Alerts
Frequently Misunderstood Issues Regarding Lease Assignments
by Brad Scarborough
November 30, 2011
Two of the frequently misunderstood lease issues that I receive calls about are whether the landlord's consent is required to assign a lease and whether an assigning tenant is released from liability under a lease after it assigns the lease. A tenant's failure to understand these can have a devastating effect on a tenant that needs to assign its lease, or that assigns its lease to an assignee without giving paying careful attention to its continued liability under the lease.
Landlord's Consent Is Required for Lease Assignment
Generally speaking, a contract involving real property may be assigned absent a provision to the contrary in the contract. However, § 91.005 of the Texas Property Code provides that a tenant may not rent its leasehold estate during the term of a lease without the prior consent of Landlord. Texas courts have held that such statute applies to a lease assignment as well as a sublease of the premises, and this limitation on the transfer of a tenant's leasehold estate is for the landlord's sole benefit. Accordingly, the landlord of a tenant that assigns its leasehold estate without the landlord's consent has the option to either declare the assignment invalid bring an action against the tenant or waive the statutory provision enforce the obligations against both the assignee and the original tenant/assignor. The statutory prohibition against assigning a lease without the landlord's consent may be avoided only by a clear expression of the parties' intent that landlord's consent is not required. Because a landlord does not have a duty to consent to a proposed assignment of the lease, a lease should include an express provision that the landlord may not unreasonably withhold its consent to a sublease or assignment. Absent such a provision, a tenant may find itself unable to either assign its lease or sublet its premises.
No Release of Liability for Tenant after an Assignment
Even when the landlord consents to an assignment of the lease, the original tenant is not released from the obligations of the lease unless the landlord expressly releases the original tenant from such obligations. In an assignment situation, the assignee, as well as the original tenant, is liable for the obligations of the tenant under the Lease. Therefore, careful consideration should go into the selection of an assignee or subtenant and the assignment should contain an indemnity from the assignee to protect the original tenant from the liability. However, that indemnity obligation may not be worth the paper it is written on if the assignee does not have the financial ability to satisfy that obligation.
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