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In Nebraska, covenants in a lease against assignment or subletting are not favorably regarded by the courts and are liberally construed in favor of the lessee. The scope of a covenant against assignment will not be enlarged by the courts, and the covenant will not be considered violated by any technical transfer that is not fairly and substantially an assignment. The test for determining whether a transfer is an assignment or a sublease is as follows: When the transfer is for the whole balance of the unexpired term, with respect to all of the originally leased premises and on exactly the same terms as those under which the main lessee held the transaction is an "assignment." When the transfer is for a period shorter than the unexpired balance of the term, and relates to a physical part only of the originally leased premises and is on terms materially different from those stipulated in the main lease, the transaction is a "sublease." To state the test in a slightly different manner, the question is whether if by the transaction the lessee conveys his entire term, or whether he retains a reversionary interest. If by the transaction the tenant conveys the entire terms and thereby parts with all reversionary interest in the property, the transaction is construed to be an assignment, whereas if there remains a reversionary interest in the estate, it is a sublease.
American Community Stores Corporation (ACS), which operated Hinky Dinky stores in Nebraska, held leases with the various landlords on grocery store buildings in Columbus, Auburn, and Omaha. The leases generally were for 20-year terms with options to renew or extend for multiple 5-year leasing periods. Due to labor difficulties, ACS announced the closure of several of its stores. The agreements between ACS and the various parties were originally structured such that ACS would assign the leases to Nash-Finch Company, a grocery wholesaler, and Nash-Finch would in turn sublease the stores to the operators. Shortly after the public announcement of the closings, ACS contacted the trustees for the landlords, requesting permission to assign leases to Nash-Finch. The landlords did not consent and notified ACS that it was in default of the lease. In an apparent effort to cure the claimed defaults, ACS agreed that the assignment agreements would be removed and be replaced with subleases. Subsequently, ACS and the third party executed subleases that expired two days before the primary leases, and extended the renewal options to the third party. The trustees notified the corporation that it was in default. The corporation and the tenants asked the trial court to declare that the transactions were subleases, which were permitted under the primary lease. In cross actions for summary judgment, the trial court granted summary judgment to the corporation and the tenants.
By subleasing the premises, did the corporation breach the lease agreement?
On appeal, the court affirmed the decision of the trial court. In light of the surrounding circumstances and taking into consideration the motives which induced the agreement, the only reasonable interpretation of the agreements was that they were intended to be subleases. The Court noted that ACS was informed that the landlord would not consent to assignments and considered ACS to be in default. ACS, having the object and purpose of transferring its interest in the premises while not violating the leases and forfeiting its interest in the premises, clearly intended to enter into subleases, which it could do without permission. To this end, ACS entered into agreements that satisfy the common-law requirements of a sublease. Since there was no genuine issue as to any material fact or as to the ultimate inferences that may be drawn therefrom, ACS and the tenants were entitled to judgment in their favor as a matter of law. Accordingly, the judgments of the district court were affirmed.