§ 30.02 Limitations

• Jurisdiction: United States
• Publication year: 2022

§ 30.02 Limitations

[1]—Legal Limitations

[a]—Sublease Bounded by Scope of the Overlease

A sublessor cannot confer greater rights upon a sublessee than the sublessor itself has under its overlease with its overlandlord.¹ Therefore, the primary source of limitations to a subleasing arrangement is the overlease itself. The first order of business for a potential sublessee is to ascertain what covenants the overlease contains and to determine whether the sublease agreement has stayed within the parameters of the overlease. The sublease should not confer more than the sublessor has to give. The sublessee has a duty to find out the terms of the overlease and will be "charged with knowledge of its terms."²

To the extent that a subtenant is unable or unwilling to comply with an over-lease term, the sublandlord and the subtenant will need to seek an exemption from overlandlord.³

[b]—Enforceability of Covenants

The overlandlord and the sublessee are not in privity of contract under a sublease. Consequently, there is no contractual liability between them.⁴ Nor is there privity of estate between these parties. Because there is no privity, covenants in documents to which the overlandlord is not a party will not be enforceable against it.⁵

For example, covenants between the sublessor and the sublessee under the sublease agreement are not binding on the overlandlord⁶ because the overlandlord was not a party to the sublease agreement. The sublessor may have covenanted to provide secured twenty-four hour access to the premises through the main lobby of the building. If such access is not within the sublessor's power to provide, the sublessee will have no recourse against the overlandlord to enforce the covenant. Instead it will be left with a damages suit against the sublessor, with no way to receive the level of building access for which it thought it had covenanted. If sublessee's business is dependent upon such access, a damages remedy may not be satisfactory. Conversely, only the sublessor can enforce the covenants of the sublease against the sublessee.⁷

Covenants in the overlease between the overlandlord and the tenant/sublessor are not enforceable by the sublessee⁸ even if the sublease purports to confer such enforcement rights. For instance, the overlease may contain a covenant by the overlandlord to make certain repairs to the premises. However, because the overlandlord and the sublessee are not in privity of contract or estate, the sublessee has no right to enforce such a covenant should the overlandlord refuse to make the repairs.⁹

There is an exception to the no privity/no enforceability rule. The subtenant may be liable to the overlandlord with regard to certain covenants contained in the overlease.¹⁰ Because the sublease estate relies on the leasehold estate for its existence, the sublessee's rights are limited by the covenants of the overlease. The overlandlord has the right to enjoin the sublessee for any violations of those covenants.¹¹

[c]—Sublessee's Rights to Remedy Sublessor's Defaults Under the Overlease

Because the existence of the subleasehold estate is totally dependent on the existence of the leasehold estate created under the overlease, the law permits the sublessee a limited right to remedy defaults of the tenant/sublessor to prevent the primary tenancy from ending prematurely.¹² If such a remedy did not exist, a default by the tenant/sublessor could bring both the leasehold estate of the tenant/sublessor and the subleasehold estate of the sublessee to an end.

To prevent the subleasehold estate from losing possession of the premises due to the acts of the tenant/sublessor, the law permits the sublessee to attempt to perform the covenants under the overlease...