Assignor's Bankruptcy Not Grounds for Terminating Assignee's Lease

A tenant assigned its lease with the owner's consent. The assignee renewed the lease several times, operated its store in the space for many years, and always paid its rent. The assignor filed for bankruptcy. When the assignee tried to renew the lease again, the owner learned of the assignor's bankruptcy and exercised its right to terminate the lease. The assignee sued the owner, asking the court to bar it from terminating the lease.

A New York court ruled that the owner couldn't terminate the assignee's lease because of the assignor's bankruptcy. The court noted that the assignor filed for bankruptcy after it had assigned its lease to the assignee and that the assignee was “financially solvent.” Also, the lease and assignment agreement, when read together, indicated the parties' intent to substitute the assignee for the assignor as the tenant under the lease, the court noted. So the right to terminate the lease would be triggered only if the assignee filed for bankruptcy, the court reasoned [Staples, Inc. v. Moses].