Restat 2d of Prop: Landlord & Tenant, § 15.1

• Restatement of the Law, Second, Property (Landlord and Tenant)
• Rules and Principles
• Part 5- Transfer by Landlord or Tenant of Interest in Leased Property
• Chapter 15- Transferability of Landlord’s or Tenant’s Interest in Leased Property
• § 15.1 Freedom of Transfer.

The interests of the landlord and of the tenant in the leased property are freely transferable, unless:

(1)  a tenancy at will is involved;
(2)  the lease requires significant personal services from either party and a transfer of the party's interest would substantially impair the other party's chances of obtaining those services; or
(3)  the parties to the lease validly agree otherwise.

STATUTORY NOTE TO SECTION 15.1

(Statutes as of June 1, 1976)

1. Statutes which deal with the effect of a transfer on a tenancy at will:

a. Tenancy not terminated by transfer by landlord.
Massachusetts Gen.Laws Ann. ch. 186 § 13 ("A tenancy at will of property occupied for dwelling purposes shall not be terminated by operation of law by the conveyance, transfer, or leasing of the premises by the owner or landlord thereof.")
b. Tenant prohibited from assigning tenancy. (See statutes under item 4 below.)
c. Termination by death or incapacity of landlord or tenant.
California Civ.Code § 1934 (West 1954)
Canal Zone Code tit. 4 § 2060 (1963)
Guam Civ.Code § 1934 (1970)
Montana Rev.Codes Ann. § 42-110 (1961)
North Dakota Cent.Code § 47-16-18 (1960)
South Dakota Comp.Laws Ann. § 43-32-23 (1967)

2. Statutes which expressly provide that the tenant is free to transfer his interest unless the parties agree otherwise:

Delaware Code Ann. tit. 25 § 5512(a) (1975)
Hawaii Rev.Stat. § 516-63 (Supp.1975) (applies only to long-term leases of residential lots; certain formalities required, but consent not necessary); and § 521-37 (Supp.1975) (applies to all other residential leases)
Louisiana Civ.Code Ann. art. 2725 (1952)
New York Real Prop. § 226-b (McKinney Supp.1975) and § 236 (McKinney 1968) (tenant free to sublease, consent not to be unreasonably withheld; right of executor to transfer leasehold of deceased tenant)
Puerto Rico Laws Ann. tit. 31 § 4035 (1968) (subletting)
Model Residential Landlord-Tenant Code § 2-403 (1969)

3. Statutes which expressly provide that the landlord is free to transfer his interest without the consent of the tenant:

Alabama Code tit. 47 § 34 (1958)
California Civ.Code § 1111 (West 1954)
District of Columbia Code Encyclopedia Ann. § 45-933 (1968)
Idaho Code § 55-610 (1957)
Indiana Stat.Ann. § 32-7-1-9 (1973)
Kansas Stat.Ann. § 58-2513 (1964)
Kentucky Rev.Stat.Ann. § 383.100(2) (1972)
Mississippi Code Ann. § 89-7-17 (1972)
Missouri Ann.Stat. § 441.140 (1952)
Montana Rev.Codes Ann. § 67-1614 (1970)
Nevada Rev.Stat. § 111.090 (1973)
New Mexico Stat.Ann. § 70-1-20 (1961)
New York Real Prop. § 248 (1968)
North Carolina Gen.Stat. § 42-2 (1966)
North Dakota Cent.Code § 47-10-20 (1960)
Oklahoma Stat.Ann. tit. 41 § 12 (1954)
South Dakota Comp.Laws Ann. § 43-25-28 (1967)
Virginia Code Ann. § 55-220 (1974)
West Virginia Code Ann. § 37-6-3 (1966)
Wisconsin Stat.Ann. § 704.09(1) (Special Pamphlet 1975)

4. Statutes which provide that the tenant cannot transfer without the landlord's consent (interests so restricted are referred to parenthetically in connection with each statute):

Alaska Stat. § 34.03.060 (1975) (a leasehold interest)
Georgia Code Ann. § 61-101 (1966) (a usufruct; term for less than five years)
Kansas Stat.Ann. § 58-2511 (1964) (term not exceeding two years, at will, or by sufferance)
Kentucky Rev.Stat.Ann. § 383.180(2) (1972) (term at will, by sufferance, or for less than two years)
Missouri Ann.Stat. § 441.030 (1952) (term not exceeding two years, at will, or by sufferance)
Oklahoma Stat.Ann. tit. 41 § 10 (1954) (term not exceeding two years, at will, or by sufferance)
South Carolina Code Ann. § 41-56 (Supp.1975) (any sublease without landlord's consent deemed a nullity with respect to landlord's rights)
Texas Rev.Civ.Stat. art. 5237 (Vernon 1962) (any person renting)
Wisconsin Stat.Ann. § 704.09(1) (Special Pamphlet 1975) (tenancy at will; any periodic tenancy less than year-to-year)

5. Statutes which provide that the tenant is not free to transfer agricultural land without the landlord's consent:

Delaware Code Ann. tit. 25 § 6723 (1975)
New Mexico Stat.Ann. § 61-6-14 (1974)

6. Certain states have statutes providing that the lessee of public lands for agricultural and other purposes may not transfer his interest without the consent of a designated public official. See, for example:

Alaska Stat. § 34.05.340 (1973) (leases assignable in writing with the affirmative approval of the director of public lands)
South Dakota Comp.Laws Ann. § 5-5-20 (1974) (assignment must be approved by commissioner of school and public lands; subletting for profit punishable by forfeiture and double damages)
Washington Rev.Code Ann. § 79.01.296 (1962) (leases assignable in writing with approval of commissioner of public lands)
Wyoming Stat.Ann. §§ 36-66 and 36-73.3 (Supp.1975) (leases of grazing lands subject to cancellation unless transfer is approved by board of land commissioners, but consent may not be unreasonably withheld; leases for industrial, commercial and recreational purposes not assignable without written consent of board)

7. Statutes which require certain formalities in order to transfer tenant's interest in leased property:

a. Writing required regardless of the duration of the term.
Maryland Ann.Code Real Prop. § 5-103 (1974) (refers to assignments)
Massachusetts Gen.Laws Ann. ch. 183 § 3 (1958) (refers to assignments)
Missouri Ann.Stat. § 432.060 (1952) (refers to assignments)
New Hampshire Rev.Stat.Ann. § 477:15 (1968) (refers to assignments; if writing requirement not complied with, the estate created is deemed an occupancy at will)
Ohio Rev.Code Ann. § 1335.04 (Page 1962) (refers to assignments)
South Carolina Code Ann. § 57-305 (1962) (refers to assignments)
b. Writing required if term greater than one year.
Alaska Stat. § 09.25.010(12)(b) (Supp.1975) (refers to transfers)
Arkansas Stat.Ann. § 38-105 (1962) (refers to assignments)
California Civ.Code § 1091 (West 1954) (refers to transfers of interests other than an estate at will)
Canal Zone Code tit. 5 § 3255 (1963) (refers to assignments)
Colorado Rev.Stat.Ann. § 38-10-106 (1973) (refers to assignments)
Guam Civ.Code § 1091 (1970) (refers to transfers)
Idaho Code § 9-503 (1948) (refers to assignments)
Iowa Code Ann. § 622.32(3) (1950) (refers to transfers)
Kansas Stat.Ann. § 33-105 (1973) (refers to assignments)
Michigan Comp.Laws Ann. § 566.106 (1967) (refers to assignments)
Minnesota Stat.Ann. § 513.04 (1947) (refers to assignments)
Montana Rev.Codes Ann. § 67-1601 (1970) (refers to transfers)
Nebraska Rev.Stat. § 36-103 (1974) (refers to assignments of term greater than one year from making of lease)
Nevada Rev.Stat. § 111.205 (1973) (refers to assignments)
New York Gen.Obligations Law § 5-703(1) (McKinney 1964) (refers to assignments)
North Dakota Cent.Code § 47-10-01 (1960) (refers to transfers)
Oregon Rev.Stat. § 93.020 (1975) (refers to transfers)
South Dakota Comp.Laws Ann. § 43-25-1 (1967) (refers to transfers)
Utah Code Ann. § 25-5-1 (1969) (refers to assignments)
Vermont Stat.Ann. tit. 27 § 304 (1975) (refers only to assignments; requires that the assignment be by deed, signed, sealed, witnessed, acknowledged and recorded; if this requirement is not met, the assignment is void as against all but the assignor, his heirs or devisees)
Virgin Islands Code Ann. tit. 28 § 241 (1961) (refers to assignments and transfers)
c. Writing required if term greater than three years.
Pennsylvania Stat.Ann. tit. 68 § 250.203 (1965) (refers to assignments)
d. Writing required if transfer of the unexpired balance of the term greater than one year.
Wisconsin Stat.Ann. §§ 704.04(3), 706.01(2)(c) and 706.02(1) (Special Pamphlet 1975) (requires that the conveyance identify the parties, land, interest conveyed, any material term, condition, reservation, exception or contingency; that it be signed by or on behalf of the parties and be delivered)
e. Writing, payment of service charge, and other formalities required for transfer of long-term lease of residential lots.
Hawaii Rev.Stat. § 516-63 (Supp.1975)

Comment:

a.  Rationale.  A lease divides ownership of the leased property between the landlord and the tenant. Any curtailment of the freedom of alienability of these separate interests involves a restraint on alienation. Restraints on alienation of property interests normally stand in the way of making maximum use of such interests and hence are against public policy, except in circumstances where some countervailing public interest may justify them in particular situations. The freedom of alienability rule stated in this section gives general recognition to the undesirability of restraints on alienation.

b.  Transfer of respective interests where tenancy at will created by lease.  A tenancy at will inherently exists only as long as both parties will its continuance. They are in a position to exercise this will only so long as they retain their original interests. Hence the tenancy at will can inherently exist only between the original parties. An attempt by the landlord or the tenant to transfer his interest under the tenancy at will passes nothing to the transferee. Furthermore, since such attempt manifests that the transferor no longer wills that the tenancy continue, the tenancy is terminated by an attempted transfer unless the transferee and the other party to the tenancy at will approve the continuation of the tenancy at will, in which case it becomes a new tenancy at will (see § 1.6, Comment d).  The inherent nature of the tenancy at will prevents its continuance beyond the death of either the landlord or the tenant (see § 1.6, Comment e).

c.  Tenant or landlord required to perform significant personal services under lease.  If the landlord's expectations under the lease as to personal services of the tenant may be fulfilled only by a person with the special qualifications of the tenant, and the special qualifications were a primary motivation for the landlord to enter into the lease with that particular tenant, the landlord is entitled to have the person of his choice continue as the tenant. In such situation, the interest of the tenant in the leased property is not transferable without the consent of the landlord, but, of course, the lease could provide otherwise. The tenant, however, should be free to transfer his interest under the lease to the extent such transfer does not deprive the landlord of the personal services he bargained for when he made the lease, as would be the case where the tenant had completed the work that called for his special skills. Also, under the rule of § 15.2(2), the landlord's consent to an alienation cannot be withheld unreasonably, and such consent would be withheld unreasonably if the tenant clearly established that his transferee was as well qualified as he to perform the expected personal services under the lease. The personal services referred to in subsection (2) may be those of a corporate landlord or tenant, as well as those of an individual.

Illustrations:

1. L leases hotel premises to T for five years, the rent payable to L to be a percentage of the net income realized by T in operating the hotel on the leased property. Nothing is said in the lease about the transferability of T's interest in the leased property. The lease does recite, however, that the lease to T was made because of T's experience and reputation as a successful manager of hotels. T's interest under the lease is not transferable without the consent of L.

2. L leases farm land to T under a crop-sharing agreement. L's selection of T is based on the personal skill of T as a successful farmer. T's interest under the lease is not transferable without the consent of L, unless the lease provides otherwise.

3. Same facts as Illustration 2, except that the lease is for one year and T has already harvested the crop and provided L with his share. T may now transfer the remainder of his term.

The lease may require significant personal services of the landlord and the landlord may be uniquely qualified to render those services. The substitution of someone else in the landlord's place by an assignment of the landlord's reversionary interest in the leased property could substantially impair the tenant's chances of obtaining those services. If that is the situation, unless the parties have validly agreed otherwise, the landlord is not allowed to transfer his reversionary interest in the leased property without the consent of the tenant, which consent, however, cannot be withheld unreasonably.

The tenant under a lease may have previously owned outright the leased property, the lease to him growing out of a sale and leaseback arrangement. His position as a tenant under such a lease and the position of the landlord are the same as under any other lease in so far as restraints on alienation are concerned, except that such background is relevant in determining whether significant personal services are required from either party, the chance of obtaining which might be substantially impaired by a transfer.

d.  Determinable estate for years.  A determinable estate for years in the hands of a transferee remains subject to the same terminating event. The nature of the terminating event may be such that few persons would accept the estate and in such case the nature of the tenant's interest in the leased property curtails its transferability. In regard to determinable estates for years, see § 1.7.

Illustrations:

4. L leases farm land to T for two years "as long as the leased property is used for farm purposes." An assignee or sublessee of T must be willing to use the leased property for farm purposes. Any other use of the leased property will result in the automatic termination of the leasehold interest.

5. L leases residential property to T for two years "as long as T resides on the leased property." No transfer by T would be possible without terminating the lease unless T continued to reside on the leased property after the transfer.

e.  Restrictions on use of leased property.  The leased property may be restricted to particular uses by the terms of the lease or otherwise. A transferee of the tenant will generally take subject to the same restrictions. If the tenant by his transfer purports to give to his transferee a right of use that is in violation of these restrictions, the transferee is not free to ignore these restrictions. Consequently, the existence of such restrictions may curtail to some extent the transferability of the tenant's interest.

Illustration:

6. A lease of residential property to T contains a promise by T that the leased property will be used only for residential purposes. T purports to transfer his interest under the lease to T[1] to operate a drugstore on the leased property. If the transfer to T[1] is effective, T[1] does not take free of the restriction on the use of the leased property.

f.  Methods of transfer of interests in leased property.  An interest in leased property may be transferred in any manner that complies with the formalities required under the governing law (see Statutory Note to this section). The nature of the interest in the leased property may prevent some methods of transfer.

Illustrations:

7. L leases to T for ten years. L dies and L's will provides that he devises and bequeaths all the property he owns to his son S. L's will transfers his reversionary interest in the leased property to S.

8. L leases to T for ten years "unless T sooner dies." T dies prior to the end of the ten-year period. The nature of T's interest in the leased property prevents any transfer of his interest by his will or by intestacy.

9. L leases to T for ten years. A creditor of T obtains a judgment against T and forces a sale of T's interest under the lease to satisfy such judgment. The purchaser at such sale obtains T's interest in the leased property. In regard to the effect of T's bankruptcy on his lease, see Chapters Twenty and Twenty-one.

g.  Operation ofrecording laws.  The transferred interest of either the landlord or the tenant may be by a recordable document. If so, failure to record the document may make the interest of the transferee vulnerable to one who subsequently acquires the same interest from the transferor (see § 4.1, Comment b).

h.  Transfers by the landlord.  The landlord may transfer his entire interest in the leased property. Or the landlord may transfer less than his entire interest, as would be the case if he transferred an undivided share of his interest, or transferred his interest for a limited period of time which is shorter or longer than, or exactly the same as, the unexpired term of the lease. He may also give his transferee only a reversionary interest under the lease which succeeds a reversionary interest that he retains in the leased property.

Illustrations:

10. L, owner in fee simple, leases to T for ten years. Thereafter L transfers his reversionary interest to L[1] for L[1]'s life. After the transfer, T holds under L[1] during the period of the lease that L[1] is alive. L retains a reversionary interest in the leased property, but he will not be entitled to possession of the leased property on the termination of the lease if L[1] is alive at that time.

11. L, owner in fee simple, leases to T for ten years. L transfers an undivided one-half interest in his reversionary interest to L[1]. After the transfer, T holds under L as to an undivided one-half of the leased property and under L[1] as to the other undivided one-half of the leased property.

12. L, owner in fee simple, leases to T for ten years. L transfers his reversionary interest to L[1] from and after L's death. After the transfer, T holds under L during the period of the lease that L is alive, then under L[1] if the term has not ended.

13. L, owner in fee simple, leases to T for ten years. L executes a mortgage on his reversionary interest to M to secure a loan from M to L. After the execution of the mortgage, T holds under L until such time as the mortgage is foreclosed and L's reversionary interest is sold to L[1] at the foreclosure sale, then he holds under L[1] if the term has not ended.

14. L, owner in fee simple, leases to T for ten years. At a time when T's lease has five years to run, L transfers his reversionary interest to L[1] for the next five years. After the transfer, T holds under L[1] for the balance of his term. If L transferred to L[1] only the right to the rent, T would hold under L but would be obligated to pay the rent to L[1].

15. L, owner in fee simple, leases to T for ten years. At a time when T's lease has five years to run, L leases the land to T[1] for ten years from and after the termination of T's lease. T holds under L for the balance of his term.

A transfer by the landlord will defeat the tenant's leasehold interest if such interest can be defeated, under controlling local law, by a bona fide purchaser and such a purchaser is involved. If the sale of the landlord's interest is forced by one having a paramount title to that of the tenant, such as a mortgagee whose interest existed at the time the lease was made, the tenant's interest will be defeated by the sale.

i.  Transfers by the tenant.  The tenant may transfer his entire interest under the lease, usually referred to as an assignment of his lease. He may make a partial assignment as when he transfers an undivided share of the leased property for the balance of the term of the lease, or when he assigns a specific portion of the leased property for the balance of the term of the lease. If the tenant makes a transfer of the leased property for less than the balance of the term, he has made a sublease of the leased property. The tenant has made a sublease, even though the transfer is initially for the balance of the term, if the right to possession of the leased property may return to him upon the occurrence of some event.

It is usually in the landlord's interest to keep the tenant of his choice in the position of primary liability on the obligations under the lease. If the tenant makes an assignment, rather than a sublease, the tenant's liability on the obligations under the lease becomes secondary or is eliminated (see §§ 16.1 and 16.3). Thus it is usually in the landlord's interest to treat a transfer by the tenant as a sublease whenever that is possible. If the tenant desires to make an assignment, he must not retain any reversionary interest in that which he transfers.

Illustrations:

16. L leases to T for ten years. T transfers a specifically described portion of the leased property to T[1] for the balance of the term. T has made an assignment of his interest in such specifically described portion. After the transfer, T holds under L as to the portion of the leased property not assigned and T[1] holds under L as to the portion of the leased property assigned to T[1].

17. L leases to T for ten years. When the lease has eight years to run, T transfers to T[1] the last five years of the lease. T has made an assignment of a future interest in the leased property. After the transfer, T holds under L for the next three years and then T[1] takes over and T[1] holds under L for the balance of the term.

18. L leases to T for ten years. When the lease has eight years to run, T transfers the leased property to T[1] for two years. This transfer is a sublease. After it is made, T[1] holds under T for the two years he is entitled to the possession of the leased property. During this two year period, T continues to hold under L.

19. L leases to T for ten years. When the lease has eight years to run, T transfers the leased property to T[1] for the balance of the term, but reserves a right to reenter and take possession of the leased property if T[1] fails to pay the rent to L that is called for by L's lease to T. This transfer is a sublease. After the transfer, T[1] holds under T and T continues to hold under L.

20. L leases to T for ten years. When the lease has eight years to run, T transfers the leased property to T[1] for the balance of the term. T[1] promises to pay T $ 50 a month for the leased property. The amount of the rent called for by the lease from L to T is $ 250 a month. T is not entitled to terminate the transfer to T[1] if the $ 50 a month is not paid to him, his only remedy being an action for a breach of T[1]'s promise. This transfer is an assignment. T[1] holds under L. If T is entitled to terminate the transfer to T[1] in the event that the $ 50 a month is not paid to him, the transfer is a sublease (see § 13.1).

j.  Valid agreement otherwise.  An agreement by the parties to a lease to restrict in some way the freedom of transfer a landlord or tenant would otherwise have may take many different forms and may be very broad or quite limited in its scope. The validity of such an agreement is examined in § 15.2. The parties to a lease, of course, may agree that the landlord or the tenant may transfer his interest under the lease even though such transfer might defeat the other party's expectations under the lease. If the lease of a tenancy at will provides that the interest of either party or the interests of both parties can be transferred, there is no reason why such agreement should not be valid. Agreements otherwise become a part of the lease and therefore must meet the same formal requirements as any other part of the lease.

k.  Tenant's title defective at time of transfer.  The transferee from the tenant will get no better title to the leased property than the tenant had, unless the transferee is a bona fide purchaser protected under the controlling local law from claims on the leased property that are paramount to the tenant's. Thus the transferee takes subject to the paramount claim of a mortgagee. The paramount claim of the mortgagee may be based on a mortgage placed on the leased property by the landlord before the lease was made or may be based on a mortgage on the leasehold interest given by the tenant prior to his transfer. It may also be based on a mortgage placed on the leased property after the lease, and to which the tenant subordinated his interest.

1. Comparison with present state of the law -- The general policy of this section in favor of free transfer ability of the respective interests of the landlord and the tenant in the leased property is widely supported. It is to be noted, however, that provisions restricting the tenant's freedom of transfer are quite common in leases (in regard to these provisions, see § 15.2), and that there are statutes that impose restrictions on the tenant's freedom to transfer some types of leasehold interests (see Statutory Note to this section).

2. Justification for general rule -- The justification for the general policy in favor of freedom of transferability is stated in Comment a.

3. Tenancy at will -- The tenancy at will is discussed in § 1.6. The Reporter's Note to that section should be examined in relation to the consideration in Comment b of the transferability of the respective interests of the landlord and tenant in a tenancy at will.

4. Tenant specially qualified to perform certain obligations under the lease -- If the landlord's expectations under the lease will be realized only if a person with special skills serves as tenant, he should not have to take some substitute for the person he has selected. This position is recognized in Comment c and is supported by various authorities. See Randall v. Chubb, 46 Mich. 311, 9 N.W. 429 (1881); Kansas City Area Transportation Authority v. Ashley, 485 S.W.2d 641 (Mo.App. 1972); Nassau Hotel Co. v. Barnett & Barse Corp., 162 App.Div. 381, 147 N.Y.S. 283 (1914), aff'd, 212 N.Y. 568, 106 N.E. 1036 (1914); 1 M. Friedman, Friedman on Leases § 7.302 (1974) [henceforth, Friedman on Leases]. Cf. Luczyk v. Shaw, 7 Wis.2d 623, 97 N.W.2d 405 (1959).

A lease under which the landlord is to share in what the tenant produces on the leased property is one where the landlord's expectations will not be realized if the tenant does not have some special skill. It has been held that such a lease is not transferable without the landlord's consent. See Crump v. Tolbert, 210 Ark. 920, 198 S.W.2d 518 (1946); Randall v. Chubb, supra; 1 Friedman on Leases § 7.302f (1974). If the lease provides for crop-sharing and accords to the tenant the use of the landlord's personal property to aid in producing the crops, this may be an additional factor showing that the tenant has been personally selected for his special qualifications. Meyer v. Livesley, 45 Ore. 487, 78 P. 670 (1904). Under a lease that calls for the sharing of crops raised by the tenant, after the crops have been raised the special skills called for in the tenant may not be needed for the balance of the term, and in such case the hindrance to the assignability of the lease should be removed. To this effect, see Dvorak v. Graves, 16 Neb. 706, 21 N.W. 440 (1884); Cupples v. Level, 54 Wash. 299, 103 P. 430 (1909).

A lease under which the landlord is to receive a percentage of the profits from a business the tenant is to operate on the leased property is one where the landlord relies on the special skills of the tenant. See Gerould Co. v. Arnold Constable & Co., 65 F.2d 444 (1st Cir. 1933); Marcelle v. Sol & S. Marcus Co., 274 Mass. 469, 175 N.E. 83 (1931); Powerine Co. v. Russel's, Inc., 103 Utah 441, 135 P.2d 906 (1943); 1 Friedman on Leases § 7.302b, c, d, e (1974). But see William Berland Realty Co. v. Hahne & Co., 29 N.J.Super. 316, 102 A.2d 686 (1954), mod'f'g, 26 N.J.Super. 477, 98 A.2d 124 (1953). A factor which may undermine the landlord's reliance on any special skill in the tenant is the presence in a percentage lease of a substantial minimum rental. See McFadden-Deauville Hotel v. Murrell, 182 F.2d 537 (5th Cir. 1950); 1 Friedman on Leases § 7.302c (1974).

As is noted in Comment c, the situation in which the landlord possesses special qualities on which the tenant relies is less common. Most of these leases would arise in the framework of a commercial-retail development, such as with a shopping center developer who has special knowledge and ability upon which a retail store might rely when committing itself to a long-term lease; or the operator of a large department store whose name or reputation is an important factor in attracting tenants who lease out individual departments. Such a situation as the latter arose in Moore v. Thompson, 93 Mo.App. 336, 67 S.W. 680 (1902), in which the court held that a ten-year lease by the store to a tenant who ran the shoe department was not assignable without the assent of both parties for the reason that it was one of "mutual confidence and for the performance of valuable services each for the other." The court drew an analogy to cases involving non-assignability of personal service contracts. No other decisions have been found which uphold a restraint on alienation of the landlord's reversion in favor of the tenant. However, see Reporter's Note to § 15.2, item 3, for a discussion of instances in which the courts have at least held the landlord liable for damages suffered by a tenant due to the landlord's transfer.

5. Transfer of determinable estates -- Determinable estates for years are discussed in § 1.7. The general principle that the assignee gets no better title than the assignor had applies to impose on the assignee the same possibility of termination of the lease on the occurrence of the stipulated terminating event as applied to the assignor.

6. Provisions restricting use of leased property -- The violation of a promise restricting the use of the leased property gives rise to an action for damages or specific performance. The tenant is not privileged to transfer the leased property for a use he is not entitled to make of the leased property. See Nave v. Berry, 22 Ala. 382 (1853); Williams v. Safeway Stores, Inc., 198 Kan. 331, 424 P.2d 541 (1967); Ritchie v. State Board of Agriculture, 219 Mo.App. 90, 297 S.W. 435 (1927). If he purports to do so, the transfer may be ineffective. Ritchie v. State Board of Agriculture, supra.  Or it may be valid, the transferee having to abide by the restriction. Burns v. Dufresne, 67 Wash. 158, 121 P. 46 (1912). Absent a restriction on the use of the leased property, the tenant is free to transfer for any legal use. See Nave v. Berry, supra.

7. Transfers by the landlord -- The landlord may transfer his entire reversionary interest. Luthy v. Arkansas Trading Co., 158 Ark. 617, 250 S.W. 878 (1923) (dictum); Perkins v. Langdon, 237 N.C. 159, 74 S.E.2d 634 (1953). He may transfer his entire reversionary interest in part of the leased property. Linton v. Hart, 25 Pa. 193 (1855). He may transfer his entire reversionary interest for a specified period of time. Gulf Motors v. Fenner, 114 A.2d 543 (D.C.Mun.App.1955); Lewis v. Storch, 120 Ga.App. 85, 169 S.E.2d 726 (1969). He may transfer only the right to receive the rent: United States v. Shafto, 246 F.2d 338 (4th Cir. 1957); Schmidt v. Baum's Home of Flowers, 162 Tenn. 439, 37 S.W.2d 105 (1931). He may transfer easements or rights of way reserved under the lease. American Agricultural Chemical Co. v. Pocahontas Coal Corp., 256 App.Div. 946, 10 N.Y.S.2d 298 (1939). He may in effect transfer his reversionary interest only for the balance of the term of the lease, sometimes referred to as "assigning the lease." Penn Gardens Section Two v. Melnick, 256 Md. 72, 259 A.2d 520 (1969); Morehouse v. Woodruff, 218 N.Y. 494, 113 N.E. 512 (1916).

8. Transfers by the tenant -- There is general agreement that the tenant is free to transfer his interest under a lease, in whole or in part, by way of assignment or sublease, absent an agreement otherwise. See McFadden-Deauville Hotel v. Murrell, 182 F.2d 537 (5th Cir. 1950); Kassan v. Stout, 9 Cal.3d 39, 507 P.2d 87, 106 Cal.Rptr. 783 (1973); Hampton v. Hampton Beach Improvement Co., 107 N.H. 89, 218 A.2d 442 (1966); American Book Co. v. Yeshiva University Development Foundation, Inc., 59 Misc.2d 31, 297 N.Y.S.2d 156 (Sup.Ct.1969); Irons Investment Co. v. Richardson, 184 Wash. 118, 50 P.2d 42 (1935). This basic right of the tenant to assign or sublease should not be affected by the manner in which the tenancy arises. But see Emtico Associates v. Gabel, 47 Misc.2d 577, 262 N.Y.S.2d 885 (Sup.Ct.1965), aff'd, 25 App.Div.2d 718, 269 N.Y.S.2d 675 (1966).

What purports to be a transfer by a tenant may be a sham transaction which should be ignored in determining the tenant's legal position. This has been held to be the result when the transfer was to a dummy corporation to eliminate further personal liability of the tenant. See O'Donnell v. Weintraub, 260 Cal.App.2d 352, 67 Cal.Rptr. 274 (1968); Century Holding Co. v. Ebling Brewing Co., 185 App.Div. 292, 173 N.Y.S. 49 (1918); Nutley v. Gregory, 6 Wash.App. 576, 494 P.2d 1384 (1972).

A partial assignment, that is, a transfer of the balance of the term in some portion of the leased property, is illustrated by Cities Service Oil Co. v. Taylor, 242 Ky. 157, 45 S.W.2d 1039 (1932); Kostakes v. Daly, 246 Minn. 312, 75 N.W.2d 191 (1956); New Amsterdam Casualty Co. v. National Union Fire Insurance Co., 266 N.Y. 254, 194 N.E. 745 (1935); Annotation, 99 A.L.R. 220 (1935). Some courts, however, have referred to a partial assignment as a sublease. See Fratcher v. Smith, 104 Mich. 537, 62 N.W. 832 (1895); Fulton & Kirker v. Stuart, 2 Ohio 216 (1825).

The following cases support the position taken in Comment i that a sublease is involved if the tenant has reserved a right to take back the possession of the leased property upon the occurrence of some event, the event usually being the failure of the transferee to meet some rental payment: Coles Trading Co. v. Spiegal, Inc., 187 F.2d 984 (9th Cir. 1951); Hartman Ranch Co. v. Associated Oil Co., 10 Cal.2d 232, 73 P.2d 1163 (1937); Dunlap v. Bullard, 131 Mass. 161 (1881); Saling v. Flesch, 85 Mont. 106, 277 P. 612 (1929); Hobbs v. Cawley, 35 N.M. 413, 299 P. 1073 (1931); Davis v. Vidal, 105 Tex. 444, 151 S.W. 290 (1912). But compare with these cases the following, which did not find that the transfer was a sublease though a right to reenter was reserved by the transferring tenant: C.N.H.F., Inc. v. Eagle Crest Development Co., 99 Fla. 1238, 128 So. 844 (1930); Sexton v. Chicago Storage Co., 129 Ill. 318, 21 N.E. 920 (1889); Davidson v. Minnesota Loan and Trust Co., 158 Minn. 411, 197 N.W. 833 (1924); Stewart v. Long Island R. R. Co., 102 N.Y. 601, 8 N.E. 200 (1886); State v. Meador, 60 Wash.2d 543, 374 P.2d 546 (1962).

The fact that the transferring tenant has reserved a rent payable to him that is different from the rent payable under the original lease has been seized upon to find a reversionary interest in the transferring tenant, with the result that a sublease is involved. See D.A.C. Uranium Co. v. Benton, 149 F.Supp. 667 (D.Colo. 1956); Fratcher v. Smith, supra; Phelan v. Kennedy, 185 App.Div. 749, 173 N.Y.S. 687 (1919). But compare Entroth Shoe Co. v. Johnson, 260 Ky. 309, 85 S.W.2d 686 (1935).

A provision in the transferring instrument that the transferee will return the possession to the transferring tenant at the end of the lease should not in and of itself cause the transfer to be a sublease. See Sexton v. Chicago Storage Co., supra; Herzig v. Blumenkrohn, 122 App.Div. 756, 107 N.Y.S. 570 (1907). But see Collins v. Hasbrouck, 56 N.Y. 157 (1874).

ALR Annotations:

Grazing or pasturage agreement as violation of covenant in lease or provision of statute against assigning or subletting without lessor's consent. 71 ALR3d 780.
Power of municipal corporation to lease or sublet property owned or leased by it. 47 ALR3d 19.
Landlord and Tenant: tenant's rights under provision giving him preemptive right to purchase on terms offered by third person, where third person's offer is withdrawn before tenant exercises preemptive right. 46 ALR3d 1377.
Requisite definiteness of price to be paid in event of exercise of option for purchase of property. 2 ALR3d 701.
Subletting or renting part of premises as violation of lease provision as to subletting. 56 ALR2d 1002.
Right of landowner who has conveyed property to third person to maintain forcible detainer or similar summary possessory action. 47 ALR2d 1170.
Possession of real property by tenant as charging another purchaser with notice of tenant's agreement with owner-landlord to purchase property. 37 ALR2d 1112.
Merger or consolidation of corporate lessee as breach of covenant against assignment or sublease. 24 ALR2d 695.
What constitutes notice to subsequent purchaser of real property of option to purchase contained in unrecorded lease. 17 ALR2d 331.
Lessee's option to purchase as affected by lessor's receipt of offer for, or sale of, larger tract which includes the leased parcel. 170 ALR 1068.
What amounts to assignment or sublease as distinguished from employment contract, within provision of lease against assignment or sublease without lessor's consent. 163 ALR 532.
Construction of provision for termination of lease in event of sale of property. 35 ALR 518, s. 116 ALR 931, 163 ALR 1019.
Right of lessee in absence of covenant to assign lease orsublet premises. 23 ALR 135, s. 70 ALR 486, 167 ALR 1040.

Digest System Key Numbers:

Landlord and Tenant 53, 74-79, 80 1/2, 81.