Ensure Post-Assignment Lease Changes Don’t Let Original Tenant Off the Hook

The nice thing about lease assignments is that you can always go after the original tenant if the assignee violates its lease obligations. At least that’s the common assumption. But if you modify the lease after the assignment, you could end up inadvertently losing your right to hold the original tenant responsible for the assignee’s lease violations. Here’s what you can do to plug this loophole.

The Legal Risk

It makes sense when you think about it. After all, while it’s fair to hold the original tenant responsible for the violations its assignees commit, the operating assumption is that the lease terms will continue. But that all goes out the window when the landlord and assignee get together and modify the arrangement in a material way—for example, by agreeing to enlarge the space, increase the rent, or change which party is responsible for building repairs—without notifying or securing the original tenant’s consent. In these circumstances, a court is likely to find that the assignee and tenant made a new agreement.

Result: The original tenant is discharged of any further responsibilities under the lease, leaving the assignee as the landlord’s only recourse.  

How to Plug Loophole

The biggest risk to landlords is failure to recognize the pitfall. As long as you realize that subsequent lease modifications made with an assignee involve the risk of discharging the original tenant, it’s pretty straightforward to take measures to avoid it and keep the original tenant on the hook.

One solution is simply to include lease language saying that any modification of the lease after an assignment doesn’t let the original tenant off the hook. Be aware that even the smallest and simplest of changes may be the basis for the original tenant to argue that the landlord and assignee made a new agreement. These changes don’t even have to be spelled out but could be simply implied, for example, when a landlord accepts rent late from the assignee without imposing the late fee provided by the lease.

Your lease clause, like our Model Lease Clause: Keep Assigning Tenant Liable for Assignee’s Lease Violations, should cover not only formal agreements, like a rent hike, but any situation or change that doesn’t strictly adhere to the terms of the lease, such as:

• A time extension for performing a lease obligation;
• A waiver of the performance of a lease obligation; and
• A failure to enforce a lease obligation.

Compromise: Soothing Original Tenant’s Concerns

Understandably, tenants may object to a clause purporting to hold them liable for post-assignment lease changes they don’t have a hand in making. What if the landlord and assignee agree to a huge rent increase? One compromise that has proven effective: Hold the original tenant responsible only to the original lease terms and let it off the hook for any significant increase in obligations or reduction in rights resulting from the lease modification.