Transfer of Leasehold Interests; Assignment, Sublease, and Termination

Chapter 25 established the leasehold as an estate and Chapter 26 traced the obligations that arise while the tenant is in possession. This chapter takes up the two events that most often generate litigation in a tenancy: the transfer of an interest in the leasehold to a third person, and the ending of the tenancy itself. Both are governed by the same underlying proposition — that a lease creates simultaneously an estate in land and a contract between the parties — and both become intelligible only when those two strands are held apart.

The chapter therefore proceeds in two movements. The first concerns transfer: the tenant's power to alienate what he holds, the classical line between assignment and sublease, the twin relations of privity of estate and privity of contract, the running of covenants at law, the effect of assumption and novation, the operation and limits of consent clauses, and the transfer of the landlord's reversion. The second concerns termination: the ordinary ending of the term, notice-based termination of periodic and at-will tenancies, surrender, merger, abandonment, forfeiture for breach, destruction and condemnation, frustration and impossibility, statutory termination, holding over, mitigation, and the measure of damages.

1. The leasehold is an estate and is presumptively alienable. Absent a restriction in the lease or a statutory bar, a tenant may transfer the whole or a part of what he holds, and the landlord may transfer the reversion.
2. Assignment and sublease are distinguished by what the transferor retains. A transfer of the entire remaining term, without reservation of a reversionary interest, is an assignment; a transfer for less than the balance of the term, leaving a reversion in the transferor, is a sublease.
3. The classical test is objective, not nominal. The label the parties attach does not control; a minority of jurisdictions look instead to the parties' manifested intent.
4. Privity of estate follows possession of the estate. It exists between the landlord and whoever holds the leasehold estate, and it supports enforcement of covenants that run with the land.
5. Privity of contract follows the promise. It binds the original tenant to the landlord for the whole term unless released, and it is unaffected by the mere transfer of the estate.
6. An assignee is liable on running covenants only while in privity of estate. Liability attaches on taking the estate and ends on a further assignment, except for breaches occurring during the assignee's holding.
7. An assuming assignee is liable in contract for the whole term. Assumption creates a direct contractual obligation enforceable by the landlord as promisee or third-party beneficiary, and it survives a later assignment.
8. Only a novation releases the original tenant. A landlord's consent to a transfer, or acceptance of rent from the transferee, is not by itself a release.
9. A sublessee is not in privity with the head landlord. The sublessee's obligations run to the sublessor; the head landlord may not sue the sublessee in contract or on covenants running with the estate, but the sublease falls with the head lease.
10. Covenants run at law when they touch and concern the land. Spencer's Case supplies the classical framework: the covenant must touch and concern, the parties must intend it to run, and the requisite privity must exist.
11. Consent clauses are enforceable but strictly construed. Restraints on alienation of a leasehold are permitted, yet courts read them narrowly and apply the rule in Dumpor's Case and waiver principles against the landlord.
12. Modern authority increasingly implies a reasonableness limit on withholding consent. Restatement (Second) of Property § 15.2 and Kendall v. Ernest Pestana, Inc. adopt commercial reasonableness absent a freely negotiated provision to the contrary; other jurisdictions retain the arbitrary-refusal rule.
13. Transfer of the reversion carries the benefit and burden of running covenants. Attornment was required at common law; statute has long dispensed with it.
14. Termination has a defined taxonomy. Expiration, notice, surrender, merger, abandonment coupled with acceptance, forfeiture for breach, destruction, condemnation, frustration, and statutory termination each have distinct predicates and consequences.
15. Surrender requires mutual assent or operation of law. A unilateral abandonment is not a surrender; acceptance may be inferred from conduct inconsistent with continuation of the tenancy.
16. The modern residential rule requires mitigation. On abandonment the landlord must make reasonable efforts to relet; the classical no-mitigation rule survives in some commercial settings.
17. Holding over exposes the tenant to election. The landlord may treat the holdover as a trespasser and sue for possession, or elect to bind the tenant to a new periodic tenancy on the terms of the expired lease so far as applicable.

1. State the classical test distinguishing assignment from sublease and apply it to transfers reserving a right of reentry or a fraction of the term.
2. Distinguish privity of estate from privity of contract and predict who may sue whom, on what covenant, and for what period.
3. Apply Spencer's Case and the touch-and-concern requirement to determine whether a covenant runs to an assignee.
4. Explain the legal effect of assumption, and distinguish assumption from novation and from mere consent.
5. Analyze a consent clause under both the arbitrary-refusal rule and the commercial-reasonableness rule, and identify the effect of Dumpor's Case and of waiver.
6. Trace the consequences of a transfer of the reversion, including attornment, running covenants, and security deposits.
7. Classify a given ending of a tenancy within the taxonomy of termination and state its consequences for rent and possession.
8. Distinguish abandonment, surrender by agreement, and surrender by operation of law, and identify what conduct constitutes acceptance.
9. State the landlord's election on a holdover and the measure of damages after abandonment, including the effect of a mitigation duty.

• Restatement (Second) of Property: Landlord and Tenant §§ 15.1–16.3 (transfer), §§ 12.1–12.3 (rent and abandonment), §§ 13.1–13.3 (termination for breach) (Am. L. Inst. 1977).
• Restatement (First) of Property §§ 404–415 (alienability; restraints on alienation) (Am. L. Inst. 1944).
• Restatement (Third) of Property: Servitudes §§ 2.1, 5.1–5.3 (Am. L. Inst. 2000) (running of covenants generally).
• Uniform Residential Landlord and Tenant Act §§ 4.203, 4.207, 5.101–5.103 (Unif. L. Comm'n 1972).
• Revised Uniform Residential Landlord and Tenant Act §§ 601–605, 701–707 (Unif. L. Comm'n 2015).
• Statute of Frauds, 29 Car. 2, c. 3, §§ 1–4 (1677) (Eng.) (surrender and assignment in writing).
• Statute of 32 Hen. 8, c. 34 (1540) (Eng.) (running of covenants to and against grantees of the reversion).
• Spencer's Case, 77 Eng. Rep. 72 (K.B. 1583).
• Dumpor's Case, 76 Eng. Rep. 1110 (K.B. 1603).
• Kendall v. Ernest Pestana, Inc., 709 P.2d 837 (Cal. 1985).
• Julian v. Christopher, 575 A.2d 735 (Md. 1990).
• Jaber v. Miller, 239 S.W.2d 760 (Ark. 1951) (intent test).
• Ernst v. Conditt, 390 S.W.2d 703 (Tenn. Ct. App. 1964).
• Sommer v. Kridel, 378 A.2d 767 (N.J. 1977) (mitigation).
• Berg v. Wiley, 264 N.W.2d 145 (Minn. 1978) (self-help; re-entry).

• Sir Edward Coke, The First Part of the Institutes of the Laws of England §§ 309, 331 (assignment and reversion).
• 2 William Blackstone, Commentaries on the Laws of England *326–*328 (surrender, merger, and the ending of estates).
• 2 Frederick Pollock & Frederic William Maitland, The History of English Law Before the Time of Edward I, bk. II, ch. IV (2d ed. 1898).
• A. W. B. Simpson, A History of the Land Law ch. 4 (2d ed. 1986).
• 2 Herbert Thorndike Tiffany, The Law of Real Property §§ 119–132, 138–145 (3d ed. 1939).
• 2 Richard R. Powell, Powell on Real Property chs. 17–18 (Michael Allan Wolf ed.).
• Stoebuck & Whitman, The Law of Property §§ 6.68–6.82 (3d ed. 2000).
• Mary Ann Glendon, The Transformation of American Landlord-Tenant Law, 23 B.C. L. Rev. 503 (1982).
• Note, The Landlord's Duty to Mitigate Damages on the Tenant's Abandonment, 75 Yale L.J. 1063 (1966).

The leasehold is an estate in land. That single proposition, established in Chapter 25, supplies the starting point for the whole law of leasehold transfer. Because the tenant holds an estate, he holds something capable of conveyance, devise, and involuntary transfer by execution or in bankruptcy; and because the landlord holds a reversion, he too holds a transferable interest. The default rule in American law is therefore free alienability on both sides of the relation. The tenant may assign or sublet, and the landlord may convey the reversion, unless the lease provides otherwise or a statute intervenes.

The presumption of alienability is not a modern innovation. From the point at which the term of years matured from a mere contractual interest into a chattel real protected by ejectment, the termor's interest was treated as property, and property in the common-law tradition is presumptively transferable. Restraints on alienation of a leasehold are nevertheless tolerated to a degree that would be intolerable in the case of a fee, because the landlord retains a continuing interest in the identity, solvency, and use of the person in possession. The law thus permits the parties to restrict transfer by covenant, while construing such restrictions strictly against the restraining party.

Three kinds of transfer must be distinguished at the outset. The tenant may transfer the whole of what he holds, in which case the transferee steps into the estate; he may transfer a lesser interest carved out of what he holds, in which case a new tenancy is created beneath the existing one; or he may transfer the benefit of particular rights without transferring the estate at all, as by a licence or a collateral contract. Only the first two are treated here. The first is assignment; the second is sublease.

The landlord's transfer is structurally simpler. What the landlord holds is a reversion — a future interest in fee, subject to the term — and what he conveys is that reversion, together with the right to rent and the benefit of covenants that run with it. The reversion may also be encumbered rather than conveyed, as by mortgage, and the priority contest between the mortgagee and the tenant is a question of recording and subordination reserved to the finance Part of this volume.

An assignment is a transfer by the tenant of the entire remaining balance of the leasehold estate, without reservation of any reversionary interest in the transferor. The assignee takes the estate itself and stands, as to the estate, in the position formerly occupied by the assignor. The relation of landlord and tenant, in the sense of privity of estate, thereafter subsists between the landlord and the assignee.

The defining criterion is the retention of a reversion, not the quantum transferred as a matter of physical extent. A tenant holding a ten-year term who transfers the whole of the remaining seven years assigns; a tenant who transfers all ten years but reserves the final day sublets. Coke's formulation, quoted at the head of this chapter, states the rule in its classical form and has never been formally displaced in the majority of American jurisdictions.

An assignment may be partial in a spatial sense without ceasing to be an assignment. A transfer of the entire remaining term in a physically distinct portion of the demised premises — one floor of a building, one field of a farm — is an assignment pro tanto. The assignee is in privity of estate with the landlord as to that portion, and is liable for an apportioned share of the rent, though the assignor remains contractually liable for the whole.

A sublease is a transfer by the tenant of an interest less than the balance of the term, the transferor retaining a reversionary interest in the leasehold. The sublessor becomes, as to the sublessee, a landlord; the sublessee holds a leasehold carved out of the sublessor's leasehold. The head landlord is a stranger to that relation.

The consequences are structural rather than merely formal. Because the sublessee holds no part of the estate created by the head lease, there is no privity of estate between the sublessee and the head landlord; because the sublessee has made no promise to the head landlord, there is no privity of contract. The head landlord accordingly cannot sue the sublessee for rent or on the covenants of the head lease, and the sublessee cannot sue the head landlord on the landlord's covenants.

The sublessee is nevertheless exposed to the head lease in one decisive respect: the sublease is derivative, and it falls with the estate out of which it was carved. If the head lease is terminated for the sublessor's breach, the sublease terminates with it, subject to any statutory or equitable relief against forfeiture and to any non-disturbance agreement the sublessee has obtained. The practice of demanding a non-disturbance and attornment agreement from the head landlord is the transactional response to this vulnerability.

The majority rule applies the classical objective test: examine what the transferor retained. If nothing of the term remains in him, the transfer is an assignment however the parties describe it; if any part of the term remains, it is a sublease. The parties' nomenclature is evidence of nothing. A document titled “Sublease” that conveys the entire balance of the term operates as an assignment.

Two recurring problems test the rule. The first is the reservation of a right of reentry for breach. Under the majority view a right of reentry is not a reversion; it is a power, not an estate, and its reservation does not convert an otherwise complete transfer into a sublease. A significant minority, treating the right of reentry as a sufficient retained interest, reaches the opposite result. The second is the reservation of rent. A reservation of rent payable by the transferee to the transferor does not create a reversion and does not, standing alone, make the transaction a sublease; it creates at most a contractual right in the transferor.

A minority of jurisdictions abandon the objective test in favor of intent. Jaber v. Miller, 239 S.W.2d 760 (Ark. 1951), is the leading statement, reasoning that the ancient distinction rests on feudal considerations of tenure long since obsolete, and that the transaction should be characterized as the parties intended. Ernst v. Conditt, 390 S.W.2d 703 (Tenn. Ct. App. 1964), applies an intent-inflected analysis to a transfer denominated a sublease and holds it an assignment. The intent test simplifies characterization but destabilizes the landlord's ability to predict against whom his covenants run.

Privity of estate is the relation that subsists between the person holding the reversion and the person holding the leasehold estate carved out of it. It is a relation of tenure, not of promise. It arises by operation of law from the fact of holding, it passes with the estate, and it endures only so long as the estate is held.

The practical office of privity of estate is to supply the basis for enforcing covenants that run with the land against a person who never promised anything. An assignee who has entered into no agreement with the landlord is nevertheless liable on the covenant to pay rent, because rent issues out of the land and the covenant touches and concerns the estate the assignee now holds. Correspondingly the assignee may enforce against the landlord the covenants that run with the reversion.

Because the relation depends on holding, it ends when holding ends. An assignee who assigns over is no longer in privity of estate and is not liable for rent accruing thereafter, even if the further assignment was made to an insolvent transferee for the express purpose of shedding liability. The rule is settled and is one of the principal reasons landlords insist upon assumption agreements and consent clauses.

Privity of contract is the relation created by promise. The original tenant, having covenanted to pay rent and to perform the other obligations of the lease, remains bound by those promises for the whole of the term. Transfer of the estate does not discharge a contractual undertaking; a promisor cannot escape his promise by conveying away the thing to which it relates.

The original tenant therefore occupies the position of a surety in substance if not in name. If the assignee defaults, the landlord may sue the original tenant on the covenant, and the original tenant, having paid, has a right of indemnity against the assignee — arising by implication from the assignment where it is not expressed. This structure explains the commercial practice of requiring an indemnity in every assignment document.

The persistence of contractual liability is subject to important qualifications. A material variation of the lease agreed between the landlord and the assignee without the original tenant's consent — a material increase in rent, an extension of the term, a change in permitted use — may discharge the original tenant on suretyship principles, at least to the extent of the variation. Statutes in some jurisdictions, and standard commercial practice in others, limit the original tenant's exposure to a defined number of years or to obligations arising before a specified release date.

Whether a covenant binds or benefits an assignee is determined by the law of covenants running with the land, treated generally in Chapter 23 and applied here to the landlord-tenant relation. Spencer's Case, 77 Eng. Rep. 72 (K.B. 1583), supplies the classical framework: the covenant must touch and concern the land; the parties must have intended it to run; and the requisite privity must exist between the covenantor and the person sought to be charged.

The touch-and-concern requirement asks whether the covenant affects the parties in their capacity as landlord and tenant with respect to the land, rather than in some collateral capacity. Covenants to pay rent, to repair, to insure, to pay taxes, to restrict use, to supply services, and to renew have been held to touch and concern. Covenants to pay a sum unrelated to the premises, to perform personal services elsewhere, or to indemnify the landlord against liabilities unconnected with the demised land, have not.

Spencer's Case also produced the rule, now largely displaced by statute and by Restatement doctrine, that a covenant concerning a thing not in esse at the date of the lease — a building not yet erected — would not bind assignees unless assigns were expressly named. The second resolution in Spencer's Case has been abandoned in most American jurisdictions as a formalism, but the requirement of intention survives, and the express naming of assigns remains the safest drafting practice.

On the landlord's side, the running of the benefit and burden with the reversion was secured in England by the statute of 32 Hen. 8, c. 34 (1540), which permitted grantees of the reversion to sue and be sued on covenants running with the land. American statutes to the same effect, or common-law adoption of the same principle, are universal.

The assignee's liability must be traced along two independent tracks. On the track of privity of estate, the assignee is liable on covenants that run with the land, for breaches occurring while the estate is held, and no longer. On the track of privity of contract, the assignee is liable only if he has undertaken an obligation, which he does by assumption.

• Non-assuming assignee. Liable for rent and other running covenants accruing during the period of holding; not liable for arrears accrued before entry; not liable after assigning over.
• Assuming assignee. Liable in contract for the whole of the remaining term; liability survives a further assignment; the landlord sues as promisee or as intended third-party beneficiary of the assumption promise.
• Assignee of an assignee. In privity of estate with the head landlord in turn; the intermediate assignee's estate liability ends, but an assumption made by the intermediate assignee persists.
• Sublessee. Not liable to the head landlord on either track; liable to the sublessor on the sublease.

A recurring difficulty concerns breaches straddling a transfer. The orthodox analysis fixes liability by reference to the moment the obligation accrued: rent falling due on the first of the month is owed by whoever holds the estate on that day, and a continuing breach of a repair covenant exposes each successive holder for the period of its own holding. Where the obligation is a single indivisible undertaking — to erect a building by a date certain — the holder at the date of default bears it.

Assumption is the assignee's promise to perform the obligations of the lease. It converts an estate-based, time-limited exposure into a contractual, term-long exposure, and it gives the landlord a direct action against the assignee independent of possession. It does not, however, release anyone.

Novation is the substitution of a new obligor for an existing one, with the consent of the obligee, and it does release. Its elements are a valid prior obligation, agreement of all three parties, extinguishment of the old obligation, and a valid new one. Because the consequence is the discharge of the original tenant, courts require the landlord's intention to release to be clear, and they will not infer it lightly.

Three landlord acts are commonly and wrongly urged as releases. Consent to the assignment is not a release: consent removes a contractual restriction, it does not discharge a covenant. Acceptance of rent from the assignee is not a release: the landlord is entitled to the rent from whoever tenders it, and taking it is consistent with retaining recourse against the original tenant. Recognition of the assignee as tenant, by dealing with him, serving notices on him, or naming him in a renewal, is likewise equivocal. What is required is an agreement, express or unmistakably implied, that the original tenant is discharged.

Because the leasehold is presumptively alienable, a landlord who wishes to control transfer must say so. The standard device is a covenant prohibiting assignment or subletting without the landlord's prior written consent. Such covenants are valid notwithstanding the general hostility of property law to restraints on alienation, the justification being the landlord's legitimate and continuing interest in the person who will occupy his land and pay his rent.

Validity is accompanied by strict construction. A covenant against assignment does not prohibit subletting, and a covenant against subletting does not prohibit assignment; the two are separately named in careful drafting for precisely that reason. A prohibition on voluntary transfer does not reach transfer by operation of law — death, bankruptcy, execution — unless expressly extended. A prohibition binding “the Tenant” does not, without more, bind the Tenant's assignee.

Dumpor's Case, 76 Eng. Rep. 1110 (K.B. 1603), added a further rule against the landlord: consent once given to an assignment exhausts the covenant, so that subsequent assignments require no consent. The rule has been abolished by statute or decision in many jurisdictions and is routinely negated by drafting — the modern clause recites that consent to one transfer is not consent to any other — but it remains a trap where the lease is silent and the local rule survives.

Waiver operates on the same axis. A landlord who accepts rent from a transferee with knowledge of an unconsented transfer may be held to have waived the breach and, in a forfeiture jurisdiction, to have lost the right to terminate. Non-waiver clauses mitigate but do not always defeat the argument.

The most consequential modern development concerns the standard governing a landlord's refusal. The traditional rule was that a clause requiring consent, without more, permitted the landlord to withhold consent arbitrarily, for any reason or none. The rule followed from the premise that the landlord had bargained for a veto and was entitled to exercise what he had bargained for.

The modern trend imposes a reasonableness limit. Restatement (Second) of Property: Landlord and Tenant § 15.2(2) provides that a restraint on alienation without the landlord's consent is valid, but the landlord's consent to an alienation by the tenant cannot be withheld unreasonably, unless a freely negotiated provision in the lease gives the landlord an absolute right to withhold consent. Kendall v. Ernest Pestana, Inc., 709 P.2d 837 (Cal. 1985), adopted the reasonableness standard for commercial leases, resting on the policy against restraints on alienation and on the implied covenant of good faith and fair dealing. Julian v. Christopher, 575 A.2d 735 (Md. 1990), extended similar reasoning and applied it prospectively.

What counts as reasonable is judged by objective commercial criteria referable to the landlord's interest in the property: the proposed transferee's financial responsibility, the suitability and legality of the intended use, the nature of the occupancy, the need for alteration, and the transferee's identity in relation to any use restrictions or exclusives in the building. What is not reasonable, on the prevailing authority, is refusal in order to extract a share of the transferee's bargain, to capture increased market rent, or on grounds of personal taste or prejudice.

Two drafting responses have become standard. The first is the express absolute-discretion clause, which the Restatement itself preserves where freely negotiated. The second is the recapture clause, which converts a request for consent into an option in the landlord to terminate the lease as to the affected space and deal with the market directly. Recapture avoids the reasonableness inquiry altogether, because the landlord does not refuse consent; he ends the estate.

The landlord's interest is likewise alienable. A conveyance of the fee subject to the lease transfers the reversion, and with it the right to receive rent accruing after the conveyance and the benefit and burden of covenants running with the reversion. The tenant's estate is unaffected: the purchaser takes subject to the lease, and the tenant's possession is itself notice of the tenant's rights to any purchaser in a jurisdiction following the general rule that open possession imparts inquiry notice.

At common law the tenant's attornment — his acknowledgment of the new landlord — was necessary to complete the transfer of the reversion. The requirement was abolished in England by statute in the eighteenth century and has been abolished generally in the United States. Attornment survives as a transactional instrument rather than a doctrinal requirement, most often in the subordination, non-disturbance, and attornment agreement negotiated between tenant, landlord, and the landlord's mortgagee.

Three practical consequences follow a transfer of the reversion. Rent accrued before the transfer belongs to the transferor unless expressly assigned; rent accruing after belongs to the transferee. Security deposits are governed by statute in most residential jurisdictions and are commonly required to be transferred to the purchaser, who assumes the statutory obligations respecting them. And the tenant is entitled to notice of the change in the person to whom rent is payable; payment in good faith to the former landlord before notice discharges the tenant pro tanto.

A tenancy may end in a number of analytically distinct ways, and the consequences — for possession, for accrued and future rent, for subleases, and for security — differ with the mode. The most common error is to reason from the fact that the tenant has left to the conclusion that the tenancy has ended. It has not; departure without more is abandonment, and abandonment is not termination.

• Expiration of the term. A term of years ends automatically at the stated time. No notice is required at common law, though many statutes now require notice even in this case for residential tenancies.
• Notice. Periodic tenancies and tenancies at will end by notice of the length prescribed by common law or statute, effective as prescribed.
• Surrender. Mutual agreement to end the estate, or conduct from which the law implies it.
• Merger. The leasehold and the reversion come into the same hands in the same right, and the lesser estate is absorbed.
• Forfeiture for breach. Exercise of a reserved power of termination or a statutory right, following the prescribed notice.
• Destruction of the premises. At common law, no excuse; by modern statute and lease provision, commonly a right to terminate or abate.
• Condemnation. Total taking terminates; partial taking abates and apportions the award.
• Frustration or impossibility. Narrowly available where the tenancy's purpose is destroyed by supervening events without fault.
• Statutory termination. Tenant rights of early termination for military service, domestic violence, uninhabitability, or age and health, and landlord rights on owner occupancy or removal from the market where authorized.
• Death. Ends a tenancy at will; does not end a term of years or, generally, a periodic tenancy, which pass to the estate.

The common law measured notice by the period of the tenancy: six months for a year-to-year tenancy, and a full period for shorter periodic tenancies, with the notice terminating the tenancy at the end of a period rather than in mid-period. Statute has displaced these measures nearly everywhere, most commonly substituting thirty days for a month-to-month tenancy and lengthening the period where the tenancy is of long standing or the tenant is a protected class.

Defects in notice are jurisdictional in effect. A notice of insufficient length, a notice specifying a termination date in mid-period where the statute requires a period-end date, or a notice served otherwise than as prescribed will not terminate, and an action for possession founded on it will fail. Because the defect is ordinarily curable only by service of a fresh notice and the running of a fresh period, notice error is among the most expensive mistakes in landlord practice.

Tenancy at will is terminable by either party, at common law without notice, though statutes generally impose a notice period equivalent to the rent-payment interval. The tenancy at will also ends by operation of law on the death of either party, on the tenant's assignment, or on the landlord's conveyance of the reversion — consequences that follow from its foundation in the continuing will of both parties.

Surrender is the yielding up of the leasehold estate to the person holding the reversion, with that person's assent, so that the lesser estate is extinguished. It is bilateral by definition. The Statute of Frauds required a surrender of an interest in land to be in writing, and modern statutes generally preserve the requirement for tenancies exceeding the statutory period, subject to the surviving category of surrender by operation of law.

Surrender by operation of law arises from conduct inconsistent with the continuance of the tenancy and treated by the law as an acceptance of the tenant's relinquishment. The classical instances are the landlord's resumption of possession for his own purposes, the grant of a new lease of the premises to a third person for a term extending beyond the original, and substantial alterations by the landlord inconsistent with the tenant's continued right. What conduct amounts to acceptance is a question of fact, and the modern mitigation rule has made it a delicate one: reletting on the tenant's account to mitigate should not be, and in most jurisdictions is not, an acceptance of surrender, provided the landlord gives notice that he relets for the tenant's account.

Merger occurs where the leasehold and the reversion vest in the same person in the same right without an intervening estate. The tenant who buys the fee no longer holds a tenancy; the estate is absorbed. Merger is not favored where it would defeat the intention of the parties or destroy a sublease or mortgage, and equity will keep the estates separate where justice requires.

Abandonment is the tenant's voluntary relinquishment of possession before the end of the term, with no intention to return and without the landlord's assent. It is a breach, not a termination, and it presents the landlord with an election.

1. Accept the surrender. The tenancy ends; the tenant is liable for rent accrued to the date of acceptance and for damages for breaches occurring before it, but not for future rent.
2. Relet on the tenant's account. The tenancy continues; the landlord credits the reletting proceeds against the tenant's obligation and recovers the deficiency, together with reasonable reletting expenses.
3. Leave the premises vacant and sue for rent as it falls due. Available only where the jurisdiction imposes no duty to mitigate, and increasingly unavailable in residential tenancies.
4. Sue immediately for anticipatory breach. Available where the jurisdiction treats the lease as a contract for this purpose, the measure being the present value of the rent reserved less the reasonable rental value of the premises for the remainder of the term.

The election is consequential and, in most jurisdictions, must be communicated. A landlord who re-enters and relets without notifying the tenant that the reletting is for the tenant's account risks a finding that he accepted a surrender and extinguished the claim for future rent. The standard practice is a written notice of re-entry for the tenant's account, given contemporaneously with re-entry.

The classical rule was that the landlord owed no duty to mitigate. It followed from the conveyancing theory of the lease: the landlord had conveyed the estate and was entitled to the rent reserved, and it was no concern of his whether the tenant chose to occupy the thing he had bought. Sommer v. Kridel, 378 A.2d 767 (N.J. 1977), rejected the rule for residential tenancies, holding the landlord bound to make reasonable efforts to relet and to credit the proceeds.

The modern position is a patchwork. A clear majority now imposes a mitigation duty in residential tenancies, whether by decision or by statute; URLTA and RURLTA assume it. Commercial tenancies divide, with a growing number of jurisdictions extending the duty and others preserving the classical rule or permitting the parties to contract out of it. Where the duty exists, it is a duty of reasonable effort, not of guaranteed result; the landlord need not prefer the defaulting tenant's premises over other vacancies, need not accept an unsuitable replacement, and need not relet on materially worse terms.

Allocation of the burden of proof varies and matters. Some jurisdictions require the landlord to plead and prove reasonable efforts as an element of the claim for deficiency; others treat failure to mitigate as an affirmative defense to be pleaded and proved by the tenant. In either case the evidentiary record — listings, showings, offers received, market data — determines the outcome far more often than the doctrinal formulation.

Termination for breach depends on a power reserved by the lease or conferred by statute. At common law the covenant to pay rent and the covenant to perform other obligations were independent, and breach did not of itself end the estate; a right of reentry had to be reserved. Modern statutes routinely supply a statutory right of termination for nonpayment and for material noncompliance, conditioned on notice and opportunity to cure as described in Chapter 26.

Equity relieves against forfeiture where the breach is for nonpayment of money and the landlord can be made whole, and in some jurisdictions more broadly where forfeiture would be disproportionate and the breach is curable. Statutory redemption after judgment, permitting the tenant to reinstate on payment of arrears and costs within a defined period, performs the same function legislatively.

However clear the tenant's default, the landlord may not take possession by force or stealth. Berg v. Wiley, 264 N.W.2d 145 (Minn. 1978), states the modern American rule that the only lawful means of dispossessing a tenant in possession is judicial process, abandoning the older allowance of peaceable self-help. Lockouts, removal of belongings, and utility interruption expose the landlord to statutory damages, attorney's fees, and in some jurisdictions punitive liability, and they convert a winnable possession case into a losing damages case.

A tenant who remains in possession after the term expires is a tenant at sufferance: a wrongful occupant whose only claim to be distinguished from a trespasser is that his original entry was lawful. The landlord holds an election, and the election is binding once made.

The landlord may treat the holdover as a trespasser and proceed for possession together with damages for use and occupation. Alternatively the landlord may elect to hold the tenant to a new tenancy, ordinarily periodic, on the terms of the expired lease so far as applicable. The length of the new period is fixed by different rules in different jurisdictions — the rent-payment interval in most, a year in some older authorities where the original term was a year or more, subject to statutory caps.

Acceptance of rent after expiration is the classical evidence of election to create a new tenancy. Holdover penalty clauses, common in commercial leases and fixing holdover rent at one and one-half or twice the prior rate, are generally enforced as liquidated damages where the multiple is not so large as to be a penalty. Statutes in many residential jurisdictions displace both the common-law election and the penalty clause with a prescribed regime.

At common law the destruction of buildings on the demised land did not terminate the lease or abate the rent. The tenant had taken an estate in the land, and the land remained. The rule was harsh in its application to urban tenancies of space within a building, where the subject of the bargain was the building and not the soil, and it has been reversed nearly everywhere by statute or by the standard casualty clause, which permits termination where the premises are rendered untenantable and abates rent in the interim.

Condemnation is analyzed by extent. A taking of the entire premises for the whole of the remaining term terminates the lease and ends the obligation to pay rent; the condemnation award is apportioned between landlord and tenant according to the value of their respective interests, the tenant's share reflecting the bonus value of a below-market lease. A partial or temporary taking does not terminate; the tenant remains liable for rent, subject to abatement or to compensation out of the award, and most leases now allocate the outcome expressly.

Frustration of purpose and impossibility are available in principle but narrowly. The tenant must show that the supervening event was not reasonably foreseeable, was not the tenant's fault, and destroyed substantially the whole of the purpose for which the tenancy was taken, that purpose having been known to both parties. Temporary or partial interference, a decline in profitability, and regulatory changes affecting the tenant's business but not the use of the premises are ordinarily insufficient.

Legislatures have created a substantial body of termination rights unknown to the common law, principally in the residential sector. Their common structure is a defined triggering circumstance, a prescribed form and period of notice, a limitation on liability for rent after the effective date, and often a prohibition on penalties or on adverse reporting.

• Military service. Federal law permits a servicemember entering service or receiving qualifying orders to terminate a residential or motor-vehicle lease on written notice, with proration of rent and return of prepaid amounts.
• Domestic violence, sexual assault, and stalking. Most states permit early termination on documentation, frequently with lock-change rights and limits on liability for co-tenants.
• Uninhabitability. Where the landlord's material noncompliance is not cured within the statutory period, the tenant may terminate and recover damages, as described in Chapter 26.
• Age, health, and institutional care. A number of states permit termination on entry into residential care or on medically documented incapacity.
• Landlord grounds. Owner or family occupancy, substantial rehabilitation, and permanent removal from the rental market are recognized in jurisdictions with just-cause eviction regimes, subject to notice, relocation payments, and re-rental restrictions.
• Death of the tenant. Statutes in several states permit the personal representative to terminate on notice, displacing the common-law rule that a term of years survives the tenant.

A sublease is carved out of the head lease and cannot outlive it. Termination of the head lease by expiration, by forfeiture, or by any other mode operating on the estate destroys the sublease with it, and the sublessee's remedy lies against the sublessor. The one significant qualification is the voluntary surrender: a surrender by agreement between head landlord and head tenant does not, on the prevailing view, destroy a sublease, because the parties to the surrender cannot by their own act extinguish the vested interest of a third person. The head landlord takes the reversion subject to the sublease.

Security deposits follow statute. On termination the landlord must ordinarily account within a defined period, itemize deductions for unpaid rent and for damage beyond ordinary wear and tear, and return the balance, with multiple damages and attorney's fees for noncompliance. On a transfer of the reversion the obligation passes to the purchaser in most jurisdictions, and the tenant's claim is against the current owner.

Fixtures and personalty are governed by the rules of Chapter 7 and the law of trade fixtures: the tenant's right of removal is exercisable during the term and, in most modern authority, within a reasonable time after termination, failing which the article accedes to the freehold. Property left behind is dealt with by abandoned-property statutes prescribing notice, storage, and sale, and the landlord who disposes of it summarily bears the risk.

Where the tenancy ends by the tenant's breach, the landlord's recovery is measured by the loss of bargain, subject to mitigation where a duty exists. The components are accrued unpaid rent to the date of termination or reletting; the deficiency between the rent reserved and the rent obtained on reletting, for the remainder of the term; reasonable costs of reletting, including brokerage, advertising, and preparation of the premises; damages for physical injury beyond ordinary wear and tear; and, where the lease so provides and the jurisdiction permits, attorney's fees.

Where the claim is for anticipatory breach and the jurisdiction permits present recovery, the measure is the present value of the rent reserved for the remainder of the term less the present value of the reasonable rental value of the premises for that period. Discounting to present value is required; a judgment for the undiscounted aggregate of future rent overcompensates and is generally reversible.

Rent-acceleration clauses, which make the whole of the remaining rent immediately due on default, are enforced in many jurisdictions and refused in others as penalties, particularly where the landlord also recovers possession and relets. The prevailing accommodation permits acceleration only where the landlord credits the reletting proceeds or where the clause itself provides for such a credit.

Where the landlord breaches and the tenant terminates, the tenant recovers the excess of the market rental value over the rent reserved for the remainder of the term, moving expenses and the cost of substitute premises where foreseeable, the return of prepaid rent and deposit, and consequential damages proved with reasonable certainty.

The transactional questions in this field reduce to a small number of recurring decisions, and the drafting record ordinarily determines the litigation outcome.

• Characterize before advising. Determine whether the proposed transfer leaves any part of the term in the transferor. The answer fixes privity, the landlord's remedies, and the transferee's exposure.
• Name assigns and name both transfers. A restriction should address assignment, subletting, mortgaging, and transfer by operation of law, and should bind successors expressly.
• Negate Dumpor's Case. Recite that consent to one transfer is not consent to any other and that no waiver arises from acceptance of rent.
• Fix the consent standard. If the jurisdiction implies reasonableness, decide whether to negotiate an express absolute right, to define reasonableness by enumerated criteria, or to substitute a recapture right.
• Demand assumption and indemnity. The landlord should require the assignee's assumption; the assignor should require an indemnity and, where possible, a release.
• Protect the sublessee. Obtain a non-disturbance and attornment agreement from the head landlord; without it, the sublease is only as durable as the sublessor's performance.
• Document the election on abandonment. Give written notice that any re-entry and reletting is for the tenant's account, and keep a contemporaneous record of mitigation efforts.
• Serve notices exactly. Confirm length, computation, content, and manner of service against the governing statute before serving, and calendar the effective date.
• Never use self-help. Judicial process is the only lawful route to possession against a tenant in possession.

• “The document says sublease, so it is one.” Characterization turns on what was retained, not on what the instrument is called.
• “The landlord consented, so the original tenant is off the hook.” Consent is not release. Only a novation discharges the original tenant.
• “The assignee assumed, so the tenant is discharged.” Assumption adds an obligor; it does not subtract one.
• “The assignee is liable for the whole term.” Not unless he assumed. Privity of estate liability ends on assignment over.
• “The head landlord can sue the sublessee for rent.” Not on either privity. The head landlord's leverage is termination of the head lease, which destroys the sublease.
• “The tenant left, so the lease is over.” Abandonment is a breach. Termination requires acceptance of surrender or the exercise of a termination right.
• “Reletting always accepts a surrender.” Not where the landlord relets on the tenant's account and says so.
• “The landlord must always mitigate.” The duty is now general in residential tenancies but remains contested in commercial ones.
• “A holdover automatically creates a new one-year lease.” The landlord elects, and the length of any new tenancy is fixed by local rule or statute.
• “The building burned down, so the rent stops.” Only by statute or lease provision; the common-law rule was to the contrary.

The leasehold, being an estate, is presumptively alienable, and so is the reversion. A transfer of the whole remaining term is an assignment and places the transferee in privity of estate with the landlord; a transfer of less, leaving a reversion in the transferor, is a sublease and places the transferee in privity with no one but the sublessor. The classical objective test governs in most jurisdictions; a minority asks instead what the parties intended.

Privity of estate supports liability on covenants that touch and concern the land, for the period of holding only. Privity of contract binds the original tenant for the whole term and binds an assuming assignee likewise. Consent to a transfer, acceptance of rent, and recognition of the transferee are not releases; only novation discharges. Restrictions on transfer are valid but strictly construed, and modern authority increasingly requires that consent not be unreasonably withheld.

Termination follows a defined taxonomy — expiration, notice, surrender, merger, abandonment coupled with acceptance, forfeiture, destruction, condemnation, frustration, and statutory termination — and each mode has its own predicates and consequences for rent, possession, subleases, and security. Abandonment is a breach rather than a termination; the landlord elects, must ordinarily mitigate in residential tenancies, and must in every case obtain possession through judicial process rather than self-help.

Chapter 28 opens Part IX — Land Use Controls, beginning with the law of nuisance, and turns from the allocation of rights within a single parcel to the adjustment of conflicting uses between neighbors.

• Restatement (Second) of Property: Landlord and Tenant chs. 12, 13, 15, 16 (Am. L. Inst. 1977).
• Spencer's Case, 77 Eng. Rep. 72 (K.B. 1583), with the commentary in 1 Smith's Leading Cases.
• Kendall v. Ernest Pestana, Inc., 709 P.2d 837 (Cal. 1985); Julian v. Christopher, 575 A.2d 735 (Md. 1990).
• Sommer v. Kridel, 378 A.2d 767 (N.J. 1977); Berg v. Wiley, 264 N.W.2d 145 (Minn. 1978).
• 2 Richard R. Powell, Powell on Real Property chs. 17–18 (Michael Allan Wolf ed.).
• Stoebuck & Whitman, The Law of Property §§ 6.68–6.82 (3d ed. 2000).
• 2 Herbert Thorndike Tiffany, The Law of Real Property §§ 119–145 (3d ed. 1939).
• Real Law Society Press, Foundations of Property Law — Second Edition, Chapter 25 (Leasehold Estates), Chapter 26 (Tenant and Landlord Duties; Habitability), and Chapter 23 (Real Covenants and Equitable Servitudes).