Download An assignment is not a subletting, and vice versa.

Survey
yes no Was this document useful for you?
   Thank you for your participation!

* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project

Document related concepts

Rent control in Scotland wikipedia , lookup

Causation (law) wikipedia , lookup

Irish Land Acts wikipedia , lookup

Quia Emptores wikipedia , lookup

South African law of lease wikipedia , lookup

Assignment (law) wikipedia , lookup

Lease wikipedia , lookup

Transcript
An assignment is not a subletting, and vice versa.
APRIL 8, 2012 BY IRA MEISLIK
Following last week’s posting about what Ruminations would call a misunderstanding regarding
the economic theory behind the freedom to assign a lease, we received some calls to discuss
how an assignment differs from a sublease. Given the frenetic activities involved in getting ready
for this past weekend, Ruminations was happy to comply by taking advantage of what seemed
like easy pickings – republishing a snippet from a piece written in 2008.
An assignment is not a subletting, and vice versa. The underlying considerations are not the
same. By assignment, the new occupant – the assignee – becomes the tenant itself. Its right to
possession of the premises is grounded in real property law—the law of conveyances. At the
same time, only if the assignee assumes the lease will it be accepting a direct, contractual
relationship with the landlord. If it does not assume the lease, the landlord and the assignee only
have possessory obligations to each other, i.e., those obligations that run with the land, but not
contractual obligations. But, absent an express agreement by the landlord to the contrary or the
occurrence of some subsequent “releasing” event, the original named (assigning) tenant isn’t let
off the hook. To effectuate a novation, i.e., a full substitution of the assignee for the assignor, the
landlord must consent to the release of the assignor. After an assignment, unless the lease or
any other document says otherwise, the landlord can look solely to the assignee to enforce any
remedy under the lease even though its original tenant remains liable. Of course, if the original
tenant is granted bankruptcy protection the original tenant may no longer have the secondary
liability it once had as a former tenant under the lease even though the lease will remain in effect
and the assignee will remain in possession.
Letting the law run its course may not lead to favorable or even expected results. For example,
absent an agreement to the contrary, an assigning tenant, though still liable to its old landlord, is
no longer primarily on the hook for a tenant’s lease obligations. Upon assignment, it becomes a
surety for the obligations; its assignee becomes primarily liable for those obligations. If the
assignee has not assumed the lease, but has only taken possession, it may not even be liable for
some moneys owed under the lease, such as obligations to repay a loan. It also will not be
financially liable for a prior default by its assignor even though it might lose the lease by reason of
such a default. Further, the original assignee will not be liable for the obligations of a subsequent
assignee, just for what happens while it is in possession of the leased premises.
So, think of the common and uncommon situations that can arise if a lease does not cover these
gaps. If the lease (or a separate document, such as the consent to assignment document)
doesn’t make the named tenant primarily liable for the obligations of subsequent tenants by
assignment, a landlord may find itself with the equivalent of a guaranty of collection, not a
guaranty of payment. That would delay the landlord in collecting what it is owed, and “to delay is
to deny.” One remedy is for the lease to state that the named tenant, following an assignment of
its leasehold interest, remains primarily liable for all the tenant’s obligations under the lease
{01717039.DOC;1}
including those of all subsequent assignees. An even more potent provision would make the
tenant and all assignees jointly and severally liable for all tenant obligations under the lease no
matter when incurred.
As to each assignee, if a landlord wants all assignees to be contractually bound to the terms of
the lease as if each were the original, named tenant, the parties can do so by way of the lease or
by requiring an express assumption of the lease by each assignee as a condition of a valid
assignment.
Sublettings
A subletting does not change the original landlord-tenant relationship. The subtenant is not in
privity of contract with the landlord. It isn’t even in privity of estate with the landlord. It may have
possession of the premises through its own (sub)landlord – the original tenant – but it isn’t liable
for the debts and obligations of the named tenant. Notwithstanding the subletting, its landlord, the
named tenant, remains in possession of the leased premises by reason of the lease. What the
tenant has done, vis-a-vis the subletting, is to encumber its right of possession by conveying a
portion (in time, space or both) to its selected subtenant. By that conveyance, the original tenant
is in privity of estate with its subtenant.
In 1928, a Maine court described the difference between an assignment and a subletting when it
comes to leasehold estates by writing: “…an assignment creates no new estate, but transfers an
existing estate into new hands, while a sublease creates an entire new estate.”
It shouldn’t go unnoted that parties may self-characterize their transaction as a subletting or as an
assignment, but the details of the actual possessory grant will trump any labels. The essential
distinction between an assignment and a subletting is that in a subletting, the transferring tenant
reserves some reversionary right. With the exception of some possible twists inherent in an
“assignment pro tanto,” to be a subletting, the quantum of rights granted to a subtenant cannot be
the entirety of what the purported sublandlord possesses. Plainly speaking, a subletting for the
entire lease term and for the entire leased space can, and most probably will, be characterized as
an assignment. Whether a withholding of some element of a contractual right, as distinguished
from a possessory right, alone, will cause a purported sublease of the entire leased premises for
the entire lease term to be treated as a subletting is a question of state law, with the answer, if
findable at all, to be found in that state’s case law.
{01717039.DOC;1}