Tenant’s Obligations and Transfers under the Common Law

[herdofturtles]

Tenant’s Common Law Obligations

A common restriction on lease agreements:

1. Permissible Uses

The law implies no restriction on a lease, but a carefully worded lease might restrict. Courts can enjoin these restrictions if the Landlord establishes that…

(1) the tenant misrepresented what he intended to use the property for.
(2) the Landlord reasonably relied on tenant’s misrepresentation
(3) the use to which the premises were actually put caused the Landlord damages.

1. Duty of Continued Operation

In commercial settings—especially if rent is based on % of tenant’s sales—a lease agreement might require tenant to keep the premises continually open. Courts decide to enforce this by looking at…

(1) the language of the lease
(2) the circumstances surrounding the lease
(3) this particular court has a history of intervening in landlord-tenant relationships

Transfers

1. Interpreting Provisions restricting Tansfers

Under Common law:
- If the lease doesn’t restrict transfer : both parties can transfer
- If the lease does restrict transfer : not favoured, parties can freely waive and the K will be enforced limitedly





2. Types of Transfers

1. Assignments



2. Subleases

Under Common Law:

Assignment: Tenant transfers his estate for entire remainder of the lease term

Sublease: Tenant transfers his estate for less than a term (even for one day)

In order to understand types of transfers, you must understand (1) privity of contract and (2) privity of estate.


(1) Privity of Contract: relationship between parties with an enforceable agreement

Contracts are generally only enforceable between original parties that made the agreement.

EX:
L1 leases to T1 (privity of K)
L1 transfers land to L2 (privity of K)
L2 now owns land leased to T1 (no privity of K)

(2) Privity of Estate: once T’s estate arises, T is in privity of estate with L because L’s reversion follows T’s estate.

Common law: “only those interests that are immediately connected to each other are in privity of estate.”

Note:
Estate arises
- Common law: when Tenant takes possession
- Modern law: once the lease term begins

What happens when the original party of a lease transfers the lease to a 3rd party? Do the provisions of the original lease bind the transferee?

• you can only enforce K (lease) against party with privity to it
• Exception: "lease attached to estate
• Bind holder of estate even when not party to the original K only if provisions "touch & concern" the land

Touch and Concern: "if it's performance is related to and affects the use and enjoyment of the property that is subject of the lease."

Ex: the covenant to pay rent, the covenant to provide services.

Does not Touch and Concern if: "personal covenant."

Ex: a promise to periodically wash the other's car

Result / Consequence of Transfers:

If L1 enters into a lease agreement with T1, then L1 transfers land to L2:

No privity of contract: L2 & T1

Privity of contract: L1 & T1

No privity of Estate: L2 & T1

Privity of Estate: L1 & T1

If L1 enters into a lease agreement with T1, then T1 transfers land to T2:

No privity of contract: L1 & T2

Privity of contract: L1 & T1

No privity of Estate: L1 & T1

Privity of Estate: L1 & T2

T1 must still remain in K
- pay rent
- no longer has estate

L1 can receive rent from both T1 & T2
"Can recover judgements from one or both of these parties, but is entitled to only one satisfaction of his rent claim."


Novation: This occurs if T2 assumes T1's privity of K, which removes T1 entirely from the picture. L1 must explicitly release T1, and T2 must agree to the arrangement.