Substitute Tenant
A tenant may want to move out early and ask his landlord to accept a substitute tenant in his place. What options does the landlord have to accept or deny the request? Most lease agreements have a clause that prohibits sub-leasing or assignment of the lease to someone new without the express written consent of the landlord.
The landlord’s options may depend upon whether state statutes address the issue of substitution of one tenant for another to fill a lease term, the language in the tenant’s lease agreement, and the willingness of the landlord to work with the tenant for a transfer of the lease by sub-lease or assignment of the lease.
Depending upon the circumstances, it may be a better business practice for the landlord to create a new tenancy with the proposed substitute tenant. The landlord would terminate the original tenant’s lease agreement conditioned on the substitute tenant’s qualification and acceptance under the landlord’s tenant screening standards. At termination of the old lease agreement, the landlord and the substituted tenant would create a new tenancy in accordance with the landlord’s established policies and procedures. Creating a new tenancy provides the landlord with a clear and direct relationship to the new tenant.
The landlord’s same screening standards used to evaluate any rental applicant must be used to evaluate a proposed substitute tenant. If the proposed new tenant fails to qualify under the landlord’s rental standards, the landlord is not obligated to offer tenancy under new leases or transfer options. To help reduce potential claims of discrimination, there should be written documentation of the screening and qualification process and the business justified reason for the rejection.
In some states a landlord may not unreasonably withhold consent to a transfer of the lease agreement through subleasing or assignment despite any lease language to the contrary.
Sublease
The original tenant becomes the sublessor when he transfers some but not all of his rights to occupy, use, and enjoy the rental premises to a subtenant, the sublessee, on a short term or temporary basis. The original tenant retains the right to retake the premises at a future date.
The subtenant is renting from the original tenant who has now become the subtenant’s landlord. A legal relationship exists between the original tenant and the subtenant. The original tenant/landlord, should document key terms in a written agreement signed by the subtenant. The document should require the subtenant to adhere to all terms of the original (master) lease agreement and also address various issues between the original tenant and subtenant including rent, length of tenancy, handling of security deposit, and subtenant move-in/move-out procedures.
The subtenant pays rent to the original tenant at the mutually agreeable amount. The original tenant is responsible to landlord for the rent amount per the master lease agreement. The original tenant remains the landlord’s tenant and is responsible to the landlord for actions of the subtenant. In general, the landlord cannot directly deal with the subtenant and must enforce the lease through the original tenant. For example, if the subtenant defaults on the lease, the landlord serves notice on the original tenant, who should serve notice on his subtenant. In the extreme, for a default that requires eviction, the landlord would theoretically have to evict the original tenant who would have to in turn evict the subtenant, although many jurisdictions will allow the landlord to proceed with evictions of both at the same time.
There may also be limitations in some states regarding the type of lawsuits that may be filed by landlords against subtenants. In some states the landlord and the subtenant may file suit against one another to correct behavior in violation of the lease but they may not sue for money damages. For example the subtenant could sue for violation of habitable issues, but the landlord could not sue the subtenant for excessive property damage not covered by the security deposit. In such a case, to recover his loss, the landlord would need to sue the original tenant.
The landlord should not accept rent from a subtenant. If the landlord treats the subtenant as if he were a tenant by taking rent or acting in some manner towards the subtenant that would indicate status as a tenant, the landlord by his actions could relieve the original tenant of his responsibility by creating a tenancy from a subtenancy.
In summary, if the landlord permits a sublease:
- Original tenant remains liable to the landlord for the rent.
- Subtenant is liable to the original tenant for rent.
- Original tenant is liable to landlord for rent and for damage caused by the subtenant.
- Lawsuits by either landlord or subtenant against the other for money damages are not allowed.
- Eviction requires evicting the original tenant who evicts the subtenant.
Assignment
An assignment transfers all remaining interests in the lease of the original tenant, the assignor, to a new tenant, the assignee. The original tenant is moving out permanently and has no further relationship with the landlord unless as otherwise specified in the assignment agreement. For example, the agreement may require that the original tenant remain financially liable on the lease, at least until the lease is renewed or extended. An adequate assignment agreement is crucial to minimizing assignment transaction and post-assignment problems.
The new tenant, the assignee, becomes the landlord’s tenant. In general the landlord and the new tenant are bound by the terms and conditions of the lease signed by the original tenant unless modified as part of the assignment. The security deposit is still retained by the landlord, but upon vacating of the premises by the new tenant, the refund of any security deposit money will belong to the new tenant. The transfer of deposit from original tenant to new tenant should usually be covered within the assignment agreement.
A formal, written consent to assignment of lease document should be signed by all parties. In addition to other clauses in the assignment, unless the landlord agrees otherwise, the document should state that the original tenant is still responsible for the rent if the new tenant fails to pay and damages to property (other than normal wear and tear) if the new tenant refuses or cannot pay.
For several reasons, landlords usually prefer an assignment of lease to allowing a sublease. An assignment provides more landlord control over the tenant because of the direct legal relationship with the assignee.
In summary form, if the landlord permits an assignment:
- Unless agreed to the contrary, the new tenant is liable to landlord for rent; the original tenant is responsible for rent if the new tenant does not pay.
- Unless agreed to the contrary, the original tenant is not liable for damages caused by the new tenant.
- Except as agreed, the new tenant and landlord are bound by all original lease terms.
- Landlord may sue to evict the new tenant for any violation of lease terms that would have applied to the original tenant.
- A new tenant can sue the landlord or be sued by the landlord.
Adequate written documentation for risk management protections regarding all requests, agreements, and conditions regarding changes in tenancy including termination or transfer of lease agreement responsibilities should be utilized and retained.
When a new tenant takes over from an existing tenant – whether as sub-tenant or assignee – the move-out checklist/walk-thru should be completed for the original tenant to settle any unpaid rent or damages to that date before completing the transfer of the lease.