SARA BRONIN: Hi.
Welcome to Property Law 101.
I'm Sara Bronin, and I created this series
to help you understand the basics of property law.
This series asks four fundamental questions
about property and property law.
And today, we're talking about the fourth one, which
is holding interest in property, and specifically
a particular aspect of leaseholds.
So that particular aspect is how a tenant transfers his or her
or their leasehold interest to another party.
The general default rule is that a landlord may
sell the premises, and the tenant
may transfer her interest with very few limitations.
The reality is, however, that the default rule is often
altered by contract.
Landlords will often require that tenants
agree to limit their ability to sublease or assign
their interest in the property.
To understand why landlords would
want to limit tenants' rights to transfer,
it's important to understand what both of these are.
So first, a sublease.
A sublease is a lease of an interest
smaller than the prime tenant's interest.
The prime tenant is the person or entity
with whom the landlord originally contracted.
For example, B leases 100 acres of a piece of property from A,
and then B subleases 50 of those acres to C. A is the landlord,
B is the prime tenant, and C is the subtenant.
An assignment, meanwhile, is a transfer
of the entire remainder of the tenant's terms,
rights, and duties to another party.
The assignee has all of the duties
of the prime tenant unless a document says otherwise.
In the scenario just mentioned, it
would be B assigning 100 acres, all
of B's interest in the property, to C, who is the assignee,
and then walking away.
We have to go a little deeper to understand what these two
types of interests mean when it comes
to the obligations between the landlord, the prime tenant,
and assignee or subtenant--
privity of contract and privity of estate.
So privity of contract, this means
being directly contractually obligated to each other.
In a sublease, the subtenant is not
in privity of contract with the landlord.
They have no direct contractual relationship.
In an assignment, they do not typically
have the privity of contract.
However, it is possible for an assignee
to obtain privity of contract with the landlord.
There is a document called an assumption
where the assignee signs an assignment
agreement, assumption agreement, where they expressly
agree to be bound by the terms of the prime lease.
So in that case, the assignee is typically
bound by privity of contract.
In an assumption alone, the prime tenant
will still be bound to the landlord
through the original contract as well.
The only way for the prime tenant to get out of a contract
is for the landlord to sign a novation agreement.
A novation agreement says that the prime tenant has
no contractual liability, so the prime tenant
is cut out of the relationship.
So do watch out for assumptions and novations.
So that's privity of contract.
Privity of estate means parties having an interest such
that one is directly carved out of the interests of the other
and where one party actually possesses the property.
In a sublease, the subtenant does not have privity of estate
with the landlord, because the subtenant's interest
isn't carved out of the landlord's interest.
Think about the example where B subleases
50 acres of a piece of property to C.
The subtenant is in privity of estate with the prime tenant,
but not the original landlord.
This is different for assignments, however.
An assignee has privity of contract or privity
of estate with the landlord when the assignee steps
into the shoes of the prime tenant.
So the difference between a sublease and an assignment
is important in determining who the land owner can
sue if there becomes a problem.
So usually under a sublease, a landlord
can only go after a prime tenant,
while under an assignment, the landlord
can go after the prime tenant or the subtenant or both, at least
because of privity of estate and, at times,
under privity of contract theories too.
Because there may be ambiguities in the way the landlord might
be treated, you can see why landlords often
try to constrain or completely eliminate the tenant's ability
to sublease or assign the tenant's interest in property.
So with those differences between subleases
and assignments laid out, I will leave it there.
I'd love to hear from you whether on Twitter
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And I will see you next time.