Tenant Landlord Law - Property

Rules

1. 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.

   1. Term of years. Lasts for fixed period. “Defeasible” if L can retake after breach.

   2. 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).

   3. 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).

   4. 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.

      1. Holdovers & new tenants. See, infra, at Delivery.

   5. “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.).

2. Delivery. Two rules for L’s duty to deliver property to T: (1) English, (2) U.S.

   1. English rule. L has implied covenant to open entry to T at beginning of term. (Trend is toward this rule.)

   2. American rule. L only bound to put T in legal possession; no duty to oust wrongdoers/holdovers. Hannan.

Analysis

1. 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.

2. Delivery.

   1. 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.

   2. 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.

Major Cases

1. Garner v. Gerrish (N.Y. 1984) (423)

   1. (Wachtler, J.) L signed lease with T giving T privilege of terminating lease at date of his choice. L died. L₂ 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.”

2. Hannan v. Dusch (Va. 1930) (438)

   1. (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.

Rule

1. 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.

   1. 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 T₂ 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. (T₁ may also extract enforceable promise from T₂ to pay rent, which would put T₂ in privity of contract with L as third-party beneficiary. See 449.).

   2. 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.

2. Sublease or assignment? The importance of the distinction is that L may only sue T₂ for a breach of the lease if T₂ is assignee. Two methods for determining: (1) formal and (2) intent.

   1. Formal method. If T₁ conveys entire interest of the property to T₂, assignment. Anything less is a sublease, including reserving T₁ a reversionary interest, T₁ T₂ for one day less than own lease, etc.

      1. 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.

      2. Power of termination / right of reentry. If T₁ provides that if T₂ breaches any obligation of the lease T₁ may terminate arrangement and retake possession, substantial minority finds a sublease here (p. 447).

   2. Intent method. Determine what T₁ and T₂ meant. Words of the contract itself are not controlling. Ernst.

3. Premature termination. These rules true for subleases and assignments.

   1. Power to forfeit. If L exercises power to forfeit because of breach by T₁, T₁ & T₂ lose interests.

   2. Surrender. If T₁ “surrenders” her interest, rights of T₂ remain intact. Now, even if T₂ is sublessee, privity of estate exists between L & T₂. Parris-W. Maytag Hotel Corp. v. Continental Amusements Corp. (Iowa 1969).

4. 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.

   1. 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.

      1. Withholding rule (majority). L may unreasonably withhold consent with leases, if not freehold conveyances.

      2. 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.

      3. 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 T₂. T₁ is not entitled to any profits. Carma Dev. v. Marathon Dev. Cal., Inc. (Cal. 1992).

      4. Absolute prohibition. Some states (like Cal., by statute) allow L to absolutely prohibit transfers of leases (p. 456).

   2. Residential leases. The Kendall rule’s reasonableness requirement does not apply to any jurisdictions; Slavin v. Rent Ctrl. Bd. of Brookline (Mass. 1990).

   3. 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, T₂ 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.

   4. Mergers. Courts are divided on whether merger by T₁ 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).)

   5. 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).

Analysis

1. 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.

2. 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.

Major Cases

1. Ernst v. Conditt (Tenn. 1964) (442)

   1. (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....