Brief Fact Summary.
Plaintiffs leased land to Defendant. Plaintiffs sued Defendant for unpaid rent when Defendant abandoned the property. The trial court granted Plaintiffs’ motion to compel arbitration. The arbitrator ruled in favor of Plaintiffs. The trial court confirmed the arbitrator’s award. Defendant appealed.
Synopsis of Rule of Law.
A lessee’s assignee is not bound by the lease unless it expressly agrees to be bound by it.
In 1965, S. L. Kelly leased land to Gordon and Irene Bambrick to operate a radio station. The lease was to run for 20 years. The lease stated that if the lessee ever assigned the lease, the lessee would warrant that the assignee would assume all the lessee’s obligations under the lease. Additionally, the lease provided that all disputes would be subject to final and binding arbitration. Kelly died, and his interest in the lease passed to his sons Robert and Richard (Plaintiffs). In 1970, the Bambricks sold the station to Far West Broadcasting Corp., which was aware of the lease at the time of purchase and operated the station in accordance with the lease. In 1975, Far West sold the radio station to Tri-Cities Broadcasting, Inc. (Defendant). Defendant operated the radio station for at least nine months, but abandoned the site in 1977. When it purchased the radio station from Far West, Defendant acknowledged that the lease existed and that it would be assigned from Far West to Defendant, but that the lease’s assignability would be subject to its terms. No representative of Defendant ever read the lease or expressly agreed to be bound by the lease. After Defendant abandoned the property, Plaintiffs sued for unpaid rent. The trial court granted Plaintiffs’ motion to compel arbitration, and the arbitrator found that Defendant had assumed the lease and was bound to pay rent to Plaintiffs. The trial court confirmed the arbitrator’s award. Defendant then appealed, arguing that it had not assumed the lease.
Whether a lessee’s assignee is bound by the lease if it has not expressly agreed to be bound by it.
No. A lessee’s assignee is not bound by the lease unless it expressly agrees to be bound by it.
A lessee’s assignee is bound by the lease only when it has expressly agreed to be bound by it. In every decision this court has examined, assignees have been bound by leases only where they have expressly agreed to be bound. In this case, Defendant never expressly agreed to be bound by the lease. Far West did assign its interest in the lease to Defendant, but Defendant did not thereby assume the contractual obligations of the lease. Nor is Defendant’s agreement that the assignability of the lease would be subject to its terms an assumption of the lease. It is simply an acknowledgement of the ambiguity surrounding the lease’s assignability. The lease’s provision that the lessee warranted that assignees would assume all obligations under the lease imposes a duty only on the lessee, not the assignee. An assignee who does not agree to assume the obligations of a lease is subject only to the obligations that run with the land, such as the obligation to pay rent. This is because there is privity of estate but not privity of contract between the landlord and the assignee. These obligations based on privity of estate end when the assignee ceases to occupy the land. This rule has been criticized because it can lead to unfair results, but it is the law in California. Moreover, landlords can prevent the issue arising in this case by requiring all assignments to be approved. In this case, Defendant was only obligated to pay rent while it was in possession of the land, because it had privity of estate but not privity of contract with Plaintiffs. Defendant could be compelled to submit to arbitration: a covenant to submit to arbitration over rental payment is a covenant that runs with the land, so it is enforceable against Defendant because Defendant had privity of estate with Plaintiffs. But the arbitration can only extend to matters arising while there was privity of estate. The arbitrator in this case awarded rent for the period of time after Defendant had ceased possession of the property. This was in error, because there was no privity of estate after Defendant’s possession ceased.