Video: Lease Assignment Perils
Start Transcript: Lease Assignment Perils
Another issue that you need to be aware of both on the landlord side and the tenant side, when you’re signing a lease. Is let’s say, going back to my example of Chip taking over the restaurant. Let’s say Chip, as we all know he was going to do, crashes and burns and he makes like 1 month worth of rent and then it’s disaster, it’s grease fire in the kitchen all of the time. I don’t mean the restaurant burned down, I just mean that it’s not going well. He’s not going to be able to make a go of it, he can’t pay the rent, landlord is going to lock him out.
Well what do you do in that situation? You just assigned that lease to Chip, you should have known better by the way but you did it and now Chip has let the lease go into default. What is going to happen next for you, is you’re going to be contacted by the landlord, and the landlord is going to say, “Hey we’re really sorry that Chip was not able to succeed in that restaurant but we’re more sorry for you than we are for us because you are still on hook for all of the original terms of that lease, just because Chip is not paying doesn’t mean that somebody doesn’t have to pay. And that somebody is you.” I was involved in representing a landlord in just such a restaurant as I have been describing here and it has been assigned, and assigned, and assigned, I mean it had been assigned to 6 or 7 different restaurateurs and the term of the lease was really long.
I can’t remember if it was 20 year lease or something like that, but it was a long lease. After the 7th restaurateur went belly up, my client decided “Okay, we’re bringing Sue in, we’re suing everybody in the line.” All 7 of the previous tenants had obligated themselves to the terms of that prior lease. These people couldn’t believe it, it had been years since they had thought about that restaurant but they had to think about it then, because the landlord, we had a valid claim. And we collected on that claim. I don’t remember how we divided it up among all the subsequent restaurateurs but everybody was on the hook.