Chapter § 34.1 DISTINGUISHING BETWEEN ASSIGNMENTS AND SUBLEASES

• Jurisdiction: Oregon

§ 34.1 DISTINGUISHING BETWEEN ASSIGNMENTS AND SUBLEASES

Assignments and subleases are the two methods of transferring lease rights. Understanding the distinction between an assignment and a sublease is an essential first step to understanding the law related to transfers of lease rights.

The distinction between the two is rooted in the extent and duration of the interests transferred and is a function of common law.

A transfer of all of a tenant's rights in a property for the entire duration of the tenant's interest in the property is an assignment. The transfer may relate to less than all the property covered by the master lease, but must include all of the rights that the tenant holds in the property being transferred for the duration of the tenant's original lease. See generally Landlord and Tenant, 49 Am Jur 2d § 917 (2006) (supplemented periodically).

A transfer of less than all of a tenant's rights in a property or a transfer of a tenant's rights for less than the entire duration of the tenant's interest in the property is a sublease. If a tenant reserves any rights, or holds any reversionary interest in the property subject to the transfer, then the transfer will be deemed a sublease and not an assignment. See generally Landlord and Tenant, 49 Am Jur 2d § 977.

The court in Lamonts Apparel, Inc. v. SI-Lloyd Associates, 157 Or App 44, 967 P2d 905 (1998), provides a concise statement of the rule and hints at the importance of the distinction:

An "assignment" of a lease is a conveyance of the lessee's entire interest in the demised property, while a "sublease" conveys only a part of the term, with the original lessee retaining some reversionary interest. An assignment is the outright transfer of all or part of an existing lease, so that the assignee steps into the shoes of the assignor; a sublease involves the creation of a new tenancy between the sublessor (the original lessee) and the sublessee. In either case, what the original lessee conveys is part or all of the lessee's interest in the existing lease. Covenants in the existing lease that run with the land are binding on the assignee, while in a sublease the original lessee remains liable to the lessor for payment of rent and the performance of the other covenants of the lease.

Lamonts Apparel, Inc., 157 Or App at 49 (internal citations omitted).

Understanding the common-law terms privity of estate and privity of contract is an essential second step to understanding the law related to the...