A lease can be transferred by the lessee in one of two ways: by assignment or sublease. When a lease is transferred by assignment, the assignee steps into the lessee's shoes and acquires all the lessee's rights in the lease. Privity of estate ends between the lessor and lessee and is created between the lessor and the assignee. The assignee therefore becomes bound by the covenants running with the land. Privity of contract between the lessor and lessee, however, does not end by the mere assignment of the lease and the lessee is therefore still bound by the lease provisions.
A lease agreement provided that plaintiff landlord was required to consent to any assignment of the lease and that consent to one transfer did not serve to waive the consent requirement as to any other transfer. The landlord agreed to the transfer to assignee. When assignee failed to pay rent and abandoned the property, defendant lessee sought reentry to the property. The district court ruled that the landlord was entitled to possession as the lessee abandoned the property by virtue of the assignment. On appeal, the court ruled that lessee was still liable for the rent, but did not have any right of reentry.
Did the trial court correctly deny lessee the right of reentry after it had assigned all of its rights, title, and interest in the lease to an assignee?
A lessor-lessee relationship was created between landlord and assignee. Assignee could not transfer any interest in the lease without landlord's consent. Thus, a security agreement between lessee and assignee, which would tend to give lessee the rights of an assignee, did not vest lessee with any rights exercisable against landlord, who was not a party to the agreement. Lessee's right of reentry was lost by the assignment, unless revived by the lessor. Thus, once landlord decided to terminate the lease on grounds of abandonment by assignee, no act of lessee could undermine this election.