Ownership of real property - Transfers by landlord or tenant

Learning Outcomes

After reading this article, you will be able to distinguish between assignments and subleases, understand the legal consequences of each, and identify the privity and liability relationships among landlords, tenants, and transferees. You will be prepared to analyze MBE-style questions involving transfers of leasehold interests, covenants running with the land, and the effect of lease restrictions on transfer.

MBE Syllabus

For MBE, you are required to understand the principles governing the transfer of leasehold interests by landlords and tenants. This includes the ability to:

  • Distinguish between assignments and subleases and their legal effects.
  • Identify the rights and liabilities of original and subsequent parties after a transfer.
  • Recognize the impact of privity of estate and privity of contract on enforcement of lease covenants.
  • Analyze the enforceability of covenants restricting transfer.
  • Understand 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?
    1. The sublessee only
    2. The original tenant only
    3. Both the sublessee and the landlord
    4. The landlord only
  3. Which of the following is most likely to be enforceable?
    1. A total restraint on assignment in a lease for years
    2. A reasonable restriction on assignment in a commercial lease
    3. An absolute disabling restraint on alienation of a fee simple
    4. A landlord’s refusal to consent to any transfer for any reason

Introduction

Transfers of leasehold interests by landlords or tenants are common in real property law and frequently tested on the MBE. Understanding the distinction between assignments and subleases, the resulting privity relationships, and the enforceability of lease restrictions is essential for analyzing exam questions and real-world scenarios.

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.

Assignment

An assignment occurs when the tenant transfers her entire remaining interest in the lease to another party, with no reversionary interest retained.

Key Term: Assignment
A transfer by the tenant of her entire remaining lease term to a new party, resulting in privity of estate between the assignee and the landlord.

Sublease

A sublease arises when the tenant transfers less than her entire remaining lease term, retaining a right of reentry or a reversionary interest.

Key Term: Sublease
A transfer by the tenant of less than her entire remaining lease term, so that the original tenant retains a future interest and privity of estate with the landlord.

Privity and Liability After Transfer

The type of transfer determines who is in privity of estate and privity of contract with the landlord, and thus who is liable for lease covenants such as rent.

Key Term: Privity of Estate
The legal relationship between parties who hold present possessory interests in the same real property, such as landlord and assignee after an assignment.

Key Term: Privity of Contract
The legal relationship arising from the original lease agreement, which continues between landlord and tenant unless expressly released.

Assignment: Liability

  • The assignee is in privity of estate with the landlord and is liable for covenants that run with the land (e.g., rent, repair).
  • The original tenant remains in privity of contract with the landlord and is secondarily liable unless released by novation.

Sublease: Liability

  • The sublessee is not in privity of estate or contract with the landlord.
  • The original tenant remains liable for all lease covenants to the landlord.
  • The sublessee is liable only to the original tenant.

Landlord’s Transfer of Interest

A landlord may transfer her reversionary interest in the property. The transferee becomes the new landlord and is entitled to enforce lease covenants that run with the land.

Lease Restrictions on Transfer

Leases often contain clauses restricting assignment or subletting. These are strictly construed against the landlord.

  • A prohibition on assignment does not bar subleasing, and vice versa.
  • A landlord may waive a restriction by knowingly accepting rent from a transferee.
  • In most jurisdictions, a landlord may not unreasonably withhold consent to a transfer unless the lease provides otherwise.

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. The new tenant (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. The landlord may recover from either party.

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.

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.

Revision Tip

If a tenant assigns her lease, both the assignee and the original tenant may be liable for rent. If the tenant subleases, only the original tenant is liable to 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.
  • After assignment, the assignee is in privity of estate with the landlord and liable for covenants running with the land; the original tenant remains liable on the lease contract.
  • After sublease, the sublessee is not liable to the landlord; the original tenant remains liable for all lease covenants.
  • Lease restrictions on transfer are strictly construed; waiver may occur if the landlord accepts rent from a transferee.
  • The landlord may transfer her interest; the transferee landlord is bound by lease covenants that run with the land.

Key Terms and Concepts

  • Assignment
  • Sublease
  • Privity of Estate
  • Privity of Contract
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