Abernathy v. Adous

85 Ark. App. 242 (2004)

 

RULE:

At common law, the distinction between a sublease and an assignment depended upon whether the original lessee transferred his estate for the entire remainder of the lease term, in which case it would be an assignment, or for less than the entire term, in which case it would be a sublease. However, Arkansas has rejected that approach and has adopted the rule that the intention of the parties is to govern in determining whether an instrument is an assignment or a sublease, although the duration of the primary term, as compared with the duration of the transfer, may be considered in arriving at that intention.

FACTS:

The owners of a service station/convenience store executed a lease with an oil company for a term of ten years. The owners agreed to build the service station for that original lessee, and the term would begin upon the completion of construction. The lease contained no prohibition against subleasing or assignment. The oil company then executed a sublease agreement with the defendant, who eventually became the sole subtenant. The defendant made monthly lease payments to the oil company, who in turn made payments to the owners. Eventually, the oil company stopped paying rent to the owners and became insolvent. The owners sought to terminate the lease on that ground, but the defendant chose to remain on the property. At trial, the judge declared the defendant an assignee of the original lease, which would allow him to retain possession of the property.

ISSUE:

In determining whether an instrument is an assignment or a sublease, does the intention of the parties govern?

ANSWER:

Yes.

CONCLUSION:

At common law, the distinction between a sublease and an assignment depended upon whether the original lessee transferred his estate for the entire remainder of the lease term, in which case it would be an assignment, or for less than the entire term, in which case it would be a lease. However, Arkansas has rejected that approach and has adopted the rule that the intention of the parties is to govern n determining whether an instrument is an assignment or a sublease, although the duration of the primary term, as compared with the duration of the transfer, may be considered in arriving at that intention. The court determined that the parties clearly intended the defendant to be a sublessee based on several factors: (1) the parties consistently referred to their arrangement as a sublease, (2) the defendant made payments to the lessee rather than to the owner, and (3) the sublease agreement indicated that the oil company did not relinquish its right to the leasehold, as it would have done in the case of an assignment. As a sublessee, the defendant does not have privity of estate, and thus his fate with regard to the property must rise and fall with that of the original lessee. Because the original lessee breached the lease, the owners had the right to terminate the lease and repossess the property from the defendant.

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