Welcome to the Bar Exam Toolbox podcast. Today we are talking about leaseholds, also known as landlord/tenant law, as part of our "Listen and Learn" series. Your Bar Exam Toolbox hosts are Alison Monahan and Lee Burgess, that's me. We're here to demystify the bar exam experience, so you can study effectively, stay sane, and hopefully pass and move on with your life. We're the co-creators of the Law School Toolbox, the Bar Exam Toolbox, and the career-related website CareerDicta.
Alison also runs The Girl's Guide to Law School. If you enjoy this show, please leave a review on your favorite listening, app and check out our sister podcast, the Law School Toolbox podcast. If you have any questions, don't hesitate to reach out to us. You can reach us via the contact form on BarExamToolbox.com, and we'd love to hear from you. And with that, let's get started. We are going to talk about assignment and subletting today.
Unless the specific language of a lease agreement states otherwise, leases can generally be freely assigned or sublet to third parties. It can often be challenging for students to distinguish between an assignment and a sublet when facing a landlord/tenant problem on the bar exam. So we are going to walk through each of these topics in turn and highlight the differences between them.
An assignment is the complete transfer of the rights and obligations under the lease agreement by one party - called the assignor, to another party - the assignee, for the remainder of the lease term. This is usually going to be a situation where a tenant is moving or otherwise not intending to live at the property for the remainder of the lease. So, they are assigning the lease to another tenant for however long is left under that lease.
The assignment must be under the same terms as the original lease. The only exception is the assignor may reserve the right to terminate the assignment for the breach of any lease term by the assignee. An assignee essentially stands in the shoes of the assignor. So, they have a direct relationship with the landlord, which is called privity of estate. They pay the landlord rent directly.
Because they are in privity of estate with the landlord, they are liable to the landlord for the rent and for all other covenants in the lease agreement. Now, what about the assignor's liability? The assignor is no longer in possession of the leased premises, so their privity of estate with the landlord terminates with the assignment. However, the assignor still remains in privity of contract with the landlord, as they were both parties to the original lease agreement.
So, the assign or remains liable for the rent and all other covenants in the lease for the remainder of the lease period, unless the landlord releases them from that liability. Thus far, we focused on assignment from one tenant to another. However, a landlord may assign their rights and obligations under the lease as well. This typically occurs when the landlord transfers their ownership interest in the property to a third party.
The tenant will then be obligated to pay rent to the assignee-landlord. Both the tenant and the assignee- landlord will also be liable to each other for all other covenants in the lease. Okay, now that we've addressed assignment, let's look at subletting. A sublease is the transfer of the right of possession held by one party - called the sublessor, to another party - the sublessee, for a specific period of time.
This typically arises when the tenant is going to be away for a short period of time. For example, a law student may enter into a one-year lease agreement for an apartment near their law school, but then get the opportunity to take a summer internship out of state. They could sublet their apartment to someone for the summer, then take the lease back at the end of the summer when they return to school. The sublessee is considered to be a tenant of the sublessor.
So, they do not have a direct relationship with the landlord. They pay rent to the sublessor, and the sublessor in turns pays the rent to the landlord. Because the sublessee does not have a direct relationship with the landlord, they will not be personally liable to the landlord for rent or performance of any other provision under the lease. The sublessor remains liable to the landlord.
So, if the sublessee fails to pay rent, the sublessor will still need to pay the landlord, or they will be in violation of their lease, even though they are not presently living at the property. How do we feel about assignments and sublets? This is definitely complicated stuff. Let's look at a hypothetical together to see if we can really nail down these topics together.
This hypothetical is pulled from Question 2 of the February 2015 California bar exam, but we've tweaked it a bit to focus on the issue of assignment and subleases: "David entered into a valid 15-year lease of Blackacre with Ellen. The lease included a promise by Ellen on behalf of herself, her assigns, and successors in interest, to, [1] obtain hazard insurance that would cover any damage to the property; and [2] use any payments for damage to the property only to repair such damage.
Five years later, Ellen transferred all of her remaining interest in Blackacre to Fred. Neither Ellen nor Fred ever obtained hazard insurance covering Blackacre. While Fred was in possession of Blackacre, a building on the property was destroyed by fire due to a lightning strike. David has sued Ellen and Fred for damages for breach of the covenant requiring hazard insurance for Blackacre. Is David likely to prevail?" What do we think about this hypothetical?
Is David able to sue both Ellen and Fred for breach of the hazard insurance covenant? Well, that's likely going to depend on whether this is an assignment or a sublet. So let's make that determination together. Remember, a sublet is a transfer of the leased property for a period of time. An assignment, on the other hand, is a transfer of the leased property for the remainder of the lease. What did Ellen transfer to Fred? She transferred all of her remaining interest in Blackacre to Fred.
So, she's transferred the leased property to Fred for the rest of the lease period. That means Ellen has assigned the lease to Fred. With an assignment, Fred is going to step into Ellen's shoes and will have a direct relationship with David, the landlord. So, Fred is in privity of estate with David and will be liable to David for all covenants in the lease. What about Ellen? Can David sue her as well? He sure can.
Even though Ellen has assigned her remaining interest in Blackacre to Fred, she still remains in privity of contract with David because she is a party to the original lease agreement. Therefore, she still remains liable for all obligations under the lease. Since both Fred and Ellen are liable to David for all covenants in the lease, David will likely be successful in his suit against them for breaching the covenant to hold hazard insurance. And with that, we're out of time!
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