American Community Stores Corp. v. Newman

Brief Fact Summary.

The Supreme Court of Nebraska rued that when a tenant reserves a reversionary interest during the transfer of an interest, then that transfer of property is deemed to be a sublease and not an assignment. 

Synopsis of Rule of Law.

If the tenant reserves a reversionary interest during his transfer of property, then the Court will view this transfer of property as a sublease and not an assignment. 

Facts.

American Community Stores Corporation (Plaintiff) obtained twenty year leases with an option of extending the lease an additional five years from landlords in Nebraska. The Plaintiff was the owner and operator of grocery stores. Every lease the Plaintiff was a part of, contained a provision forbidding the assignment of the property interest, but allowed the Plaintiff to sublet the interest. The Plaintiff announced a few years later after obtaining the leases that they would close their stores permanently. During this time, Plaintiff tried to assign their interest to Nash-Finch Company who intended to sublease the premises to another party. The original landlord found out and forbid Plaintiff to assign the lease. The Plaintiff tore up the assignment contract and drafted a new sublease agreement which terminated two days before Plaintiff’s sublease ended. In essence, this reserved a reversionary interest in Plaintiff. Plaintiff notified the landlord who in turn sought declaratory relief as to determine if Plaintiff violated their lease. Trial court found that the subleases were valid. 

Issue.

When a tenant reserves a reversionary interest after transferring his interest in a property, is the transfer deemed to be a sublease rather than an assignment? 

Held.

Yes. If a tenant transfers his interest while reserving a reversionary interest, then he has not conveyed all of his interest. Therefore, this deems the transferred interest to be a sublease rather than an assignment. The reversionary interest that is present, is the transferor’s interest in re-entering the property if the lease is violated. Here, the plaintiff can retake the property upon tenant’s failure to abide by the lease and to re-enter the property two days before the original lease between Plaintiff and Landlord terminates. 

Discussion.

The important distinction is the difference between an assignment and a sublease. An assignment gives all of the rights of the original lease to the tenant. On the other hand, a sub-lease only transfers something less than all of the rights to the new tenant.