforce those promises). If parties are in privity of contract, they can enforce the contractual promises – like an agreement to pay rent -- regardless of whether they are in privity of estate.

1.2.2. Privity of Estate can mean different things, but basically refers to the relationship of parties who engage in a voluntary transfer of an interest in property. In the context of assignments, it arises when an entire interest is transferred, and it means that the parties in privity can enforce covenants “running with the land” against one another. It is, in that sense, a substitute for privity of contract. A transferee (T1) who is in privity of estate enters into a new L-T relationship with the original L.

1.2.3. Who may Sue Who? When T assigns to T1, L can sue T1 and vv, based on privity of estate, for covenants running with the land. L can also sue T and vv, on privity of contract. When T subleases to T1, T and T1 can sue one another based on both privity of estate and privity of contract. L and T1 cannot sue each other on either basis, but L can sue T based on their contract. Also, note that L can evict T1 for failure to pay rent.

2. Sublease

2.1. When a T leases less than her entire interest to another, it is not an assignment, but a sublease.

2.2. Because less than the entire interest is conveyed from T to T1, T1 is not in privity of estate with L.

2.2.1. Because T1 is neither in privity of contract nor privity of estate with L, they cannot sue one another. Only T and T1 or T and L can sue one another (though L can still evict T1).

2.3. A sublessee, in contrast can’t be held liable by L because they have no privity of estate. (Sublease Liability)

2.3.1. However, if the sublessee is in the position described on the previous slide (intent of original parties, covenant runs, and sublessee had notice), L can equitably enjoin T1.

2.3.2. Also, if L terminates T’s lease for a material breach, T1 has to go. T1’s rights are derivative of T’s. (L may evict T1)

3. Assignment

3.1. Who: Unless the lease forbids it, either L or T may assign her interest to another.

3.2. When L reserves the right to approve assignments, L generally cannot unreasonably refuse consent to a transfer.

3.3. What: T transfers her entire interest to T1 – ie, T retains no reversion(ary interest). Otherwise, it’s a sublease.

3.4. Why it matters: T1 is now also* responsible for rent and other covenants that “run with the land,” because of privity of estate, asT1 holds T’s entire interest from L.

3.4.1. (Note that T1 does not owe LL rent under privity of contract unless T1 agrees to that responsibility or third-party beneficiary law applies.)

3.4.2. * T remains liable for rent if T1 fails to pay, because T is still in privity of contract with L.

3.5. Conditions for assignment to T1 to bind T1 to original lease: (Assignment Liability)

3.5.1. Original parties must intend it.

3.5.2. The obligation in question must “touch and concern” the land (ie, affect the parties’ use of the land) for the covenant to run.

3.5.3. The assignee has prior notice of the covenant.

4. How to Identify

4.1. Identifying a transfer as an assignment turns on whether T has retained a reversionary interest. But how much of an interest is required varies among jurisdictions.

4.1.1. The majority rule requires T to retain a reversion.

4.1.2. A substantial minority says any reversionary interest will do (typically, it’s a right of entry for failure to pay rent).

4.1.3. A small minority says the parties’ intent determines whether it’s an assignment or sublease.