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TENANT / LANDLORD LAW I.
LEASEHOLD ESTATES A
Leasehold Estates. Four types of leasehold estates: (1) term of years; (2) periodic tenancy; (3) tenancy at will; (4) tenancy at sufferance. The term "lease" may signify a (1) lease, (2) license agreement, or (3) life estate. i. Term of years. Lasts for fixed period. "Defeasible" if L can retake after breach. ii. Periodic tenancy. Continues for succeeding periods until either L or T gives notice of termination. Notice must be given >6 mos. in advance for year-to-year, and equal to length for month-to-month. Ends at end of period, not middle (e.g. month-to-month tenancy begins on July 1; notice on November 15 of end; ends January 1, not December 15). iii. Tenancy at will. Endures as long as T or L desires. Different from term of years determinable (which could be, e.g., 10 years or until L terminates). iv. Tenancy at sufferance. If T is a holdover, depending on the jurisdiction this may create a (1) periodic tenancy (majority), (2) term of years (balance), (3) eviction. Term or period may be same as previous, with max term of one year. May convert to tenancy at will by statute. a. Holdovers & new tenants. See, infra, at Delivery. v. "Lease for life" and other estates. The doctrine of numerus clausus ("closed number") limits the creation of new types of estates. When this runs into parties' intentions, however, it may be void. Garner. Several states allow a "lease for life," e.g. (1) a lease that will terminate at the death of T (Garner); (2) a lease that lasts as long as T does X (Philpot v. Field (Tex. Civ. App. 1982)); (3) same, but with rebuttable presumption for TAW if ambiguous (Myers v. E. Ohio Gas Co.). Delivery. Two rules for L's duty to deliver property to T: (1) English, (2) U.S. i. English rule. L has implied covenant to open entry to T at beginning of term. (Trend is toward this rule.) ii. American rule. L only bound to put T in legal possession; no duty to oust wrongdoers/holdovers. Hannan. Lease for life. Courts are reluctant to create new categories of property rights, but when there is no reason not to create a new category, they are willing to do it. Delivery. i. English rule. The advantage of the English rule is it prevents T from having to initiate lawsuit to begin lease; L is usually in best position to remove wrongdoers. ii. American rule. The advantage of the American rule is L should not be at fault for wrongdoer's wrongdoing. T should sue the wrongdoer himself. If there were a trespasser, T would always be responsible under either rule. Also, L and T can bargain over this in contract. Hannan.
Garner v. Gerrish (N.Y. 1984) (423) (Wachtler, J.) L signed lease with T giving T privilege of terminating lease at date of his choice. L died. L 2 tried to evict, but court felt no need to put lease in boxes of life estate determinable or tenancy at will when L1/T wanted "lease for life." Hannan v. Dusch (Va. 1930) (438) i. (Prentis, J.) L leased land to T, but A was holding over. T sued L. Under English rule, L would have duty to deliver the property and remove A. Under the American rule, which the court adopted, removal was T's responsibility. i.
SUBLEASES & ASSIGNMENTS A
3. Subleases & assignments. When T signs lease with L, they enter into two forms of privity (voluntary agreement): (1) privity of contract (contractual promises between T and L) and (2) privity of estate (conveyance of right of possession). T may not unilaterally break these promises; rather, if T wishes to convey an interest of her lease to someone else, needs a "release" from L in form of (1) sublease or (2) assignment. i. Sublease, defined. If T1 conveys T2 interest in leased premises less than his own, or gives all but reversionary interest (i.e. time before the lease expires when T1 may repossess), T1 creates a sublease. T1 remains responsible to L, but T 2 is in privity of estate with T1, i.e. T2 must pay T1 rent and any damages from breaches that "touch and concern" the rented property. (T 1 may also extract enforceable promise from T 2 to pay rent, which would put T 2 in privity of contract with L as third-party beneficiary. See 449.). ii. Assignment, defined. If T1 conveys T2 her entire interest under the lease, she creates an assignment. This does not affect T1's privity of contract (i.e. T1 is still responsible for the original contract), but breaks the privity of estate between T1 and L. T2 is now in privity of estate with L. T1 is still a surety for the assignee, but T2 "assumes" T1's promises to L. Sublease or assignment? The importance of the distinction is that L may only sue T2 for a breach of the lease if T 2 is assignee. Two methods for determining: (1) formal and (2) intent. i. Formal method. If T1 conveys entire interest of the property to T2, assignment. Anything less is a sublease, including reserving T 1 a reversionary interest, T1 ? T2 for one day less than own lease, etc. a. Partial assignments. If T1 conveys to T2 all of his interest in a physical part of the premises, most courts will call this a partial assignment, not a sublease. b. Power of termination / right of reentry. If T1 provides that if T2 breaches any obligation of the lease T 1 may terminate arrangement and retake possession, substantial minority finds a sublease here (p. 447). ii. Intent method. Determine what T1 and T2 meant. Words of the contract itself are not controlling. Ernst. Premature termination. These rules true for subleases and assignments. a. Power to forfeit. If L exercises power to forfeit because of breach by T1, T1 & T2 lose interests. b. Surrender. If T1 "surrenders" her interest, rights of T 2 remain intact. Now, even if T 2 is sublessee, privity of estate exists between L & T2. Parris-W. Maytag Hotel Corp. v. Continental Amusements Corp. (Iowa 1969).
Approving sublessors & assignees. As most states do not allow T to unilaterally assign or sublet, T must request L's permission. There are different rules for whether L may deny this permission. i. Commercial leases. There are four options: (1) L may unreasonably withhold approval, (2) a "fair-dealing" rule, (3) a "termination/recapture" rule, (4) absolute prohibition. a. Withholding rule (majority). L may unreasonably withhold consent with leases, if not freehold conveyances. b. Fair dealing rule (growing minority). As lease is contract, L has duty of fair dealing; therefore, regardless of whether lease authorizes L to withhold consent, L may only withhold for a commercially reasonable objection to the assignment. If consent withheld perverts the underlying purpose of the lease, it is wrong. L may increase rent, but only insofar reversionary estate would benefit from increase in value after the lease expires. Kendall. c. Termination/recapture rule (some). If lease so specifies, once T1 tells L he wants to sublet or assign, L may end the lease with T1 and negotiate directly with T 2. T1 is not entitled to any profits. Carma Dev. v. Marathon Dev. Cal., Inc. (Cal. 1992). d. Absolute prohibition. Some states (like Cal., by statute) allow L to absolutely prohibit transfers of leases (p. 456). ii. Residential leases. The Kendall rule's reasonableness requirement does not apply to any jurisdictions; Slavin v. Rent Ctrl. Bd. of Brookline (Mass. 1990). iii. Rule in Dumpor's Case. In a 1578 Lord Coke opinion, court held that if L consents to one assignment, the lease's prohibition against assignments is terminated unless L specifically reserves the right to prohibit future assignments (i.e. L allows T1 ? T2. Unless L specifies ahead of time, T 2 may ? T3 without L's permission, and T3 would not be in privity of estate or contract with L. The RESTATEMENT (SECOND) OF PROPERTY disapproves. iv. Mergers. Courts are divided on whether merger by T 1 into a subsidiary is considered an assignment. (Yes---Brentsun Realty Corp. v. D'Urso Supermkts. Inc. (N.Y. 1992); no---Pac. First Bank v. New Morgan Park Corp. (Or. 1994).) v. Sale of stock. When a lease specifies that a sale of a certain percentage of stock counts as an assignment, courts will enforce. Zona, Inc. v. Soho Centrale LLC (N.Y. 2000). Otherwise, it is not one. Branmar Theatre v. Branmar, Inc. (Del. Ch. 1970).
Fair dealing rule. The main idea behind this rule is the lease is a type of contract, so L owes T a duty of fair dealing. So while L might have a reasonable objection to some possible tenants, should not be able to be arbitrary. Additionally, if T1 were to abandon the property, many jurisdictions would require T1 to mitigate by selecting a substitute lessee---
this is similar. Thirdly, reasonable alienation of commercial building space is an important concern in an urban society. Finally, L should not be able to get more out of lease than she bargained for in lease; L is only due what his estate would benefit from upon the expiration of the lease. Kendall. Commercial v. residential leases. California recognized that "residential real property leases involve different public policies than commercial real property leases." In particular, there is no need for reasonable alienation of residential building space or open judicial floodgates. Commercial law is also typically regulated by UCC and questions involve interpretation of lease terms, whereas residential leases are more subject to statutory regulation.
1. Ernst v. Conditt (Tenn. 1964) (442) (Chattin, J.) A leased to B who subleased to C. A-B's lease said B would remain personally liable for faithful performance of covenants. B-C's lease said B had no right to reenter. C stopped paying rent and A sued C. Regardless of what leases said ("sublease"), since B had no right to reenter, C was assignee. Therefore C is liable to A for rent. Kendall v. Ernest Pestana, Inc. (Cal. 1985) (450) i. (Broussard, J.) Commercial lease from A to B. Contract said B could not sublease or assign without A's consent. B sold business to C, which was a bigger company, and wanted to assign its lease. A withheld permission unless C paid more. Following "fair dealing" rule, court required A to limit demand for rent to what it would benefit from after the lease expired. i.
(Judges dissenting) The provisions of the actual lease should be respected, and a rule change should be prospective or made by the legislature.
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