The Ernsts, plaintiffs, leased a tract of land in Tennessee to Frank D. Rogers on June 18th, 1960, for a term of one year and seven days to commence on June 23rd, 1960. Rogers went into possession and built a Go-Cart track on the land, which he operated under the terms of the lease. A.K. Conditt, defendant, entered into negotiations with Rogers to purchase the Go-Cart business. The two negotiated an extension of the terms of the lease for an additional two years through July 1962 and gave permission to Rogers to sublet the land to the defendant from August until November of 1960. The defendant failed to pay the rent of $350 per month after October of 1960 to the plaintiffs and told the plaintiffs that he was not liable for rent. Conditt did pay rent to the plaintiffs in June of 1961, however this represented the final payment during the amended term of the lease. The defendant remained in possession of the real estate until the expiration of the leasehold. Furthermore, the plaintiffs notified Conditt via letter that the lease would expire by midnight July 31st, 1962, at which time they demanded settlement for past due rent and costs for removing improvements he made on the land, unless he removed them himself. Conditt did not respond, after which the plaintiffs filed their action against him seeking to recover $2,404.58 in past due rent, $4,200 for the second year of rent, and any costs to remove the improvements.
The Chancellor held in favor of the complainants for the amount of $6,904.58 against the defendant. Defendant now appeals and asserts the Chancellor erred in failing to hold the instrument to be a sublease instead of an assignment.
The issue is whether a 3rd party is directly responsible to a lessor for rent and other obligations under the lease when the lessee conveys all of his interest under the lease to the 3rd party.
If the 3rd party takes the lessee’s entire interest in the leasehold it is an assignment, as opposed to taking partial interest in a sublease, and he/she is personally liable to the lessor under the terms of the lease for rent/other obligations.
First off, the defendant asserts that express language in his agreement with the former lessee, Rogers, gave personal liability to Rogers for performance of the original lease, i.e. payment of rent under the terms of the lease, to the lessor plaintiffs. He contends that the language also created a sublease, as opposed to an assignment, of the lessee’s interest in the leasehold. Rogers would also hold a right of reentry and to perform the lease in the event the defendant defaults. Therefore, the defendant asserts he is not liable to the plaintiffs for nonperformance of the original or amended terms of the lease. The defendant points to the rules of construction of written instruments, specifically a provision holding that when words or terms with definite legal meaning are used in an instrument, it is presumed to be the intent of the parties to have the words mean their exact legal meaning, as support for his argument that the amendment created a sublease. On the other hand, if the amendment created an assignment, privity of contract exists between the complainants and defendant, therefore making the defendant liable for the amount of the judgment. The general rule for differentiating between an assignment and a sublease is that an assignment conveys the lessee’s entire interest in the leasehold, whereas a sublease conveys partial interest and the original lessee holds a reversionary interest in the land. Per Jaber v. Miller, “[i]f the instrument purports to transfer the lessee’s estate for the entire remainder of his term, it is an assignment, regardless of its form or the parties’ intention… if the instrument purports to transfer the lessee’s estate for less than the entire term, it is a sublease”. In other words, if Rogers conveyed the entire remainder of his term of years to the defendant, then he conveyed an assignment to Conditt and did not retain any reversionary interest or personal liability to the plaintiffs. Furthermore, City of Nashville v. Lawrence holds that the court must determine the intentions of the parties when construing whether the conveyance was an assignment or sublease. Under either the common or modern interpretations, Rogers’ transfer to the defendant represented an assignment. Rogers’ express provision that he would remain personally liable to the plaintiffs for performance of the lease did not give him a reversionary interest or right of reentry. In the absence of an implied or express covenant to the contrary, the new lessee, Conditt, remains directly liable to the landlord, plaintiffs, for performance of the lease. Therefore, the prior court did not err in imposing liability on the defendant.
The Court of Appeals of Tennessee affirmed the Chancellor’s judgment in favor of the plaintiffs for the sum of $6,904.58 and additional costs for removal of improvements on the land against the defendant.