The classification of a leasehold transfer as an assignment or sublease carries differing legal implications regarding future liability arising under the prime lease. These agreements do not, however, disturb the privity of contract and estate existing between the landlord and tenant, despite the subtenant's possession of the premises. The tenant would prefer either to have total absolution or total control. (e) Sublease. [5] See Drake v. Eggleston, 108 N.E.2d 67 (Ind. Conversely, a sublease creates no direct relationship between the subtenant and the landlord, neither privity of estate nor contract. Our 10 Best Real Estate … Thus, the absence of privity of contract between the landlord and assignee prevents the assignee from being liable for any breach committed by the original tenant or any prior or subsequent assignee. Privity of estate involves rights and duties that run with the land if original parties intend to bind successors, and the rights touch and concern the land. Although the landlord might be able to control this risk if the lease requires its consent for a transfer, what if the lease is silent? Therefore, there is no privity of contract or privity of estate between the landlord and the sublessee in a sublease. What if either the tenant or assignee bankrupts? In other words, assignment of the lease ends its right to possession, but, absent an express release under the terms of the lease, its liability under the lease continues. 1991) (stating "[i]t is well settled that in order to relieve the original tenant-assignor from its continuing liability after assignment, it must be expressly shown that the lessor not only consented to the assignment, but accepted the assignee in place of the tenant and such release of the tenant must either be express or implied from facts other than the lessor's mere consent to the assignment and its acceptance of rent from the assignee"). County Fair, Inc., 580 N.E.2d 280 (Ind. Privity of Contract. 1981); Rogers v. Hall, 42 S.E.2d 347 (NC 1947). This distinction can be summarized as follows: Assignment. App. [4]See, e.g., Board of Commissioners v. Lions Del. App. Civ. Sublessee is NOT LIABILE to landlord b/c there is no privity of contract or privity of estate (sublessor is deemed to have kept the estate) Non-assigment clause or non-sublease clause Tenant may not assign or sublet without landord's permission To qualify as such, the transfer must include the tenant's entire estate for the duration of the lease. Subleasing and assignments are essential instruments for tenants to reduce the size of their space and reduce costs for space they no longer need. From the assignee's or tenant's perspective, what if it wants to terminate the lease? However, such a transfer creates a form of assignment. C.             Sublease. As such, a party may prohibit assignment or subletting only through the use of express prohibitions in the lease. No easy answers exist for these issues. See also M. Friedman on Leases § 7.304. The sublessee is not in privity of estate with the landlord and cannot sue or be sued by the landlord. Civ. If the assignee assumes the obligations of the tenant under the lease through agreement with the assignor, both the tenant and the assignee have privity of contract, while only the assignee has privity of estate. The trick comes in making the results intentional. Under the common law and some state statutes, assignment and subletting create specific sets of rights among the landlord, tenant and transferee. 283 (Ind. If the tenant cannot absolve itself of liability under the lease, it may opt for the other end of the spectrum, and create a sublease, retaining a nominal portion of the estate, in order to prevent the transferee from having direct dealings with the landlord. 8); Dolph v. White, 12 N.Y. 296 (1855). [7]See M. Friedman on Leases, § 7.301 (citing Sooner Pipe & Iron Co. v. Bartholomew, 248 P.2d 225 (Okla. 1952)). [5], Some states have enacted statutory limitations upon a tenant's right to transfer its leasehold interest. So privity of estate and contract, at least on the lease, is only between L and T. Under what other basis could T1 be liable if there’s no promise to pay rent in the sublease? Sublease Rather Than Assignment § 7:4.4 Form of Sublease—Short Form—Incorporating Prime Lease by Reference § 7:5 Relations Between Landlord, Tenant, and Assignee § 7:5.1 Liability Under the Lease [A] Privity [B] Liability of Tenant to Landlord After Assignment by Tenant [C] Liability of Assignee of Lease to Landlord [C][1] Privity of Estate If same duration, then not sublease but assignment!. 4. 1. Thus, privity of estate refers to the legal relationship that two parties bear when their estates constitute one estate in law. App. [6]V.T.C.A. When a tenant transfers less than the remaining term or less than the tenant's entire estate, thus leaving the original tenant with a reversionary interest in the lease, the transfer is a sublease. Privity of Estate. The lessee retains no reversionary inter-est in the estate for that portion of the premises, and privity of estate exists between the lessor This means that the assignee will have privity of estate with the landlord, and may have privity of contract as well. Since the sublessee has made no contract with the landlord, he cannot sue or be sued on a contract either. Any transfer without the landlord's consent is voidable, at the landlord's option. As such, although a lease may prohibit assignment or sublease without consent, the landlord may expressly, or by implication, be deemed to have waived a transfer in violation of the lease by acting in a manner that implies that the breach of this covenant has been waived. The landlord and tenant have both privity of estate and privity of contract under a lease agreement. Despite the lack of privity between the landlord and subtenant, a sublease does establish a new leasehold estate between the tenant and subtenant, creating both privity of estate and privity of contract. Acquisition of a leasehold interest by the new tenant, regardless of whether it is an assignment or sublease, establishes privity of estate. est in an estate is for only a part of the premises leased from a lessor, the transfer is construed under the common law as an assignment pro tanto, and not a sublease. As previously alluded, the tenant cannot relieve itself from liability under the lease merely by assigning the lease to a third party. 1999); Lawther v. Super X Drugs of Texas, Inc., 671 S.W.2d 591 (Tex. Any of the foregoing results and infinite variations can arise. (iii) A sublessee must rely on the sublessor to enforce the lease against the prime landlord. 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