Was Tenant's Agreement an Assignment or Sublease?

December 12, 2019

What Happened: A pizzeria tenant transferred its interests in a five-year lease to two individuals via an agreement called an “assignment.” When the individuals stopped paying rent with 14 months left on the lease, the landlord sued the tenant for payment of the $125K rental balance. The tenant then sued the individuals, but the court ruled that because the “assignment” was actually a sublease the individuals weren’t on the hook for the remaining 14 months’ rent. The tenant appealed.

What Happened: A pizzeria tenant transferred its interests in a five-year lease to two individuals via an agreement called an “assignment.” When the individuals stopped paying rent with 14 months left on the lease, the landlord sued the tenant for payment of the $125K rental balance. The tenant then sued the individuals, but the court ruled that because the “assignment” was actually a sublease the individuals weren’t on the hook for the remaining 14 months’ rent. The tenant appealed.

Decision: The Tennessee appeals court reversed and said the agreement was an assignment.  

Reasoning: An assignment transfers all of a tenant’s interest in the lease; a sublease, by contrast, transfers only a partial interest and leaves the tenant a reversionary interest and liability, the court explained. The agreement in this case was more like an assignment because it:

  • Clearly stated that the tenant was assigning all of its interests in the lease; and
  • Expressly incorporated all of the provisions of the underlying lease, including the five-year term.
  • MSM Dev., LLC v. Steward: 2019 Tenn. App. LEXIS 556, 2019 WL 6002112

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