Chapter 12

Leasing Property: Landlord-Tenant Law

In This Chapter

Identifying how leases are different from licenses and easements

Getting to know the types of tenancies

Understanding landlords’ duties to deliver and maintain the premises

Examining the transfer and termination of leaseholds

The leasehold may be the most common way that property ownership is divided up over time. In estates terminology, which I cover in Chapter 9, the landlord conveys a present estate, known as the leasehold or term of years, to the tenant and retains a future interest, known as a reversion. When the leasehold ends, the landlord has the right to take possession of the premises again.

If that’s all there was to it, landlord-tenant law wouldn’t need its own chapter. It would just be part of estates. But there’s a lot more to it. The landlord-tenant relationship has many distinctive rules — some common law rules that developed over time to govern this unique relationship, some statutory rules that respond to various perceived deficiencies in the law, and some rules that are commonly created by contracts between landlords and tenants.

This chapter examines the types of leaseholds that you can create, the rights and duties of landlords and tenants, and the ways in which a leasehold can be transferred or terminated.

Distinguishing Leaseholds from Other Interests

A leasehold is a present estate with the present right of possession. But the lease agreement that creates the leasehold may limit the tenant’s possessory rights, and the leasehold itself may not last very long at all. So sometimes determining whether a person has a leasehold or some lesser, nonpossessory interest is hard to do. The following sections distinguish such lesser interests from leaseholds.

Licensing versus leasing

A license is permission to use land. The owner of a theater, for example, may grant licenses to people to enter the theater to watch a performance. Landowners also routinely grant licenses to people who deliver things or make repairs on their land.

A lease differs from a license because a lessee has the right to possess and control the premises, whereas a licensee merely has the permission to use the premises. A lessee, therefore, has the right to exclude other people from the premises; a licensee does not.

Some licenses look very similar to leases. A short-term rental of a vacation home, for example, may be a lease or a license. The fundamental question is whether the owner gives the other person the right to possess and control the premises or whether the owner has retained such control. Sometimes the parties’ agreement grants some possessory rights and not others, making the agreement more difficult to characterize.

No one rule distinguishes a lease from a license. Courts just consider all the facts and decide which type of interest the parties created. Here are some facts that are often significant in such cases:

Exclusivity: If the grantee of the interest has the exclusive right to possess the premises during the duration of the interest, it’s a lease; if the interest isn’t exclusive of others, it’s a license. However, in some cases, a lease may not be exclusive of the landlord in that the landlord may retain the right to enter and use the premises for certain purposes. The more the grantor of the interest has such rights to occupy and use the premises, the less likely the interest is a lease.

Defined space: A lease must be for a defined space, so if the interest doesn’t define the space, it’s probably a license.

Duration of interest: The longer the interest lasts, the more likely it is to be considered a lease. But the duration alone isn’t decisive, because theoretically you could create a lease that lasts only an hour.

Fungibility of property: If the interest granted isn’t really in a particular property but rather is in a particular type of experience — such as seeing a show or having lodging — then it’s more likely to be a license.

Associated services: The more services that accompany the interest in the land, the more likely it is to be a license, because those provided services indicate less control of the premises. For example, if a short-term rental includes utilities, linens, household supplies, and trash removal, it’s more likely to be a license than a lease.

Consideration: Many authorities say that payment of consideration in exchange for the interest tends to indicate a lease rather than a license. However, a licensee certainly may pay consideration for a license, and a lessor can give a leasehold to a lessee for free.

Comparing easements and leases

Like licenses, easements may be similar to leases. An easement is basically the right to use another’s land in some way, such as to drive across it for access to neighboring land. I cover easements in detail in Chapter 6.

An easement differs from a lease in that the holder of the easement isn’t a possessor of the land (for more about the idea of possession, see Chapter 2). The holder of an easement doesn’t have the right to exclude others or a general right to use the land; she has only the right to use the land in certain specified ways. In the case of an express easement, the right of use is described in the grant of the easement. If the easement arises by implication or prescription, the right of use is limited by the use of the land that originally led to the existence of the easement.

Creating and Differentiating the Four Types of Tenancies

Parties can create four kinds of leaseholds, or tenancies:

Fixed-term tenancy

Periodic tenancy

Tenancy at will

Tenancy at sufferance

The difference among these tenancies is how and when they end. The following sections describe each of these tenancies in more detail.

Fixed-term tenancy

As the name suggests, the fixed-term tenancy has a definite term, or duration. The agreement creating the leasehold specifies a date on which the leasehold will automatically end. Neither party has to give notice to the other party to end the leasehold; it expires on the last day specified by the lease agreement.

A fixed-term tenancy is sometimes called a tenancy for years, but that label is misleading because a fixed-term tenancy can be created for any definite duration, no matter how short. On the other hand, many state statutes today do specify maximum terms for leases, such as 50 or 99 years.

Because a fixed-term tenancy exists only when the parties have specified an ending date for the leasehold, it can be created only by express agreement between the landlord and the tenant. Such agreements are subject to the statute of frauds — state statutes that allow enforcement of certain contracts only if there’s written evidence of an agreement signed by the party denying its existence. Statutes of frauds vary among the states, but typically a lease agreement is subject to the requirements of the statute of frauds if it creates a lease term longer than one year.

Periodic tenancy

A periodic tenancy doesn’t have a definite duration. The term of this type of tenancy is the period for which the tenant agrees to pay rent periodically, whether it’s daily, weekly, monthly, annually, or some other period of time. The tenancy simply continues from period to period as long as the parties want. Because it never naturally expires, the periodic tenancy ends only when one of the parties notifies the other that she wants to end the tenancy. Generally, the terminating party must give such notice one rental period in advance, or six months in advance for a year-to-year tenancy. State statutes or the parties’ lease agreement may specify when notice must be given to terminate periodic tenancies.

A landlord and tenant may expressly create a periodic tenancy by contract just as they may create a fixed-term tenancy. But parties may also create a periodic tenancy without an express agreement when the tenant pays periodic rent to the landlord and the landlord accepts those payments. One situation where parties may create a periodic tenancy without an express contract is when a fixed-term tenancy ends but the tenant keeps paying rent and the landlord keeps accepting it. Another time when the parties may create this type of tenancy is when they enter into a fixed-term lease that isn’t enforceable because of the statute of frauds or some other reason. As long as the tenant pays the agreed-upon rent and the landlord accepts it, they have a periodic tenancy.

Tenancy at will

A tenancy at will exists when the tenant has possession with consent of the landlord, but the parties don’t have an agreement on the rental to be paid or the term of the lease. It therefore has no defined duration or even a periodic term. For example, if someone sold a house but continued living there with the consent of the buyer, the seller would be a tenant at will until either the parties agreed on rental payments or the seller left.

Because a tenancy at will exists only when the parties haven’t agreed on rent or term, parties rarely create a tenancy at will by express agreement. This type of tenancy generally exists only temporarily while the tenant has possession with consent but the landlord and tenant are deciding what to do next. The tenancy ends whenever either party chooses to end it — the common law requires no advance notice — or takes any action inconsistent with the tenancy at will, either by creating a different type of tenancy or by terminating the tenancy altogether.

Tenancy at sufferance

The tenancy at sufferance isn’t really a tenancy. Rather, it describes the status of a possessor of land who rightfully held possession for a time and who stays in possession of the premises after her right ends. A tenancy at sufferance may arise when a lessee remains in possession after the lease ends or when a life tenant or the owner of a fee simple defeasible estate remains in possession after the end of her freehold estate. (Flip to Chapter 9 for details on estates.)

When a tenant stays in possession after the end of her lease and becomes a tenant at sufferance, the landlord has a reasonable time to choose one of two options:

Notify the tenant that she’ll thereafter be a periodic tenant with an obligation to pay a specified rent.

Notify the tenant that she’ll be a trespasser, subject to an ejectment action by the landlord if she doesn’t leave.

Possessing the Leased Premises

Like the owner of any other present estate, the tenant has the right to possess the leased premises. The lease agreement may give the landlord the right to enter the premises for certain purposes, such as to inspect or make repairs, but the landlord doesn’t have the right to possess the premises during the term of the leasehold.

In a multi-unit building, the tenant’s right to possess the leased premises comes with an implied right (even if it isn’t expressed in the lease agreement) to use common areas — areas that the landlord owns but that are for the use of all tenants generally, such as parking areas, hallways, and stairs.

The tenant can use the premises in any legal ways she wants to, unless the lease agreement limits the tenant’s use. Such contractual limitations on the tenant’s use are real covenants, which I tell you about in Chapter 5. The tenant doesn’t generally have a duty to possess and use the land, just a right — although the parties can agree otherwise in their lease. In some commercial leases, for example, the tenant may covenant to occupy the premises and operate her business there in good faith.

The following sections examine the landlord’s duties to ensure the tenant can enjoy possession during the lease term.

Delivering possession to the tenant

The landlord of course promises to give the tenant the legal right of possession when the leasehold begins. If the landlord doesn’t have the legal right of possession and therefore can’t convey it to the tenant at the beginning of the leasehold, the landlord has breached the lease.

But even if the tenant has the legal right to possess the premises, someone else, such as a former tenant, may still possess the premises, thus preventing the new tenant from physically entering into possession at the start of the leasehold.

The landlord usually has a duty to eject such a possessor so that the property is open for the tenant to take actual possession when the leasehold begins. Such a duty may come from one of three sources:

The lease agreement may include an express promise that the landlord will deliver actual, physical possession at the start of the lease term.

Statutes in a number of states declare that a landlord has a duty to deliver physical possession of the premises at the beginning of the lease term.

Even in the absence of an express agreement or a state statute, most courts hold that the landlord has an implied duty to deliver physical possession of the premises at the start of the lease term. These courts reason that physical possession is the essential reason for the lease agreement and that the landlord is in a better position than the tenant to eject trespassers before the commencement of the tenant’s lease term. (A minority of courts disagree, holding that the landlord isn’t responsible for the trespass of a third party and that the tenant herself can bring an ejectment action to regain possession.)

Covenanting not to disturb the tenant’s quiet enjoyment

The landlord also covenants that neither he nor anyone else with a superior right to possession will disturb the tenant’s quiet enjoyment of the premises during the term of the leasehold. Simply entering into a lease implies this covenant, aptly called the covenant of quiet enjoyment, even if the lease agreement doesn’t express it.

The covenant of quiet enjoyment isn’t a promise to take action against trespassers. Rather, it’s merely a promise that the landlord or a superior titleholder won’t interfere with the tenant’s possession. The tenant has to deal with trespassers herself. Furthermore, this covenant isn’t a promise that no one has a superior title; rather, it’s a promise that no such person, or the landlord himself, will interfere with the tenant’s possession of the premises. Therefore, the covenant is breached only when such a person interferes with the tenant’s possession. Such an interference is commonly called an eviction.

Here are some ways an eviction may occur:

The landlord wrongly physically excludes the tenant from some or all of the leased premises.

A prior tenant still has the right to possession, either because her lease term hasn’t ended or she had a valid right to extend the lease term, and she lawfully prevents the tenant from possessing the premises.

A mortgagee, whose mortgage encumbered the premises before the tenant leased them, forecloses the mortgage upon default and sells the premises at a foreclosure sale. When the foreclosure buyer takes possession and excludes the tenant, the landlord has breached the covenant of quiet enjoyment.

If an eviction does occur and the landlord breaches the covenant of quiet enjoyment, the tenant’s remedies include the following:

Damages: The tenant may recover consequential damages that result from the breach, such as relocation expenses, as well as the difference in value between the property she was promised and the property she actually received.

Withholding rent: The tenant’s duty to pay rent is conditioned upon the landlord’s providing the promised quiet enjoyment of the premises. So if the landlord breaches the covenant of quiet enjoyment, the tenant has no duty to pay rent.

Termination of the lease: The tenant can terminate the lease agreement altogether.

Maintaining the Leased Premises

Both parties have an interest in maintaining the leased premises. The tenant, of course, wants the premises to be in good condition during the term of the leasehold so that she can fully use and enjoy the property. Even though the landlord doesn’t have the right of possession during the lease term, he’ll eventually regain possession and will want the premises to be in good condition for future use.

The following sections clarify the landlord’s and the tenant’s responsibilities when it comes to maintaining the leased premises.

Understanding common law duties

Under traditional common law, the landlord generally has no duties to deliver the premises in a certain condition or to maintain the premises during the term of the lease. The landlord can’t fraudulently misrepresent a material condition of the premises or actively conceal a defect from the tenant before entering into the lease, but he has no duty to provide premises of a certain quality. The tenant can inspect the premises before entering into the lease and decide whether she wants to lease them; if she does, she takes the property as it is.

The tenant, on the other hand, does have a common law duty not to commit waste. Just as other owners of present estates owe the duty to future interest holders not to commit waste, a tenant owes a duty to the landlord, who owns a reversion, not to commit waste. You can read about waste in more detail in Chapter 9, but it basically means the tenant has a duty not to damage the premises (voluntary waste) and not to permit damage to the premises (permissive waste). The tenant, therefore, has a common law duty to make repairs that are necessary to prevent further damage to the premises, such as repairing a roof or otherwise keeping the building protected from the elements.

Contracting to maintain the premises

Because both parties have an interest in maintaining the premises but the common law imposes no obligation on the landlord and only a relatively narrow obligation on the tenant, landlords and tenants commonly contract to allocate maintenance duties between them.

If the landlord agrees by contract to make repairs, the tenant must notify the landlord of the need for such repairs and give him a reasonable time to make the repairs. In some leases, the tenant may agree to make some repairs, while the landlord agrees to make other repairs. But if such contract clauses are unclear, a court must interpret the scope of the parties’ respective duties to repair. In interpreting repair clauses, a court may consider not just the language of the lease itself but also what the parties likely intended. A court is less likely to require a tenant to make repairs if

The cost of the repair is large compared to the rental payments.

The lease term is shorter, and therefore much of the repair’s value will be enjoyed by the landlord.

The repair is structural and unrelated to the tenant’s specific use of the premises.

The parties didn’t contemplate the particular type of repair when they entered into the lease.

Taking a look at constructive eviction

If the landlord breaches contractual maintenance and repair duties, he’ll be liable for damages to the tenant. Traditionally, the landlord’s and tenant’s covenants are independent, meaning that the landlord’s breach of a repair covenant doesn’t excuse the tenant’s covenant to pay rent. Consequently, the tenant’s only remedy for such a breach is damages.

However, over time courts developed the rule that the tenant’s obligation to pay rent is conditioned on the landlord’s performing his covenant of quiet enjoyment. If the landlord physically prevents the tenant from enjoying the premises, the tenant is not only entitled to damages but also excused from paying rent and can terminate the lease.

Courts have come to apply the same reasoning to breach of a landlord’s contractual duty to maintain and repair the leased premises. If the landlord’s breach significantly interferes with the tenant’s quiet enjoyment of the premises, the landlord may have breached the covenant of quiet enjoyment, thereby entitling the tenant to withhold rent and terminate the lease, not just recover damages. Such a breach is called a constructive eviction.

To establish that the landlord has committed a constructive eviction, the tenant must prove the following:

Wrongful act by the landlord: The tenant must prove that the landlord has breached a duty to the tenant. The covenant of quiet enjoyment and the constructive eviction doctrine themselves don’t impose obligations on the landlord to maintain and repair the premises. So the tenant can’t claim a breach of the covenant simply because the property is in bad shape; it has to somehow be the landlord’s fault.

The tenant must identify some wrongful act by the landlord, whether because it breaches a contractual agreement, a tort duty, or even a statute. For example:

• The landlord has breached a lease covenant to maintain and repair the leased premises.

• The landlord has breached a lease covenant to provide utilities or other services to the leased premises.

• The landlord has not reasonably maintained the common areas.

• The landlord has tortiously interfered with the tenant’s enjoyment of the premises, such as by maintaining a nuisance.

• The landlord has not taken action to prevent interference by other tenants, when such interference is in common areas or violates the tenants’ leases. Some courts disagree, however, reasoning that landlords are not responsible for the wrongdoing of their tenants.

• The landlord has not maintained the property as required by a local statute, although some courts say this is only a public duty and therefore cannot be the basis for a claim of constructive eviction.

Substantial interference with enjoyment: The tenant must prove that the wrongful acts by the landlord have substantially interfered with the tenant’s use and enjoyment of the premises. Generally speaking, that means the wrongful acts must make the premises unsuitable for the tenant’s use for a substantial period of time, not just temporarily.

Abandonment of the premises: The interference with the tenant’s use and enjoyment must be so substantial that it causes the tenant to leave the premises within a reasonable time. That’s why it’s considered equivalent to an eviction; the interference is so disruptive of the tenant’s use that it’s as though the landlord has physically evicted the tenant. If the tenant remains on the premises at all — even if the tenant abandons only part of the premises, like a flooded basement — then the tenant can’t claim a constructive eviction.

Warranting habitability of the premises

In residential leases, the landlord implicitly warrants that the premises are habitable and covenants to maintain the premises in habitable condition throughout the term of the lease. Most states now have statutes that impose this warranty on landlords, but in some states, the courts have adopted the implied warranty of habitability by common law reasoning, without state legislation.

The implied warranty of habitability generally applies only to residential leases, but the covenant of quiet enjoyment applies to all leases. Because a claim for breach of the warranty of habitability is generally easier to prove than a claim for constructive eviction, residential tenants generally favor warranty of habitability claims. But except in a few states, commercial tenants don’t have the option of claiming a breach of the implied warranty of habitability (which may be called an implied warranty of fitness or suitability when applied to commercial leases). So they still must rely on the older constructive eviction theory to withhold rent or terminate a lease when the landlord doesn’t fulfill his obligations to maintain the premises.

Although specific aspects of the implied warranty of habitability vary among jurisdictions, I outline the general aspects of the rule in the next sections.

Proving an uninhabitable condition

All versions of the implied warranty of habitability agree that a violation of an applicable housing code that substantially affects the tenant’s health or safety is a violation of the implied warranty of habitability. Housing codes are local ordinances and therefore vary from jurisdiction to jurisdiction, but they generally require landlords to meet minimum standards for residential buildings. They include not only requirements intended to ensure that buildings are safe and functional but also requirements of essential services such as heat and hot water.

Not all housing code violations substantially endanger tenants’ health and safety. So a tenant can’t just prove a code violation; he must also prove that the code violation endangers health or safety. On the other hand, some conditions may endanger health or safety even though they don’t violate a housing code. Some courts have held that such conditions breach the implied warranty of habitability even though they don’t violate a housing code; other courts have disagreed.

Many types of conditions may make residential premises uninhabitable, but some common types are

Lack of heat, hot water, or other essential services

Infestation by rodents or insects

Leaking water, mold, and related problems

Plumbing problems

Nuisances by other tenants, like noise, or by the landlord, like those from construction activities

As you’d probably expect, the landlord isn’t responsible for fixing problems that the tenant, or those for whom the tenant is responsible, has deliberately or negligently caused. Such problems don’t breach the implied warranty of habitability.

Notifying the landlord

Courts and statutes generally agree that the landlord violates the implied warranty of habitability only if

The tenant notifies the landlord within a reasonable time after discovery of the problem.

The landlord doesn’t make the needed repairs within a reasonable time after receiving the notice.

Waiver

Most courts and statutes say that the tenant can’t waive the implied warranty of habitability. In these states, the warranty is mandatory and isn’t just “implied” when the parties don’t say otherwise. In other states, however, some tenants can waive some aspects of the warranty; for example, tenants of single-family houses may waive the warranty, and tenants may waive the protection of the warranty except as to matters required by the local ordinances.

Remedies

States vary in the remedies they provide to tenants upon breach of the implied warranty of habitability. Possible remedies include

Termination: As with a constructive eviction that violates the covenant of quiet enjoyment, the tenant can vacate the premises and terminate the lease. Of course, the tenant must have notified the landlord of the breach, and the problems must continue until the tenant leaves.

Rent withholding: In many states, the tenant may stop paying rent in whole or in part. The tenant may raise the breach of warranty as a defense or counterclaim if the landlord seeks to evict for nonpayment of rent or to recover unpaid rent; the court then determines how much the tenant ultimately must pay in rent. In some states, the tenant may be required to pay rent into escrow or apply the rent to fixing the habitability problems.

Damages or rent abatement: If the tenant has paid full rent, she’s entitled to recover some or all of the rent, but if the tenant hasn’t paid rent, she’s entitled to a judicial order reducing the amount she owes the landlord. In either case, jurisdictions vary in how they calculate damages:

• Some award the difference between the agreed contract rental and the actual rental value of the premises in their uninhabitable condition.

• Some award the difference between the market value of the premises if they were habitable and the market value of the premises in their actual uninhabitable condition.

• Some award the percentage of the agreed contract rental equal to the percentage by which the property is less valuable because of the uninhabitable condition.

Consequential damages: The tenant can recover foreseeable consequential damages, expenses the tenant incurs because of the landlord’s breach. These damages can include relocation expenses and the cost of making the repairs herself if the landlord failed to do so within a reasonable time after receiving notice.

Tort and punitive damages: Although most courts don’t allow them, some courts allow the tenant to recover tort damages for emotional distress, annoyance, damage to the tenant’s personal property, and physical injuries. Some courts have also awarded punitive damages when the landlord’s conduct is intentional, malicious, or in reckless disregard of the tenant’s health and safety.

Protecting third parties from injury

The tenant is the possessor of the leased premises, so she traditionally has the same tort duties that other property owners have to third parties to prevent injury. Those duties traditionally depend on the status of the third party as an invitee, licensee, or trespasser and are generally the subject of courses in tort law rather than property law.

The landlord, on the other hand, isn’t the possessor of the land, so he traditionally has no liability to the tenant or third parties for personal injuries resulting from the leased premises. However, in an increasing number of states (although still a minority), the landlord is liable for tort injuries to tenants or third parties resulting from his negligence. But traditionally (and still in most states), the landlord isn’t liable in tort for physical injuries except in certain circumstances. The following sections describe those circumstances.

Landlord’s duty of care in common areas

The landlord possesses the common areas, even though the tenants have the right to use them. Like any other possessor, the landlord has a duty to exercise reasonable care in maintaining those areas. Reasonable care means not only that the landlord performs needed repairs properly and in good time but also that the landlord reasonably discovers needed repairs and reasonably warns people of dangerous conditions.

Landlord’s liability for latent defects

The landlord has a duty to disclose latent defects to the tenant at the beginning of the tenancy. The landlord is liable for injuries if the following are true:

At the beginning of the leasehold, the landlord knew (or, in some courts, should’ve known) about the defective condition of the leased premises.

The tenant didn’t know about the defect.

The defect causes injury to the tenant or a third party.

Landlord’s failure to repair

Even though the landlord isn’t the possessor of the leased premises, he may contractually agree to maintain and repair the premises in certain ways. If so, he’s liable for negligence in fulfilling that contractual duty. Such a negligence claim requires proof that

The landlord had notice of the needed repair.

The landlord didn’t make the repair within a reasonable time or with reasonable care.

The unrepaired condition creates an unreasonable risk of harm.

The unrepaired condition causes injury to the tenant or those she permits on the premises.

Landlord’s negligent repair

If the landlord makes repairs to the leased premises, whether he’s required to or not, he’s liable for injuries resulting from his negligence in performing those repairs. Some courts hold the landlord liable for negligent repairs only if the repair made the condition more dangerous or only gave the appearance of being safe.

Landlord’s failure to repair dangerous conditions in public areas

A landlord who leases property knowing that some or all of the property will be open to the public has a duty of care to the public. The landlord is liable to third parties if the following are true:

At the beginning of the leasehold, the landlord knew or should’ve known about a defect that creates an unreasonable risk of harm to the public.

The landlord didn’t repair the condition or obtain the tenant’s assurance that she would repair the condition before admitting the public.

The dangerous condition causes injury to a third party.

Landlord’s liability for crimes by third parties

Traditionally, landlords weren’t responsible for other people’s crimes on the premises. Today, however, most courts agree that landlords are liable for criminal attacks against tenants and others on the premises if the following are true:

The landlord provides a service or maintains some aspect of the property, such as locks, alarms, or security guards, regardless of whether the landlord has a statutory or contractual duty to do so or simply does so voluntarily.

The landlord provides the service or maintains the property negligently.

The landlord’s negligence contributes to the commission of a crime by making the crime easier to commit.

The crime was reasonably foreseeable, usually meaning that the landlord knew of criminal activity nearby, if not on the premises themselves.

This liability is generally based on negligence in tort, not on breach of a contractual duty. A few cases, however, have suggested that failure to provide basic security measures such as door locks is also a breach of the implied warranty of habitability; therefore, a landlord may be liable in contract for foreseeable criminal injuries that result from such a breach.

Transferring the Leasehold

As Chapter 2 explains, the right to transfer property is a fundamental right of property ownership. The estates of landlords and tenants are transferable just like any other estates. The landlord can transfer his reversion in the fee to a new landlord, and the tenant can transfer her leasehold to someone else or even lease her present estate for a time to a new tenant. However, the parties can and often do restrain the tenant’s freedom to transfer (and occasionally they restrain the landlord’s freedom to transfer as well). Different types of transfers have different legal consequences for the parties involved.

Restraining the tenant’s right to transfer

Lease agreements commonly include clauses that limit transfers by the tenant. Often, such clauses simply prohibit transfers by the tenant or prohibit them without the landlord’s written consent. Another common clause, which is more favorable to the tenant, requires that the tenant obtain the landlord’s consent but also says that the landlord may not unreasonably deny consent.

Many courts enforce these clauses by their terms. If the lease requires the landlord’s consent to a transfer by the tenant and the landlord denies consent, the tenant can’t transfer the leasehold — regardless of the landlord’s reason. However, because these clauses restrain alienation and restraints on alienation are disfavored (as I explain in Chapter 9), courts construe them narrowly. For example, courts will construe a clause that prohibits “assignment” but doesn’t say anything about “subleasing” to allow the tenant to sublease freely.

The policy against restraints on alienation doesn’t invalidate all such restraints, but it does invalidate disabling restraints and allows only reasonable promissory and forfeiture restraints. The result of this general rule is that if the tenant transfers her interest in violation of a lease clause, the transfer will be effective despite the clause. The landlord can only recover damages (the remedy for breach of a promissory restraint) or, if the clause allows, terminate the lease for breach of the clause (the remedy for breach of a forfeiture restraint).

A growing number of cases apply the policy against restraints on alienation to require that a restraint on tenant transfers be reasonable. If the landlord doesn’t have a good reason to object to the tenant’s transfer, a court may refuse to enforce the restraining clause. A landlord has a good reason to object to a tenant who has fewer assets, less income, a history of breaching lease obligations, or otherwise seems more likely to breach. Especially in residential leases, a landlord may even have a good reason for objecting to a new tenant because the tenant seems less neighborly, because in a residential setting, people may live close together and relationships may be important even if the tenant performs the basic obligation of paying rent. In commercial leases, on the other hand, some courts have held that if the landlord doesn’t have any commercially reasonable objections to the new tenant, then enforcement of the clause would violate the policy against restraints on alienation. Denying consent simply to demand additional rent or value in exchange for the consent, not because the new tenant puts the landlord in a worse position, isn’t reasonable.

Some cases have also suggested that the implied duty of good faith and fair dealing, a general contract principle, requires that the landlord have a good reason for denying consent to transfer by the tenant.

Even if the landlord refuses to consent to the tenant’s transfer, the landlord may implicitly consent (or waive the restraint) by accepting rent from the transferee. Furthermore, courts increasingly apply the general principle requiring mitigation of damages to deny recovery of damages for lost rent if accepting the transferee would’ve avoided such a loss.

Transferring all or part of the tenant’s estate

A tenant can transfer all or part of her leasehold estate. Transferring the entire leasehold estate is called an assignment; transferring less than the entire leasehold estate is called a sublease. If a tenant assigns her leasehold, the new tenant becomes the landlord’s tenant. On the other hand, if the tenant subleases her leasehold, the new tenant becomes the tenant of the original tenant. The following sections help you further distinguish between assignments and subleases.

Assigning

A tenant assigns her leasehold when she transfers her entire leasehold estate in some or all of the leased premises to another tenant. The assignee, the person to whom the tenant has assigned the leasehold, becomes the landlord’s tenant. The landlord, therefore, can enforce the running covenants in the lease agreement directly against the assignee. Chapter 5 talks about when covenants run with the land instead of being merely personal to the original contracting parties.

Some covenants in a lease may be personal, but the usual and basic covenants regarding payment of rent and use of the land are running covenants that the landlord may enforce against an assignee. Furthermore, if the assignee promises the original tenant that he’ll perform the covenants of the original lease, which is called an assumption of the lease, the landlord is a third-party beneficiary of that promise and can enforce all the covenants of the lease against the assuming assignee.

Subleasing

If the tenant transfers less than her entire estate, the transfer is a sublease. It’s called a sublease because it’s a new lease between the original tenant and the subtenant rather than an assignment of the existing lease between the landlord and the original tenant. (I fill you in on assignments in the preceding section.) If the tenant transfers anything less than the remainder of the lease term to the transferee, even retaining a reversion of just one day before the original lease term ends, the transfer is a sublease. In fact, some courts hold that even a transfer of the entire remaining lease term is a sublease if the transferring tenant retains a right of entry to terminate the transferee’s interest.

A minority of courts have simply held that a transfer is an assignment if the parties intended to put the transferee in the original tenant’s position but it’s a sublease if the parties intended to create a new tenancy between the tenant and the transferee. These courts consider all the evidence of the parties’ intent, including what they called the transfer, as well as the amount and form of payment and to whom payment is made.

Because the subtenant makes a new lease instead of taking over the existing lease, the subtenant doesn’t have a direct property or contractual relationship with the landlord (called privity). The landlord therefore doesn’t have the right to enforce the terms of the original lease against the subtenant at law.

This doesn’t mean the subtenant doesn’t have to worry about performing the original lease, however. As Chapter 5 explains, privity isn’t required to enforce a covenant in equity as an equitable servitude. Consequently, the landlord should be able to specifically enforce land-related covenants against the subtenant, even though he can’t obtain an award of damages for breach. Some states have statutes authorizing landlords to enforce the duty to pay rent against subtenants. Furthermore, as with an assignment, a subtenant may assume the obligations of the original lease by promising to perform the covenants of the original lease. In that case, the landlord is a third-party beneficiary of that promise and may enforce it against the subtenant. Finally, if the covenants of the original lease aren’t performed, the landlord may have the right to terminate the lease, thus terminating the sublease as well.

The subtenant does have privity of estate and contract with the original tenant, of course. Thus, the subtenant is liable to the original tenant for breach of the sublease.

Holding transferring tenants liable for subsequent breaches of the lease

Whether the tenant assigns or subleases, the original tenant remains responsible to the landlord to perform her covenants under the original lease. So the landlord may sue either an assigning tenant or the assignee for breach of the real covenants in the lease.

The same is true for subsequent transferees who assume the tenant’s obligations of the lease. By assuming the lease, they, too, have privity of contract with the landlord and are responsible to the landlord for performing the contract even if they later transfer the leasehold to someone else. Transferees who don’t assume the lease, however, don’t have privity of contract and have no more duties to the landlord after they transfer the leasehold to someone else.

Even so, the transferee who’s in possession of the leased premises is primarily responsible to perform the duties of the lease. The tenant or assuming transferee who subsequently transfers is only secondarily responsible. As far as the landlord is concerned, if the lease is breached, the landlord may sue the original tenant, any subsequent transferee who assumed the lease, and/or the present assignee. But if a prior possessor who has transferred the leasehold is held liable to the landlord, that person has a claim against her transferee to recover whatever liability he incurred.

The only way a tenant or assuming transferee can be free of the lease duties to the landlord is if the landlord releases her. Merely consenting to an assignment or sublease doesn’t release the assignor or sublessor. The landlord must expressly indicate an intention to release her from the obligations of the lease.

Terminating the Leasehold

Tenancies can end any number of ways. Some end automatically, while others require notice. A lease agreement can also authorize parties to terminate the leasehold if the other party breaches certain obligations. The sections that follow explore the various ways that leaseholds can end and explain the landlord’s options if the tenant remains in possession after the leasehold ends.

Terminating pursuant to agreement

If the lease agreement creates a fixed-term tenancy, the leasehold automatically ends on the last day of the term as specified in the lease. Neither party has to notify the other of termination. If the tenancy is periodic, the leasehold ends after the required period of advance notice. A tenancy at will ends immediately whenever either party indicates the desire to end it, whether by notice or other action, although many state statutes specify that a terminating party must give the other party advance notice. (For a refresher on types of tenancies, see the earlier section “Creating and Differentiating the Four Types of Tenancies.”)

Leases commonly include clauses that allow the landlord, and sometimes the tenant, to terminate the lease in certain circumstances. Most commonly, the lease gives the landlord the right to terminate the leasehold if the tenant breaches the duty to pay rent, commits waste, or commits other significant breaches of the lease. But if the tenant breaches, thereby giving the landlord a right to terminate, and the landlord subsequently acts as if the tenancy continues — most commonly by accepting rent — then the landlord waives the right to terminate for that breach.

Abandoning the leased property

Unless the lease says otherwise, the tenant has no duty to physically possess the leased premises. So the tenant doesn’t breach the lease if she leaves the premises during the lease term, nor does her departure end her leasehold. However, if the tenant leaves the premises and stops paying rent, the landlord can choose to terminate the leasehold, relet the premises on behalf of the tenant, or in some states, simply continue to enforce the lease and demand the rent from the tenant. The following sections explore each of these options.

Rejecting the surrender and enforcing the lease

When the tenant abandons the premises and stops paying rent, it’s called a surrender of the premises. The landlord doesn’t have to accept the surrender. The leasehold belongs to the tenant for the lease term; the tenant can’t end the leasehold early just by leaving and not paying rent.

Traditionally, and still in some states, the landlord can simply reject the surrender and continue to demand rent as it comes due. Eventually, the landlord may sue for the accumulated unpaid rent. Or the lease may authorize the landlord to immediately demand all the rent remaining to be paid during the lease term.

In most states today, however, whether by statute or judicial decision, the landlord can’t recover rent from the tenant to the extent that the landlord could’ve reduced that loss by reasonably attempting to find a new tenant. When the landlord makes such attempts to reduce losses from another’s breach, he’s mitigating damages. The law has commonly required mitigation of damages in other contractual relationships, and states increasingly apply this doctrine to landlords as well.

Reletting the premises for the tenant

Whether mitigation is required or not, the landlord may choose to mitigate damages by finding a new tenant on behalf of the abandoning tenant. The abandoning tenant remains responsible for performance of her lease, so she still must pay the landlord the difference between the rent she owes and the rent the landlord collects from the new tenant. The abandoning tenant also must pay the landlord’s reasonable costs of making repairs and finding a new tenant.

Accepting the surrender and terminating the leasehold

The landlord may choose to accept the tenant’s surrender of the premises and thereby terminate the lease. In this case, the tenant has no more estate and no more duty to pay rent. Therefore, if the landlord wants to recover damages for lost rent from the tenant, the landlord should relet the premises for the tenant instead of accepting the surrender and leasing the premises for himself.

Whether the landlord chooses to relet for the tenant or accept surrender, the landlord retakes possession, fixes up the property, and finds a new tenant. Therefore, the landlord should clearly indicate his intention in writing — which usually is to relet for the tenant rather than accept surrender. If the landlord doesn’t clearly indicate his intention, a court will infer his intention from all the circumstances. If the landlord enters into a new lease for a longer term than the abandoning tenant’s remaining lease term, that situation generally indicates the landlord has accepted the surrender and isn’t reletting for the tenant. Some cases have suggested that altering the property beyond what is necessary to relet also indicates acceptance of surrender.

Terminating the leasehold in other ways

Some other, less common ways that leaseholds may end include the following:

Death: Unless the lease says otherwise, death doesn’t terminate a fixed-term or periodic tenancy. The landlord’s reversion and the tenant’s leasehold are inheritable and devisable, meaning the owners can transfer them by will or, if they don’t, their interests pass to their heirs by intestate succession. However, the death of either party terminates a tenancy at will.

Merger: If the same person comes to own both the leasehold and the reversion, the estates merge and the leasehold ends.

End of landlord’s estate: If the landlord’s estate ends, so does the leasehold. If the landlord has a life estate, for example, and leases that property for a term, as soon as the life estate ends, the leasehold also ends, even though the lease term may not have ended.

Damage or destruction: The lease may provide that the tenant can terminate if the building is materially damaged or destroyed. If the lease doesn’t say the tenant can terminate in such circumstances, the traditional rule is that the tenant leases the real property for the term, regardless of damage to or destruction of buildings. However, if the tenant rents only space in a building and not the land, the destruction of the building allows the tenant to terminate the lease. Likewise, some state statutes permit the tenant to terminate in the event of destruction or at least to terminate if the landlord doesn’t rebuild. For residential tenants protected by the implied warranty of habitability, if damage or destruction to the building makes the premises uninhabitable, the tenant can elect to terminate if the landlord doesn’t rebuild (see the earlier section “Warranting habitability of the premises” for details).

Eminent domain: The government can exercise eminent domain to take leased property just as it can take any other property. If the government takes fee simple absolute ownership, it takes the reversion and the present leasehold and thereby ends the lease. The tenant has a right to the lost market value of her leasehold as just compensation, but if the rent is equal to the market value of the property, the tenant hasn’t suffered a loss of market value. If the government takes the property only temporarily for less than the remainder of the lease term, then the leasehold doesn’t end unless the lease says otherwise. The tenant continues to owe rent to the landlord and is entitled to just compensation from the government, measured by the property’s fair market rental value.

Holding over after termination of lease

As I note in the earlier section “Creating and Differentiating the Four Types of Tenancies,” if the tenant remains in possession after the leasehold ends (often called holding over), she becomes a tenant at sufferance. The landlord then has two choices:

Eviction: The landlord can treat the holdover tenant as a trespasser and evict her from the premises. In such cases, the landlord is entitled to damages from the holdover tenant for the period of time during which she remains as a trespasser on the land, measured by the market value of the use of the land. (Some state statutes give the landlord two or three times the regular rent as damages for the period of holding over.)

Periodic tenancy: The landlord can treat the holdover tenant as a periodic tenant and recover periodic rent from the tenant. The period of the tenancy is generally the period for which the tenant had been paying rent before holding over, and the other terms of the old lease continue to govern the parties’ relationship. However, the lease can specify an increased rental payment that the tenant must pay if she holds over, or the landlord can specify an increased rental payment that the tenant must pay if she continues as a periodic tenant, as long as the amount is reasonable.

The landlord must make his choice within a reasonable time, but if he doesn’t, the law is unclear whether the tenant is a trespasser, a periodic tenant, or even a tenant at will. The landlord may expressly indicate his choice, but often, he merely implies it by his actions. If the landlord brings a lawsuit to recover possession or leases the property to a new tenant, those actions obviously indicate the intention to treat the holdover tenant as a trespasser. On the other hand, accepting rental payments from the holdover tenant generally indicates the intention to treat the holdover tenant as a periodic tenant.

Applying and refunding security deposits

Lease agreements typically require the tenant to pay a security deposit to the landlord at the beginning of the lease term. The landlord holds the security deposit money to secure payment of debts that the tenant owes the landlord, such as unpaid rent and damages for harm to the property. The security deposit makes recovering such debts from the tenant easier because the landlord already has a fund of money in his control.

Most states have statutes that regulate the use of security deposits. These statutes, which usually apply only to residential leases, may include provisions such as the following:

The security deposit may not be greater than the amount specified by the statute.

The security deposit may only secure certain types of obligations specified by the statute and must specify what it secures.

The landlord must keep the security deposit in a separate account and pay interest on the balance.

If the landlord transfers his interest to another, his assignee is responsible for performing obligations connected to the security deposit.

The landlord must give the tenant an itemized notice of amounts he withholds from the security deposit within a certain amount of time after the leasehold ends. Statutory remedies vary if the landlord doesn’t return the deposit to the tenant or provide the required notice within the specified time period. For instance, the landlord may have to return the entire deposit, lose the right to recover claimed damages from the tenant, or owe the tenant some multiple of the amount that the landlord wrongfully withheld.

Evicting the Tenant

Even when a tenancy has ended and the landlord has the legal right to possession, the landlord may have to figure out a way to actually get the tenant off the property and retake possession. Obviously, the landlord can bring a lawsuit to eject the former tenant like any other trespasser, but the landlord has some other options as well, as I explain next.

Evicting by self-help

A landlord may try to get rid of the holdover tenant without going to court, which may be called evicting by self-help. Self-help eviction can be very tempting to landlords who want to save the time and expense of legal action. For example, a landlord may hope to regain possession by changing the locks while the tenant is away or by turning off the utilities. However, the rules and legality of eviction by self-help vary by jurisdiction.

In some states, the landlord has no right to enter the leased premises as long as the holdover tenant remains in possession, even though the landlord has elected to treat the holdover tenant as a trespasser. Some states have adopted this rule by statutes that apply only to residential leases, so in those jurisdictions, residential landlords have no right to self-help but other landlords do.

In other states, however, the landlord has a limited right to self-help. The majority rule is that the landlord doesn’t commit a trespass if he peaceably enters the leased premises after the termination of the leasehold. Cases vary widely on what is “peaceable.” Breaking in or directly confronting the tenant are unlikely to be peaceable. Entering while the tenant is away, through an unlocked door or with a key, is more likely to be peaceable. More important to the landlord is what he can do to exclude the tenant after he peaceably enters the property. By statute or judicial decision, in some jurisdictions, the landlord can’t exclude the tenant by changing locks, turning off utilities, or performing other similar actions. Other jurisdictions allow such means of excluding the holdover tenant.

If the landlord excludes the tenant by self-help, he also has to do something with the tenant’s stuff. Some states allow the landlord to use force that’s reasonably necessary to evict, whereas others don’t allow the landlord to use any force against people or their things.

The lease agreement may include a clause that gives the landlord the right to use self-help to evict the tenant. Some courts enforce these clauses, regardless of the applicable default rules about self-help, but others hold them to be void and apply the same rules to all landlords regardless of any lease clauses. So in some states, the lease is the first place to look to answer the landlord’s questions about self-help; in others, you don’t need to look at the lease at all.

Evicting by summary procedure

At least in large part because of concerns about violent conflicts arising from landlord self-help in evicting holdover tenants, all states have adopted statutes that provide a simplified judicial process for regaining possession of real property. The process goes by different names in different states but is often called a forcible entry and detainer action. The following sections shed light on the details of these summary procedures.

Defining forcible entry and detainer

As the label suggests, the forcible entry and detainer statute is meant to provide a process to quickly remedy forcible entries and detainers. A forcible entry is simply entering another’s property forcibly without consent and without legal right, thereby ousting the rightful possessor. For example, a landlord forcibly enters when he uses self-help and changes the locks if he hasn’t properly terminated the leasehold and the tenant therefore still has the legal right of possession.

If the trespasser retains possession, the rightful possessor may bring a forcible entry and detainer action to eject the trespasser. Even if the defendant lawfully and peaceably took possession initially, if she later wrongfully and forcibly retains possession, that possession is a forcible detainer and she’s subject to a forcible entry and detainer action. A landlord seeking to evict a holdover tenant can allege a forcible detainer because although the tenant had the right to legal possession for a time, she then wrongfully retained possession after the leasehold ended.

The common label forcible entry and detainer suggests that the action applies only when the defendant has used some force. But states vary in whether force is required and, if so, what kind of force is enough to be subject to the statute. Variations include the following:

Some states don’t require any force. In those states, the plaintiff need only prove that the entry or detainer was unlawful and without the plaintiff’s consent.

Some courts have said that the plaintiff must prove actual force, not just implied force, in entering or retaining possession.

Between these two extremes, some states do require force but define “force” to include threats of force or circumstances indicating that the other party won’t surrender possession peaceably.

Simplifying the issues

The forcible entry and detainer statutes simplify the process of ejecting a holdover tenant or other trespasser who is subject to the statutory process. Just like any other lawsuit, the plaintiff initiates a forcible entry and detainer action against the defendant with a complaint, but the issues that the plaintiff can plead and litigate are limited. The statutes generally allow the parties only to plead and litigate the issue of who has the legal right to possess the premises. In fact, in some states, a plaintiff landlord can use the summary procedure only to regain possession for nonpayment of rent; if the landlord seeks to regain possession for other tenant breaches, the landlord must file an ordinary civil action.

Any other claims besides regaining possession, such as claims for damages for breaching lease duties, generally require a separate lawsuit. However, if the landlord alleges that he has the right to take possession of leased premises because the tenant has breached the duty to pay rent, then the court must decide whether rent is due in order to decide whether the landlord or tenant has the right to possess the premises. Some courts therefore have held that tenants can raise defenses to the obligation to pay rent, such as breach of the implied warranty of habitability. In most states, the landlord can also recover unpaid rent in a forcible entry and detainer action (and in some, he can even recover double rent as a statutory penalty), but in other states, the landlord can’t recover any unpaid rent in a forcible entry and detainer action.

Speeding up the process

The forcible entry and detainer statutes speed up the usual judicial process by shortening the time between stages of the process. For example, the statute may require the plaintiff to first give notice to the defendant to cure her breach, if possible, or quit the premises, but the notice may only have to be given three to ten days before the plaintiff can file his complaint. The summons typically needs to be served on the defendant only a few days before the trial date. The U.S. Supreme Court’s decision in Lindsey v. Normet, 405 U.S. 56 (1972), held that such a summary procedure doesn’t violate the Due Process Clause.