subleases and assignments

what is the common law (formalistic) approach?

a sublease occurs when a lessee transfers less than his entire interest in a lease to another

L leases T to a term of 3 years at a monthly rent rate of $1,000. One year later T "subleases, transfers, and assigns" to T1 for "a period of one year from date." Thereafter, neither T nor T1 pays rent to L. What rights has L against T? Against T1?

against T: Whether it was an assignment or a sublease to T1, absent a novation, T remains liable on the lease. L can go after T. against T1: Depends on assignment or sublease. If assignment → transfer of leasehold interest and privity of estate to T1, so L can get to them that way. If sublease, still privity of estate between T and L. To determine whether it's an assignment or sublease, apply the 2 tests. Formalistic test: it's a sublease bc T retained interest; it only accounted for 2/3 years. Interpretive test: also a sublease → the words aren't very helpful in understanding what their intentions are, so we look at what they actually did, which was a sublease

what is a novation?

an express agreement to release the original tenant from their contract. the original tenant is not responsible for the 3rd party anymore. there is no such thing as an implied novation though, it has to be express.

what rights does this give to intended 3rd party beneficiaries?

an intended beneficiary of a contractual promise has standing to sue the promisor to enforce that promise, notwithstanding the fact that the 3rd party beneficiary is not a party to the contract (and thus not in privity of contract with the parties?

Under the common law approach, if the instrument purports to transfer the lessee's entire remainder of his term it is a(n) ______________________, regardless of its form or the parties' intention. Conversely, if the instrument purports to transfer the lessee's estate for less than the entire term, even for a day less, it is a(n) _________________, regardless of its form or the parties intention.

assignment sublease

what is privity?

denotes a voluntary transactional relationship between 2 or more people or entities

what is the result of an assignment of a lease from the original tenant to a new tenant?

it ends the privity of estate between the landlord and the original tenant which now exists (by way of transfer) between the landlord and the new tenant

how do you distinguish between an assignment and a sublease?

look at amount of interest conveyed. assignment: conveys the whole term, leaving no interest nor reversionary interest in the grantor or assignor sublease: a transaction whereby a tenant grants an interest in the leased premises less than his own, or reserves to himself a reversionary interest in the term

what do you do under the interpretive approach if the words conflict or they are unclear?

look to what the parties actually did

does a sublease b/w the OG tenant and new tenant convey all of the leasehold estate from OG → NT?

noOoOoO

however, privity of contract still exists between .... who and why?

the landlord and the original tenant, because of the original lease contract

L leases to T for a term of 3 years at a monthly rent of $1,000; the lease provides that "T hereby covenants to pay said rent in advance on the first of each month." The lease also provides that "T shall not sublet or assign without the permission of L." Six months later, with the permission of L, T transfers to T1 for the balance of the term. Thereafter, T1 pays the rent directly to L for several months, then defaults. L sues T for the rent due. What result and why?

L would win bc he has privity of contract. Simply bc you assign the lease doesn't do away with the fact that T is contracted under the lease. The conveyance to T1 is an assignment bc they didn't reserve any interest. T has assigned lease to T1, and L gave T permission for that. That does not get T off the hook. Has to be a novation for T to be off the hook, and there is not one simply bc it's implied. It has to be explicit. With delegation of duty: the fact that someone with an obligation under a contract assigns it to someone else doesn't get the original person with the obligation out of the duty.

when does a third party beneficiary situation arise?

when contracting parties intended an agreement/promise that would benefit someone outside of the contract, that could be enforced by the 3rd party

Third Party Beneficiary Restatement (2d) of Contracts, § 302

"Unless otherwise agreed between promisor and promise, a beneficiary of. a promise is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties."

what does a lease between a landlord and an original tenant create between them? (2 things)

(1) privity of estate and (2) privity of contract

what are the 2 approaches that jurisdictions take when determining whether something is a sublease or an assignment?

(1) the common law (formalistic) approach (2) modern (interpretive) approach

why does it only apply to subleases and not assignments?

because of privity of estate

what are the 2 different views of jurisdictions regarding assignment to proposed commercial tenants?

common law majority view: landlord can arbitrarily withhold consent; no restraints minority view: where a lease provides for assignment only with the prior consent of the lessor, such consent may be withheld only where the lessor has a commercially reasonable objection to the assignment, even in the absence of a provision in the lease stating that consent to assignment will not be unreasonably withheld.

when does privity of estate occur?

occurs when a landlord conveys a right of possession of real property to a tenant → thus creating a leasehold estate in the tenant

when does privity of contract occur?

occurs when parties enter into a contractual relationship (such as through a lease agreement)

does third party beneficiary apply to subleases, assignments, or both?

only subleases

what is the result of that in relation to privity?

there is no privity of estate b/w the L & NT and there is no privity of contract b/w the L & NT. privity of estate and contract are still b/w L and OG tenant

what is the modern (interpretive) approach?

this approach considers the intention of the parties, looking among other things at the words used by the parties. "The cardinal rule ... in construing deeds and other written instruments is to ascertain the intention of the parties."