Ownership of real property - Transfers by landlord or tenant

Learning Outcomes

This article explains transfers of leasehold interests by landlords and tenants, including:

• Distinguishing assignments, subleases, and partial assignments based on whether the entire remaining term or only part of the premises is conveyed, regardless of the labels the parties use.
• Tracing privity of estate and privity of contract among landlord, original tenant, assignees, and sublessees after each transfer, and linking those relationships to enforcement of lease covenants.
• Determining which party is liable for rent, repair obligations, and other covenants running with the land at each stage of a chain of transfers, including where an assignee has expressly assumed the lease on complex, multi‑party exam fact patterns.
• Analyzing the effect and strict construction of lease clauses restricting assignment or subletting, recognizing when a transfer breaches the lease, and identifying the landlord’s available remedies.
• Evaluating how a landlord’s transfer of the reversion shifts benefits and burdens of lease covenants to a new owner, while potentially preserving the original landlord’s contractual liability.
• Spotting waiver of transfer restrictions, the operation of the Rule in Dumpor’s Case, and jurisdictional rules on when a landlord may withhold consent to a proposed assignee or sublessee.

MBE Syllabus

For the MBE, you are required to understand the rules governing transfers of leasehold interests by landlords and tenants, with a focus on the following syllabus points:

• Distinguishing assignments, subleases, and partial assignments, and their legal effects.
• Identifying privity of estate and privity of contract among landlord, original tenant, and transferees.
• Determining who is liable on lease covenants (especially rent and repair) after a transfer.
• Analyzing the enforceability and construction of covenants restricting assignment or subletting, and recognizing waiver.
• Understanding the landlord’s ability to transfer the reversion and the consequences for tenants.
• Recognizing the landlord’s remedies for unauthorized transfers.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. A tenant transfers her entire remaining lease term to a friend, reserving no right of reentry. What type of transfer has occurred?
   1. Assignment
   2. Sublease
   3. Novation
   4. License
2. If a tenant subleases the premises, who is directly liable to the landlord for rent (absent any separate agreement)?
   1. The sublessee only
   2. The original tenant only
   3. Both the sublessee and the landlord
   4. The landlord only
3. A commercial lease provides that the tenant “may not assign this lease without the landlord’s consent.” Which statement is most accurate in most jurisdictions?
   1. Any assignment made without consent is void and passes no rights.
   2. A reasonable restriction on assignment is enforceable and is strictly construed.
   3. The clause also bars subleases unless it expressly permits them.
   4. The landlord must always have a commercially reasonable basis for withholding consent.

Introduction

Transfers of leasehold interests by landlords or tenants are common in real property law and frequently tested on the MBE. Because these questions often turn on subtle distinctions—such as whether the entire remaining term was transferred, or whether privity of estate or privity of contract exists—careful attention to the structure of the transaction is important.

Key Term: Leasehold Transfer
A conveyance by either landlord or tenant of some or all of their respective interests in a lease, such as a landlord’s sale of the reversion, a tenant’s assignment, or a tenant’s sublease.

The core exam skills in this area are:

• Correctly classifying a transfer as an assignment, partial assignment, or sublease.
• Mapping out which parties are connected by privity of contract and which are connected by privity of estate.
• Using those privity relationships to work out who can sue whom, and for what.

Types of Leasehold Transfers

A tenant may transfer her interest in leased property in whole or in part. The nature of the transfer determines the resulting legal relationships and liabilities.

Key Term: Assignment
A transfer by the tenant of her entire remaining lease term to a new party, so that no reversionary interest is retained. The assignee steps into the tenant’s shoes as to the estate.

Key Term: Sublease
A transfer by the tenant of less than her entire remaining lease term, or a transfer in which the tenant retains a right of reentry or other reversionary interest, so the original tenant still holds a future interest in the lease.

Objective test vs labels

On the MBE, the traditional rule applies: courts look at what is actually transferred, not what the parties call it. If the tenant gives up the entire remaining term, the transfer is an assignment even if the document is captioned “Sublease.” If the tenant keeps the last day of the term or a right of reentry, the transfer is a sublease.

A minority modern approach gives more weight to the parties’ intention, but unless the question clearly signals that approach, apply the “entire term versus reversion” test.

Partial Assignments

A tenant can also assign only part of the leased premises while transferring the entire remaining term for that portion (for example, leasing out the basement for the rest of the term).

Key Term: Partial Assignment
A transfer in which the tenant conveys her entire remaining interest in only part of the premises, creating privity of estate between landlord and assignee as to that part.

Partial assignments are treated as assignments (not subleases) with respect to the part transferred: the assignee is in privity of estate with the landlord regarding that portion of the premises.

Privity Concepts

The key to liability after any transfer is understanding privity.

Key Term: Privity of Estate
The legal relationship between parties who hold present possessory interests in the same real property, such as landlord and current tenant or landlord and assignee. It supports enforcement of covenants that “run with the land.”

Key Term: Privity of Contract
The legal relationship arising from the lease agreement itself, binding the parties who signed it, regardless of who holds the current possessory estate.

Key Term: Covenant Running with the Land
A lease covenant that binds successors in privity of estate because it touches and concerns the land (for example, covenants to pay rent, repair, or pay taxes).

A covenant “touches and concerns” the land when it affects the use, value, or enjoyment of the premises. On the MBE, rent and repair covenants almost always qualify.

Assignment: Privity and Liability

When the tenant assigns the lease, two separate relationships must be tracked.

Privity of estate

The assignee is in privity of estate with the landlord. As long as the assignee is in possession, she is directly liable to the landlord for covenants that run with the land, including:

• The covenant to pay rent.
• The covenant to repair.
• Other property-related covenants.

If the assignee later reassigns the lease, privity of estate ends when she gives up possession, and the new assignee becomes the party in privity of estate with the landlord.

Privity of contract and assumption

The original tenant remains in privity of contract with the landlord because she signed the lease.

Key Term: Assumption
An agreement by an assignee (or sublessee) to be bound by the tenant’s obligations under the lease, creating privity of contract between the assignee and the landlord.

Unless the landlord releases the tenant via a novation, the tenant is still contractually liable on the original lease covenants, even after assignment.

Key Term: Novation
A new agreement among landlord, original tenant, and replacement tenant that substitutes the replacement for the original tenant and extinguishes the original tenant’s contractual liability.

If the assignee expressly “assumes” the lease obligations, the landlord becomes a third‑party beneficiary of that assumption and can sue the assignee directly on the lease, even after the assignee has reassigned the lease to someone else. The assignee is then liable both:

• In privity of estate (while in possession); and
• In privity of contract (based on the assumption).

If there is no assumption, the assignee’s liability is based solely on privity of estate, and ends when she reassigns the lease.

Rights between tenant and assignee

Between the original tenant and the assignee:

• The tenant can recover from the assignee any rent or other amounts the tenant had to pay the landlord that were attributable to the assignee’s time in possession.
• The assignee owes duties to the tenant based on their assignment agreement.

Sublease: Privity and Liability

A sublease is different: the sublessee does not come into privity of estate or privity of contract with the landlord simply by virtue of the sublease.

• The landlord and sublessee have no direct privity, so the landlord ordinarily cannot sue the sublessee directly on the lease.
• The original tenant remains both:
  • In privity of contract (as the original lessee); and
  • In privity of estate (because the tenant’s estate continues, with the sublessee merely holding under the tenant).

The sublessee is liable only to the tenant under the sublease agreement. If the sublessee assumes the main lease obligations in favor of the landlord, the landlord may enforce the assumption as a third‑party beneficiary.

If the landlord terminates the main lease (for example, for nonpayment of rent), any sublease automatically falls with it. The sublessee’s rights are dependent on the continuation of the main lease.

Landlord’s Transfer of Interest

A landlord may transfer her reversionary interest in the property—for example, by selling the building or assigning the lease to a new owner.

Key Term: Attornment
The tenant’s recognition of a new landlord after a transfer of the reversion, typically by receiving notice and paying rent to the transferee.

Once the tenant is given reasonable evidence of the transfer, the tenant must pay rent to the new owner and otherwise perform lease covenants that run with the land in favor of the new landlord.

• Benefits of covenants that run with the land (such as the rent covenant and a covenant to repair) pass automatically to the new landlord.
• Burdens of such covenants (for example, a landlord’s covenant to repair) also run with the reversion, so the new landlord is bound.

Importantly, the original landlord usually remains liable on her lease covenants as well, because she was the contracting party. Thus, the tenant often may proceed against either the original landlord (on privity of contract) or the new landlord (on privity of estate).

Lease Restrictions on Transfer

Leases often contain clauses restricting assignment or subletting. These are common sources of MBE questions.

Strict construction of restraints

Courts strictly construe restraints on alienation in leases.

• A prohibition on “assignment” does not prohibit subleasing.
• A prohibition on “subletting” does not prohibit assignment.
• A clause that bars “assignment or subletting” covers both.

If the tenant violates such a clause, the transfer is not void. Instead:

• The transfer is effective between tenant and transferee; but
• The tenant has breached the lease, giving the landlord traditional remedies (e.g., termination, eviction, or damages) as allowed by lease or statute.

Waiver

The landlord may waive a restriction on transfer.

Key Term: Rule in Dumpor’s Case
A common‑law rule that if a landlord consents to one assignment, and does not expressly reserve the right to withhold consent to future assignments, the restriction on assignment is waived for subsequent transfers of that leasehold.

Modern statutes or lease drafting sometimes displace this rule, but on the MBE, if the problem mentions the landlord consenting to one assignment without reservation, consider that future assignments might be allowed.

Acceptance of rent from a known transferee—especially after a breach of a no‑assignment clause—often constitutes waiver of the right to object to that transfer.

Reasonableness of withholding consent

In many jurisdictions, a commercial landlord may arbitrarily withhold consent to a transfer if the lease is silent on reasonableness. A significant minority, however, implies a requirement that the landlord not unreasonably withhold consent to a proposed assignee or sublessee, at least in commercial settings.

On the MBE, unless the question clearly invokes the minority approach, assume:

• The landlord may refuse consent for any reason or no reason,
• So long as the lease requires consent and does not limit the landlord’s discretion.

Landlord’s Remedies for Unauthorized Transfers

When a tenant assigns or sublets in violation of a valid restriction, the landlord’s typical remedies are:

• Termination/Eviction: If allowed by the lease or governing law, the landlord may terminate the lease and evict the tenant (and, indirectly, the transferee).
• Damages: The landlord may seek damages for breach of the restriction (for example, if the unauthorized transferee causes greater wear or reduces property value).

The landlord may choose to instead affirm the lease (for example, by accepting rent) and treat the transfer as effective, thereby waiving the right to terminate based on that breach.

Worked Examples

Worked Example 1.1

A tenant leases a commercial space for five years. After two years, she transfers the remaining three years to a new tenant, reserving no right to reenter. The new tenant defaults on rent. The landlord sues both the original tenant and the new tenant for unpaid rent. Who is liable?

Answer:
The transfer is an assignment because the entire remaining term was conveyed with no reversion retained. The assignee is in privity of estate with the landlord and is liable for rent while in possession. The original tenant remains in privity of contract and is also liable unless released by novation. The landlord may recover from either party (but only once).

Worked Example 1.2

A tenant leases an apartment for one year. After six months, she subleases the apartment to a friend for four months, retaining the right to return for the final two months. The friend fails to pay rent to the original tenant, who then fails to pay the landlord. Can the landlord sue the friend directly?

Answer:
No. The transfer is a sublease. The friend (sublessee) is not in privity of estate or contract with the landlord. The landlord may only sue the original tenant for unpaid rent. The tenant, in turn, can recover from the sublessee under their sublease.

Worked Example 1.3

A tenant signs a three‑year lease. After one year, she transfers the remaining two years to Buyer, and Buyer expressly “assumes all obligations of Tenant under the lease.” After eight months, Buyer reassigns the lease to C, who later defaults on rent. The landlord sues Buyer. Is Buyer liable?

Answer:
Yes. Buyer was an assignee and expressly assumed the lease obligations, creating privity of contract between Buyer and landlord. Although Buyer’s privity of estate ended when she reassigned to C, her contractual liability based on the assumption remains. The landlord may sue C (current assignee) on privity of estate and Buyer on privity of contract.

Worked Example 1.4

A tenant’s lease prohibits “assignment without landlord’s consent,” but says nothing about subleases. The tenant, without consulting the landlord, subleases the entire premises for the remaining term. The sublessee pays rent directly to the landlord for six months, which the landlord accepts without objection. The landlord later claims the sublease was prohibited and attempts to evict. Is the sublease barred by the clause?

Answer:
No. A covenant against assignment is strictly construed and does not bar subleases unless the lease language covers both. The tenant did not breach the restriction by subleasing. Even if the clause were construed to cover the sublease, the landlord’s knowing acceptance of rent from the sublessee would likely constitute a waiver of the restriction as to that transfer.

Worked Example 1.5

Landlord leases a warehouse to Tenant for ten years. After three years, Landlord sells the building to Buyer, assigning “all rights under existing leases.” Tenant is notified and continues to pay rent to Landlord for several months before Buyer demands rent and sues Tenant for nonpayment. Tenant argues he has already paid Landlord. Who prevails?

Answer:
Buyer. The sale transferred the reversion and the benefits of covenants running with the land, including the right to rent, to Buyer. Once Tenant had reasonable notice of the transfer, he was required to attorn to Buyer and pay rent to Buyer. Payments made to Landlord after notice do not discharge Tenant’s rent obligation to Buyer, though Tenant may have a claim against Landlord for unjust enrichment.

Exam Warning

Lease restrictions on transfer are strictly construed. If a lease prohibits “assignment,” but the tenant subleases, the sublease may be valid unless the lease also prohibits subletting. Always check the precise language and whether the tenant retained any reversionary interest.

Revision Tip

After an assignment, both the assignee (on privity of estate) and the original tenant (on privity of contract) may be liable for rent. After a sublease, only the original tenant is liable to the landlord, and the sublessee is liable only to the tenant—unless the sublessee expressly assumes the lease in favor of the landlord.

Key Point Checklist

This article has covered the following key knowledge points:

• An assignment is a transfer of the tenant’s entire remaining lease term; a sublease is for less than the entire term or retains a right of reentry.
• A partial assignment transfers the entire remaining term in only part of the premises and creates privity of estate between landlord and assignee as to that part.
• After assignment, the assignee is in privity of estate with the landlord and liable for covenants running with the land while in possession; a prior assignee remains liable on any express assumption.
• The original tenant generally remains liable on the lease contract until released by novation.
• After a sublease, the sublessee is not in privity of estate or contract with the landlord; the landlord must proceed against the original tenant, who then seeks recourse from the sublessee.
• A landlord’s transfer of the reversion passes both benefits and burdens of covenants running with the land to the transferee; the tenant must attorn to the new landlord after notice.
• Lease restrictions on assignment or subletting are strictly and literally construed; a prohibition on assignment alone does not bar subleasing, and vice versa.
• Unauthorized transfers are effective between tenant and transferee but constitute a breach of the lease, giving the landlord contractual remedies rather than automatically voiding the transfer.
• Landlords may waive transfer restrictions, particularly by knowingly accepting rent from a transferee; under the Rule in Dumpor’s Case, consent to one assignment without reservation may waive the restriction as to later assignments.
• In many jurisdictions, the landlord may arbitrarily withhold consent to a transfer unless the lease or local law imposes a reasonableness requirement.

Key Terms and Concepts

• Leasehold Transfer
• Assignment
• Sublease
• Partial Assignment
• Privity of Estate
• Privity of Contract
• Covenant Running with the Land
• Assumption
• Novation
• Attornment
• Rule in Dumpor’s Case