TOPIC I
THE LAW OF LANDLORD AND TENANT
Ernst v. Conditt
Landlord suing alleged assignee for past rent due and possibly for expenses associated with removal of improvements
FACTS:
6/18/60 Ernst leases land to Rogers for a term of 1 year and 7 days and Roger’s takes possession and constructs asphalt go cart track on land and flood light.
TERMS: 4200/annum payable at 350 annum or 15 % of all gross receipts whichever is larger after a ¼ erly calculation. Payments due on the 1st of each month.
ASSIGNMENT
SUBLEASE
L1 conveys the entire term of the remaining lease to L2.
L1 grants L2 interest in leased premises less than the remainder of his term even a second less.
CONTRACT/MINORITY/INTENT OF PARTIESMODERN RULE. Nashville v. Lawrence
ASSIGNMENT
SUBLEASE
Look to intention of the parties
Look to intention of the parties
SUBLEASE/ASSIGNMENT
ASSIGNMENT
SUBLEASE
La L1
L2
La L1
L2
Under either rule this arrangement was an assignment so privity of estate exists between Landlord and L2.
3rd PARTY BENEFICIARY ISSUE:
See previous page and footnote.
NOTES
MAJORITY OR FORMALISTIC APPROACH
Assignment:
o
L1 transfers his entire interest for the remainder of his term to L2
Sublease:
o
Anything less than entire interest.
MINORITY OR INTENT OFF THE PARTIES
Jaber v. Miller
Guy trying to have promissory notes cancelled because building destroyed by fire
Even when courts say they are using this approach the spectere of the title of the document still has an effect and the court still infers what it is from the words used.
Even though the court purports to be using intent of the parties twice in the dicta they say it is what it is because of what it is called by the parties.
Even when court says it is using intent it is usually a disguised formalistic approach because of the Golf Club theory or as Jaber shows it is sometimes the words.
PARTIAL TRANSFERS
L1 transfers entire interest IN A PART OF THE PROPERTY to L2
o
o
Minority says subleaseMajority says partial assignment
EFFECT ON L2 IF LEASE WITH L1 IS PREMATURELY ENDED
FORFEITURE BY LANDLORD
SURRENDER BY L1
Landlord entitled to possession against both L1 and L2
Rights of L2 remain intact whether it is a sublease or assignment unless L2 consents
Parris-West Maytag Hotel
PROBLEM:
La leases to L1 for 3yr. Term at $300.00/month
1 year later L1 sublease transfers and assigns to L2 for 1 year
Nobody pays to La. What are La’s rights?
Majority will say sublease since not for entire term and so La can sue only L.
If L2 had promised to L1 to perform the obligations in the rent?
L1 still liable to La BUT
L1 now has a direct remedy against L2 for the money owed even after L2 transfers to L3.
In a 3rd party beneficiary jurisdiction if L2 made this promise with L1 to perform then La may be considered a 3rd party beneficiary and and he will be considered in privity of contract with L2 and so will also have a cause of action directly against L2 and a subsequent transfer by L2 will not affect that liability.
PROBLEM:
L leases to T for 3 years at $300/mth and T agrees to pay rent on the 1st of each month.
T shall not sublease or assign w/out permission
6 mths later T transfers to T1 for the balance of the term
T1 pays rent directly to L and then defaults
L sues T for rent what result?
No 3rd party issue because no promise made by T1 to T.
If sublease then no PC or PE between L and T1 so L can only go after T
If assignment then there is PE between L and T1 and PC between L and T so that L can sue either.
PROBLEM:
L leases to T for 3yrs at a monthly rent of $600
o
o
Keep in good repairPayable on 1st of month
T assigns to T1
T1 assumes all covenants in the lease between L and T
T1 assigns entire interest to T2
T2 assigns entire interest to T3
T3 defaults
L sues T, T1, T2, T3. What result?
Subrogation:
T can sue T1 and T can sue T3 to recover if L sued him to recover. He can’t sue T2 because T2 is not in default and so L has no CoA against T2.
Proposed assignees bring a suit for declaratory and injunctive relief against assignee of lessor’s interest to have the lessor’s assignee’s failure to allow them to be the assignee an unlawful restraint on alienation absent a freely negotiated clause granting lessor absolute discretion.
FACTS:
City of SanJose/owner leases hangar space to Perlitch
Perlitch entered into a 25 year sublease with Bixler
Perlitch then assigns their interest in the property to Pestana
o
o
Rent increased every 10 years in proportion at the same rate as the rent from San Jose to Perlitch was increasedFor 5 years and four 5 year options to renew
Bixler runs a business there and then agrees to sell
o
Business, Inventory and Improvements to O’Hara & Kendall
o
And attempts to assign the lease to them.
O’Hara and Kendall are much more financially secure than Bixler.
Lease had provision that written consent of lessor (which was Pestana because of the assignment) needed before assignment.
Pestana refuses to allow the assignment to O’Hara and demanded higher rent because of the increased rental value of the property.
It is not an absolute discretionary power in the lessor
An absolute discretionary clause can be valid but it has to be freely negotiated and expressed in the contract.
O’Hara sues
COURT HELD:
A clause in a commercial lease that “requires the lessor’s consent before assignment” should be interpreted to mean that consent can only be denied where a commercially reasonable reason for the denial exists or else such clauses will be an unlawful restraint on free alienability.
To pass the freely negotiated and expressed test:
1. Don’t bury it in the contract
2. Not a boilerplate document
3. Separate section
4. Incorporate statute or case law
5. List as part of the consideration
6. Say it was freely negotiated
7. Witnesses
8. Make sure lessee has presence of counsel
9. A letter to opposing counsel confirming this
EXAMPLES OFREASONABLENESS:
Desire to have lead tenant in order to preserve image of building as tenants international headquarters
desire for good tenant mix in shopping center
Refusal where proposed assignee’s business is likely to fail
ANALYSIS
California means common law or minority. Court compares the minority and majority rules and notes that states are moving away from the majority.
Kendall v. Ernest Pestana, Inc.
The lease is neither contract not conveyance but in between.
L can sue T under privity of contract unless L agreed to release L1 or enter into a novation.
L can sue T1 under privity of estate
o
In a 3rd party beneficiary jurisdiction L can also sue T1 because he assumed the covenants in the lease.
L cannot sue T2 because the default did not occur in T2’s term but T3 is still liable because of Privity of Estate.
L can sue T3 under privity of estate because privity of estate is transferred with the assignment.
Lessor argues for majority
Lessee argues for minority/restatement
Absolute discretionary power
·1
No absolute discretionary power we have got to balance your interests to protect yourself against allowing restraints on alienability. Especially where you have the power to forfeit the lease if we assign w/out your consent.
·2
Even in majority jurisdictions the arbitrary power is restricted by estoppel and waiver.
·3
There is now a duty to mitigate from contract law
·4
Power of selection preserved under the commercially reasonable standard
Approval clause is unambig
as hanging from an awning and saw her removing wall paneling. She called the Sheriff and he called the police. They both arrived at the same time and agreed to be cool until they could get legal help.
Wiley’s attorney advised him to lock out Berg
Wiley enters while no one is around and changes the locks
Berg sues Wiley based on wrongful eviction for
o
o
o
IIEDDamage to chattelsDamages for lost profits
Wiley counterclaims for damage to premises, indemnification on mechanic’s lien liability because of the remodeling.
The jurisdiction allowed self help.
Brave trial court judge
ruled as a matter of law that Wiley’s lockout of Berg was wrongful as a matter of lawRemodelling w/out permission
Surrender is the yielding up of the estate to the landlord so the leasehold interest becomes extinct by mutual agreement between the parties.
Unless by consent a surrender does not operate to defeat the estate of the sublessee
Subsequent declaration of forfeiture by landlord after surrender will not be considered a forfeiture and will not affect sublessee’s or assignees rights.
o
o
Assignment or sublease does not relieve original lessee (Rogers) of liability
At end of contract all improvements except surface paving must be removed
7/60 Rogers(L1) enters into negotiations for sale of the business with Conditt(L2).
Conditt wants a 2year lease of the land
Rogers approach Ernst and extend the lease to 7/62.
NEW TERMS:
o
o
o
Lessor agrees to (L1’s) SUBLETTING to Conditt (L2) as long as Rogers remains personally liable.Lessee (L1) is responsible for damage to his own stuff and the No parking signsSame rental value and quarterly
Rogers also signs a contract with Conditt for the sublease where Rogers agrees to: For value received and in consideration of [Conditt’s] promise to faithfully perform all conditions of the lease as amended,
And then Conditt accepts the SUBLEASE.
Conditt stops paying and after trying to communicate by letter Ernst sues him for past rent due.
I hereby SUBLET the premises to A.K. Conditt upon the understanding that I will individually remain liable for the performance of this lease.
No right to sublease or assign the premises w/out prior approval
DISCUSSION
CONDITT Interpret the contract literally:
It says sublease
a. In a sublease L2 is never liable because there is no privity of estate between L2 and Landlord or privity of contract. Only Rogers (L1) is liable.
.
Even lawyers get confused w/sublease and assignment so what a private party writes will not govern
The mere fact that Rogers agrees to remain liable is not an implied reversionary interest. To imply a reversionary interest would be adding terms to contract that don’t exist. He would have had to contract for a right of entry or a power of termination.
COURT
CONVEYANCE/MAJORITY/FORMALISTIC/COMMON LAW.
Jaber v. Miller
Even if it didn’t say sublease it is a sublease because
b. Rogers had an implied reversionary interest and could have reentered and performed when Conditt defaulted.
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