Keep Original Tenant on Hook When You Modify Assigned Lease

You may think your lease lets you keep a tenant on the hook for all lease obligations, including rent, even after the tenant assigns the lease. But if you and the assignee modify the lease—even unintentionally—you could lose the right to hold the original tenant responsible, warns New York City attorney Jacob Bart.

Keeping the original tenant on the hook is important, especially if the assignee is less financially secure than the tenant. If the assignee doesn't pay rent, you want to be in a position to demand it from the tenant.

However, you may have a problem if you and the assignee agree to enlarge the space for a higher rent, change the party responsible for repairs, or otherwise modify the lease. A court may find that you have, in effect, made a new agreement. The court may then let the original tenant off the hook for any lease obligations because that tenant didn't have a hand in the new agreement.

To prevent that situation, include a clause in the lease stating that any modification of the lease after an assignment will not let the original tenant off the hook, says Bart. He regularly includes this clause in his leases. We will tell you what to say in the clause and give you a Model Lease Clause (see box, at right) that you can adapt and use in your leases.

What to Say in Clause

State in the clause that the original tenant will not be released or discharged from being “jointly and severally” liable with the assignee, or from promptly performing its lease obligations, by any:

• Agreement that modifies any of the rights or obligations of the parties under the lease [Clause, par. a];

• Stipulation that extends the time to perform a lease obligation [Clause, par. b];

• Waiver of the performance of a lease obligation [Clause, par. c]; or

• Failure to enforce any lease obligation [Clause, par. d].

“Jointly and severally” liable means that you can sue the tenant and assignee separately or together.

Bart admits that this clause could scare some tenants. After all, you and the assignee might agree to a rent increase or some other modification that increases the assignee's lease obligations or reduces its rights. And since the tenant is still on the hook, those modifications likewise would increase the tenant's lease responsibilities and reduce its rights.

Two-Part Compromise

If the original tenant balks at the clause, try to make the tenant agree to this two-part compromise, says Bart:

Hold tenant to original lease terms only. Let the original tenant off the hook for any increase in lease obligations or reduction in rights caused by the lease modification, Bart says [Clause, option d(i)]. As a result, you would hold the tenant only to the original terms of the lease. Then if, for instance, you and the assignee agree to a rent increase because the space will be enlarged, you can hold the tenant responsible for the original rent, but not for a higher rent, he explains; and

Make waiver benefiting assignee also apply to tenant. If you waive any of the assignee's lease obligations, the waiver also would apply to the immediate assignor [Clause, option d(ii)]. Therefore, if there has been only one assignment, the waiver that applies to the assignee would also apply to the original tenant. For example, if you waive the assignee's obligation to repair its space, the original tenant would also no longer be responsible for repairs.

CLLI Source

Jacob Bart, Esq.: Partner, Stroock & Stroock & Lavan LLP, 180 Maiden Ln., New York, NY 10038-4982; (212) 806-5400; jbart@stroock.com.