Daily Development for
Friday, December 12, 1997

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

LANDLORD AND TENANT; ASSIGNMENT OF LANDLORD'S INTEREST: Conveyance of property subject to a least constitutes an assignment of the lease as well.

Bobhic Associates Ltd. Partnership v. Carrabba Ob-Gyn Associates, Inc., 692 A.2d 826 (Conn.App. 1997).

This case appears to stand for the proposition in the caption, but the court beats the question to death in so many ways that it is not clear exactly what it sees as the true foundation for its opinion.

The lease provided: "Except as herein otherwise provided, the terms hereof shall be binding upon and inure to the benefit of the successor and assigns, respectively, of Landlord and Tenant. . . ." Landlord transferred its interest in the property by deed to plaintiff in this case. Tenant commenced paying rent to plaintiff, but later defaulted. Plaintiff brought suit to collect the rent, and the trial court found that the simple proof of the conveyance of landlord's interest by deed was insufficient proof of the assignment of landlord's rights under the lease.

On appeal: held: reversed.

The appeals court first first appears to satte that the transfer of the landlord's reversionary estate is assumed to include the transfer of associated rights under a lease. " There is ample support in Connecticut law for the proposition that the conveyance of property itself constitutes an assignment of the property and the rights that run with it." The court would have been fine if had stopped there. Instead, however, it discussed easement cases as analogous precedent. This is unfortunate, because the trade practices involving lease assignments are different and more complex than the considerations involved in easements. It would be much safer simply to read the contracting intent of the parties to a transfer of the landlord's reversion to include an assignment of the lease contract unless circumstances indicate otherwise.

The court comes close to doing this in another part of the opinion. But its language leaves some confusion as to whether it views the result as a consequence of contracting intent or as a consequence of property status:

"[T]he term assigns [as used in the lease] 'generally comprehends all those who take either immediately or remotely from or under the assignor, whether by conveyance, devise, descent or act of law. . . ' [O]ur Supreme Court [has]held that "[t]he rent due for the use of the premises was an incident to the reversion and was carried with it. The plaintiff, by force of the conveyance of the property to him by [the original landlord], had the right to recover in his own name all rent which became due and payable subsequent to the conveyance of the property to him."

The first part of this quote appears to address the language in the lease by which the original landlord and tenant agree that the tenant will be bound to assigns. The second part of the quote appears to indicate that the right to rent, at least, passes with the reversion whether the original lease so provides or not.

The court adds to the confusion even more in a third part of the opinion in which it states:

"The plaintiff, by force of the conveyance of the property to him by [the original landlord], had the right to recover in his own name all rent which became due and payable subsequent to the conveyance of the property to him. The defendant, by payment of rent to the plaintiff under the terms of the lease, recognized the plaintiff's title. This right of a lessor to recover rent of the assignee of the lease is founded, not on contract, but on privity of estate. It is a general proposition, which has but few exceptions, that the transfer of a reversion carries with it the rent due and accruing thereafter by the lease creating the term, whether the assignment be by deed or mortgage."

Here, again, there is confusion as to property rules and contract rules. The issue is clouded even further by reference to the tenant's acknowledgement of the new landlord by the tenant's paying rent to that landlord. This suggests that the court is dredging up the requirement of "attornment," which should not be necessary if the parties had agreed in the original lease that the tenant would be liable to the landlord's assigns and the conveyance was viewed as an assignment.

The only thing we know for certain from this case is that the tenant indeed was bound for the rent to the landlord's successor.

Comment 1: Although subtle, the issues confused by the court here are important and fundamental to the working out of landlord tenant relationships in the future in Connecticut. There are at least three questions: (1) Whether a landlord can "sever" various elements of its estate; (2) How to interpret situations in which no "severance" has been made; (3) What are the successor landlord's rights and responsibilities?

Comment 2: A landlord's interest consists of three separate elements (at least). The contract relationship with the tenant - involving both rights and duties; the right to receive rents; the underlying ownership interest in the property. Only this last interest constitutes the formal "reversion" of the landlord. It is quite common, in connection with financing arrangements, for a landlord to treat separately either the right to rents or the rights and duties under the contract. It is also possible, although less likely, for a landlord to sell only the reversion in the property and continue to enjoy the benefits of the lease, including rents and other contract rights, for the balance of the lease term.

Because the trade practices include this much variety of business objective, the legal rules (and the statements of them) ought to take this variety into account. Courts ought to be cautious not to lay down definitive statements of what happens when a landlord executes a deed of its property. Although the grantor may desire to transfer both lease rights and reversion, this is not necessarily the case, and should not be true as an absolute rule of law. Further, courts ought to be circumspect in reading the lease document itself as limiting the rights of the landlord to sever its interest. Most contract rights are assignable and divisible unless the contract provides otherwise. Even where a lease does not provide that it inures to the benefit of "successors and assigns," good policy ought to recognize that the landlord retains the right to assign any part of its interest unless the parties have agreed expressly to limit that right.

Comment 3: The best way to address these issues from the standpoint of the transfers of the landlord's interest is to view the landlord as assigning implicitly the lease contract as well as the reversion unless the parties to the transfer provide otherwise. The successor, consequently, would have not only the right to collect rent, but also the right to enforce other parts of the lease, and also would be bound to comply with the terms of the lease binding upon the landlord. Of course, we would except those parts of the lease agreement that are not appropriate for passing on to successors - those parts that, due to contract or policy, do not "run with the land." But there are precious few of these in the properly interpreted modern commercial lease.

The editor's quarrel with the Connecticut court here is that it suggests that the plaintiff's rights arise out of its ownership of the estate, and not because it is an assignee of the lease. First, the original landlord ought to have the right to transfer the reversion without transferring the rent right. Second, the "default" construction of a deed of the reversion ought to be that the contract rights indeed are assigned.

Further, the notion that the tenant must somehow acknowledge the assignment, through a process of "attornment," is also silly. Unless the tenant has restricted the assignability of the landlord's interest, it ought to be assignable, and the tenant ought to be bound to perform to the assignee upon notice of the assignment, just as is the case in most contract assignments.

Comment 4: Finally, there is the question of the obligations of the original landlord and its successor under the lease. If the lease agreement is viewed as assigned, then the new owner of the reversion ought to be viewed as bound by the lease. The question of whether the old landlord ought be viewed as released is more problematic. On the tenant's side, the original tenant is not released when it transfers its estate. But with covenants in fee, a party who makes a covenant with respect to certain land is released from that covenant when it transfers the land to another. The editor is aware of some conflict in the cases regarding the impact of the transfer of the landlord's estate. There ought to be a clear default rule, but it ought to stem from a clear understanding of trade practices and understandings, and not from application of obscure "mechanical" notions of what is or is not "attached" to the land.

The Connecticut court, of course, does not get into these issues at all, but the editor is concerned that the muddy analysis of the relationship between successive landlords in the case will further confuse future courts dealing with the question of landlords' duties.

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