Ernst leased a plot of land to Rogers to build a go-kart
track. The lease was for one year, did not give Rogers the right to
sublet without written approval, and made Rogers responsible for cleaning
up the property after he was done with the lease.
A month later, Rogers got tired of running a go-kart track
and sold the business to Conditt.
Conditt and Rogers went to Ernst and modified the lease.
It was now for two years, and stipulated that Rogers would remain liable
for the lease, if Conditt failed to pay the rent.
Conditt paid the rent for three months. He then abandoned
the property without cleaning it up. Ernst attempted to hold Conditt to
the terms of the lease and recover back rent, but failed. Ernst sued
Conditt for the total amount of unpaid rent on the two year lease as well
as the cost of removing the go-kart track (about $7k total)
Ernst claimed that Conditt was directly liable, since the
modification to the lease made Conditt an assignee of the original
lease.
Conditt claimed that his agreement with Rogers was a sublease
and Ernst should go sue Rogers, who was the original lessee.
The contract modification did specifically use the word
"sublease" and explicitly held Rogers liable.
If the contract modification was a sublease, then there
was no privity between Ernst and Conditt so Ernst could not sue
for breach of contract. Ernst would have to sue Rogers, (who could then
sue Conditt). If it was an assignment, then privity exists
and Ernst could sue Conditt directly.
The Trial Court found that the contract modification was
an assignment, and therefore Conditt is directly liable. Conditt
appealed.
The Appellate Court affirmed.
The Appellate Court looked past the plain meaning of the
lease and attempted to ascertain the intentions of the parties.
Rogers retained no interest in the lease and did not
reserve any right of reentry in event of a breach of any of the
conditions. Without any interest, the contract modification was an assignment,
not a sublease.
The fact Rogers agreed to remain liable didn't give him
any interest in the lease.
The parties were relatively unsophisticated and probably
didn't comprehend the legal differences between a sublease and an
assignment when they wrote the contract.
Basically, an assignment occurs when a lessee
transfers his entire interest under the lease (including right to
possession for the duration of the lease). If the lessee transfers
anything less than their entire interest (for example only one year out of
a two year lease), then it is a sublease.
