When it comes to renting a property, it is important to know the differences between a sublease and an assignment regardless of if you are a landlord or a tenant. During the course of a leasehold a landlord may encounter a tenant who may either try to assign the lease to someone else, or they may try to sublease it to another person. Generally, a tenant is allowed to sublet their leasehold to another person with consent of a landlord, unless otherwise spelled out in the lease.
Starting with a sublease, a sublease occurs when a tenant transfers anything less than his entire interest in the leasehold. One way this can happen is when the tenant gives another person the right to occupy a portion of the property for a specific period of time. Generally, a tenant is allowed to sublet their leasehold to another person as long as the tenant has written consent from the landlord. However, the lease could dictate whether subleases are allowed. When a tenant sublets his leasehold to a sublessee, the tenant is still liable to the landlord under the lease for the sublessee’s actions. For example, Larry the Landlord (“LL”) rents out a condo to a college student, Terry the Tenant (“TT”), from January 1, 2020 to December 31, 2020. During the leasehold, TT decides that he does not want to take classes in the summer and decides to move back home. After TT gets written consent from LL to sublet the condo, TT sublets to Sam the Sublessee (“SS”). While SS is occupying the condo, he decided not to pay rent. When LL did not receive the rent, LL notified TT of the overdue rent and demanded payment from TT. This is considered a sublease, and not an assignment, because SS’s interest in the condo reverted back to TT after the summer months, keeping TT and LL in privity of contract. Usually a sublessee does not have privity of contract nor privity of estate with a landlord.
Next, an assignment is when a tenant transfers the entire interest under a lease to the assignee. When this happens, the assignee has both privity of estate and privity of contract with the landlord. This generally means that the assignee steps into the shoes of tenant. For example, LL leases a condo to TT from January 1, 2020 to December 31, 2020. After six months into the leasehold, TT decided to drop out of college and pursue his dream of being a world famous chef. Since TT did not have any use for the condo, TT and LL agreed that TT can assign the lease if he can find a new tenant to take over TT’s lease and LL will release TT upon assignment to a third party. TT then assigned the remainder of the lease to Artemis the assignee (“AA”), and TT moves his belongings out and vacates the property. Here, AA steps into the shoes of TT which abolishes TT from liability for whatever actions AA does because AA took over the lease from TT, TT does not occupy the property, and LL agreed to release TT from upon assignment to the third party. Although in this scenario TT was not held liable for any damages or back rent, it is still possible TT could be held liable. If the landlord does not agree to release the tenant from the lease upon an assignment to a third party, the tenant may be on the hook for damages caused by the assignee.
Although it can get tricky whether an assignment or a sublease is taking place, courts generally use two methods to determine whether a transfer is considered a sublease or an assignment. The first is to examine the substance of the transaction to determine whether the tenant has transferred her entire interest in the leasehold and the second is to examine the intention of the parties. By applying these methods it can help clear up whether a transfer was intended as a sublease or an assignment as well as helping a landlord, tenant, sublessee, or assignee get a better idea of who can be liable depending on the situation. Additionally, it is also important for landlords to include provisions in their leases regarding subleases and assignments to help clear up any confusion that may arise on the issue.