## Facts

- Landowners William and Anne Abernathy leased a West Memphis service station/convenience store to Griffith Petroleum, Inc. (GPI) in 1992 for a 10-year term with renewal options.
- Rent was structured as two monthly payments: one to the lessors’ lender (Fidelity National Bank) and one to the Abernathys; GPI was responsible for making both payments.
- The lease defined default to include untimely rent payments and GPI’s insolvency; it did not forbid assignment or subleasing.
- In 1996, GPI entered a written “Sublease Agreement” with Maref Quran requiring Quran to pay GPI an amount matching GPI’s obligations to Fidelity and the Abernathys.
- In 1997, an “Addendum to Sublease Agreement” added Abdulazize Adous as a “subtenant”; Adous later became the sole occupant and paid rent to GPI, which then paid Fidelity and the Abernathys.
- In January 2001, GPI failed to pay rent; the Abernathys filed an unlawful-detainer action against GPI and Adous seeking possession, then took a nonsuit after rent arrearages were paid into the court registry and distributed to them.
- In April 2001, GPI again failed to pay rent; Adous tendered rent directly to the Abernathys, who refused it, and Adous filed suit seeking specific performance and paid monthly rent into the court registry during litigation.
- The Abernathys notified GPI they were terminating the lease for nonpayment and later also for insolvency, and demanded surrender.
- The trial court treated Adous as an assignee of the 1992 lease and granted equitable relief to avoid forfeiture, allowing Adous to remain in possession.

## Issues

1. Whether Adous’s interest under the “Sublease Agreement” and addendum should be classified as an assignment of GPI’s leasehold or a sublease.
2. Whether equity may prevent forfeiture and preserve Adous’s right to remain in possession after GPI’s default and insolvency terminated the head lease.

## Decision

- The appellate court reversed and remanded.
- It held Adous was a sublessee, not an assignee, based on the parties’ documentation and conduct, including consistent “sublease/subtenant” labeling and Adous’s payment of rent to GPI rather than to the Abernathys.
- It held equity did not justify keeping the sublease alive after valid termination of the head lease for nonpayment and insolvency.
- It rejected the trial court’s approach as effectively creating a landlord–tenant relationship between the Abernathys and Adous that the parties had not established.

## Legal Principles

- Classification of a transfer as an assignment or sublease turns on the parties’ intent as shown by the instruments and the transaction’s structure, including how rent is paid and whether an intermediary tenant relationship remains.
- A sublessee’s rights are derivative of the original tenant’s leasehold; when the head lease is terminated under its default provisions, the sublease generally falls with it.
- Equitable relief against forfeiture cannot be used to alter the contractual allocation of rights by converting a sublease into a direct tenancy or otherwise manufacturing privity between landlord and subtenant contrary to the parties’ agreements.

## Conclusion

The court held that Adous remained a sublessee whose interest could not survive termination of GPI’s lease for nonpayment and insolvency, and that equitable intervention could not be used to create a direct landlord–tenant relationship between the Abernathys and Adous.


Abernathy v. Adous, 85 Ark. App. 242, 149 S.W.3d 884 (Ark. Ct. App. 2004)