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Assignment vs. Sublease: What Are the Key Differences?

Updated September 26, 2024 | Written by Sara Hostelley Reviewed by Brooke Davis

When leasing property, you might encounter situations where you need to transfer your lease or share your rented space. Assigning a lease and subletting are potential solutions, but you should first understand their implications.

In this article, we explore the differences between a lease assignment and sublease, explain how these arrangements work, and discuss the rights and responsibilities they entail.

What Is a Lease Assignment?

A lease assignment is when the tenant transfers all their rights and obligations under a lease agreement to another party. The new tenant (the “assignee”) accepts all of the responsibilities and benefits of the leased property.

The assignment of a lease helps you when you need to get out of a lease before it expires. For example, suppose you’ve signed a 12-month lease for a commercial space. If your business relocates after six months and needs to get out of the commercial lease early, you can assign the lease to another entity to relieve your company from the lease responsibility.

What Is a Sublease?

A sublease agreement lets a tenant rent out all or part of their rented property to another person (the “subtenant” or “sublessee”). This arrangement is beneficial when you (as the direct tenant) need to temporarily vacate your rental unit or share the space with someone else. Subletting offers flexibility for short-term housing needs and can help you avoid breaking your lease .

When you enter a sublease, you’ll still be responsible for fulfilling the terms of your original lease, including paying rent and maintaining your unit. Additionally, you’ll assume landlord-like duties toward your subtenant, such as addressing maintenance issues and collecting rent.

Assignment vs. Sublease: Key Differences

Here are the key differences between a lease assignment and a sublease:

• Assignment: Three main parties—the landlord, the original tenant (the assignor), and the new tenant (the assignee).
• Sublease: Two main parties—the original tenant (the “sublessor”) and the subtenant (the “sublessee”). The landlord isn’t a direct party in a sublease.
• Assignment: The original tenant transfers all their rights under the rental agreement to the new tenant. The assignee takes over the lease for the rest of the term.
• Sublease: The original tenant keeps their lease rights but grants the subtenant rights to use an entire rental unit (or part of it) for a certain period. The subtenant’s rights are secondary to the original tenant’s.
• Assignment: The new tenant assumes liability for the lease, but the original tenant may remain secondarily answerable to the landlord if the assignee defaults.
• Sublease: The original tenant remains fully liable to the landlord for the lease’s obligations. The subtenant is only responsible to the original tenant.
• Assignment: The assignee pays rent to the landlord.
• Sublease: The subtenant pays rent to the sublessor; they have no financial obligation to the landlord. The sublessor must make full rent payments to the landlord.
• Assignment: The assignee can use the leased premises in the manner outlined in the original lease. Any conditions or restrictions that applied to the original tenant now apply to the assignee.
• Sublease: The subtenant uses the property as described in the sublease, which may or may not be consistent with the original lease’s terms. The original tenant must ensure that the sublease’s terms don’t violate the original lease.
• Assignment: The original lease agreement stays in effect, but all responsibilities transfer to the assignee. Any changes to the lease may require the landlord’s consent.
• Sublease: The original lease governs the sublessor’s obligations, while the sublease dictates the sublessor-subtenant relationship. The sublease cannot override the original lease’s terms.
• Assignment: The landlord must typically issue approval before the original tenant can assign the lease to a new tenant. Most leases have clauses that allow the landlord to approve or reject an assignment based on reasonable grounds.
• Sublease: A sublease also typically requires the landlord’s consent . Some leases may allow subletting without further consent from the landlord, as landlords have fewer concerns because the original tenant keeps their promises in the lease.
• Assignment: The landlord and the new tenant (the assignee) enter a relationship.
• Sublease: The landlord has no direct involvement with the subtenant. The subtenant answers to the tenant, while the tenant answers to the landlord.

How to Choose Between Assigning a Lease and Subletting

Here are some factors that may influence your choice between assigning a lease and subletting:

• Duration of Need: Consider how long you plan to vacate the property. If you want the option to return, choose subletting. If you plan not to return, choose assigning the lease.
• Liability: Think about how much responsibility you want to have. Assigning a lease minimizes your liability, while subletting keeps you liable if the subtenant defaults.
• Lease Terms: Check your lease for an assignment or sublease clause. If your lease favors subletting and restricts assignments, you may opt for a sublease.
• Landlord’s Approval: If your landlord is willing to let you assign the lease to someone else, you may choose this option because it provides a cleaner break. However, it might be easier to get approval for a sublease than for an assignment.
• Control Over the Property: Subletting may be right for you if you wish to retain some control over the property. However, if you no longer have an interest in using or benefiting from the property, you may pursue a lease assignment.
• Market Conditions: In a renter’s market, you may be able to sublease to another individual and charge payments that cover your monthly rent and let you profit. If the rental market is weak in your area, you may opt to assign the lease instead.

Privity of Contract and Privity of Estate in Lease Assignments and Subleases

You can further distinguish between lease assignments and subleases by determining the presence or absence of the privity of contract and privity of estate between the involved parties:

• Privity of contract: A relationship between two parties that lets them enforce the terms of their contract against each other.
• Privity of estate: A relationship between two parties with an interest in the same property.

This table summarizes whether privity of contract and privity of estate exists between the parties in an assignment:

This table summarizes whether privity of contract and privity of estate exists between the parties in a sublease:

Example of Privity of Contract and Estate in an Assignment

Sophia owns Riverside Apartments. She leases Riverside Apartments to Mark for a term of 4 years. In the third year of the lease, Mark decides to assign his interest in Riverside Apartments to Jordan.

Here’s whether privity of contract and privity of estate exist between the parties:

• Sophia and Mark: Sophia and Mark retain privity of contract but not privity of estate because the original lease is still valid, but the interest in the property goes to Jordan.
• Sophia and Jordan: Sophia and Jordan maintain privity of estate because Jordan now holds the present interest in the property. Sophia doesn’t have privity of contract with Jordan, as the original lease agreement remains between Sophia and Mark.
• Mark and Jordan: Mark and Jordan share privity of contract because of their agreement regarding the lease assignment. However, they don’t have privity of estate because Mark no longer has a possessory interest in Riverside Apartments; he has fully transferred his rights to Jordan.

Example of Privity of Contract and Estate in a Sublease

David owns Greenfield Plaza. He leases Greenfield Plaza to Brittany for a five-year term. In the fourth year of the lease, Brittany decides to sublease her rights to Emily for the remaining year.

• David and Brittany: David keeps privity of contract with Brittany because their original lease is still in effect. David also has privity of estate with Brittany, as she keeps a legal interest in the property.
• David and Emily: David and Emily don’t have privity of contract because the sublease is a separate agreement between Brittany and Emily. As a result, David has no direct legal obligations or rights concerning Emily. Furthermore, David and Emily have no privity of estate.
• Brittany and Emily: Brittany and Emily have privity of contract and privity of estate because of the sublease they entered into together.

Understanding the Differences Between Assignments and Subleases

Understanding the nuances between assignments and subleases can significantly impact tenants navigating their rental agreements. This knowledge helps them make informed decisions when circumstances require them to transfer or share their leased space.

Review your original lease, talk to your landlord, and talk to a lawyer to protect your interests and create flexibility in your living or business arrangements.

Sara Hostelley

Legal Content Editor

Sara Hostelley is a legal and SEO content editor with a bachelor's degree in English from the University of South Florida. She has ample experience writing informative content pieces within various...

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• assignments basic law

Assignments: The Basic Law

The assignment of a right or obligation is a common contractual event under the law and the right to assign (or prohibition against assignments) is found in the majority of agreements, leases and business structural documents created in the United States.

As with many terms commonly used, people are familiar with the term but often are not aware or fully aware of what the terms entail. The concept of assignment of rights and obligations is one of those simple concepts with wide ranging ramifications in the contractual and business context and the law imposes severe restrictions on the validity and effect of assignment in many instances. Clear contractual provisions concerning assignments and rights should be in every document and structure created and this article will outline why such drafting is essential for the creation of appropriate and effective contracts and structures.

The reader should first read the article on Limited Liability Entities in the United States and Contracts since the information in those articles will be assumed in this article.

Basic Definitions and Concepts:

An assignment is the transfer of rights held by one party called the “assignor” to another party called the “assignee.” The legal nature of the assignment and the contractual terms of the agreement between the parties determines some additional rights and liabilities that accompany the assignment. The assignment of rights under a contract usually completely transfers the rights to the assignee to receive the benefits accruing under the contract. Ordinarily, the term assignment is limited to the transfer of rights that are intangible, like contractual rights and rights connected with property. Merchants Service Co. v. Small Claims Court , 35 Cal. 2d 109, 113-114 (Cal. 1950).

An assignment will generally be permitted under the law unless there is an express prohibition against assignment in the underlying contract or lease. Where assignments are permitted, the assignor need not consult the other party to the contract but may merely assign the rights at that time. However, an assignment cannot have any adverse effect on the duties of the other party to the contract, nor can it diminish the chance of the other party receiving complete performance. The assignor normally remains liable unless there is an agreement to the contrary by the other party to the contract.

The effect of a valid assignment is to remove privity between the assignor and the obligor and create privity between the obligor and the assignee. Privity is usually defined as a direct and immediate contractual relationship. See Merchants case above.

Further, for the assignment to be effective in most jurisdictions, it must occur in the present. One does not normally assign a future right; the assignment vests immediate rights and obligations.

No specific language is required to create an assignment so long as the assignor makes clear his/her intent to assign identified contractual rights to the assignee. Since expensive litigation can erupt from ambiguous or vague language, obtaining the correct verbiage is vital. An agreement must manifest the intent to transfer rights and can either be oral or in writing and the rights assigned must be certain.

Note that an assignment of an interest is the transfer of some identifiable property, claim, or right from the assignor to the assignee. The assignment operates to transfer to the assignee all of the rights, title, or interest of the assignor in the thing assigned. A transfer of all rights, title, and interests conveys everything that the assignor owned in the thing assigned and the assignee stands in the shoes of the assignor. Knott v. McDonald’s Corp ., 985 F. Supp. 1222 (N.D. Cal. 1997)

The parties must intend to effectuate an assignment at the time of the transfer, although no particular language or procedure is necessary. As long ago as the case of National Reserve Co. v. Metropolitan Trust Co ., 17 Cal. 2d 827 (Cal. 1941), the court held that in determining what rights or interests pass under an assignment, the intention of the parties as manifested in the instrument is controlling.

The intent of the parties to an assignment is a question of fact to be derived not only from the instrument executed by the parties but also from the surrounding circumstances. When there is no writing to evidence the intention to transfer some identifiable property, claim, or right, it is necessary to scrutinize the surrounding circumstances and parties’ acts to ascertain their intentions. Strosberg v. Brauvin Realty Servs., 295 Ill. App. 3d 17 (Ill. App. Ct. 1st Dist. 1998)

The general rule applicable to assignments of choses in action is that an assignment, unless there is a contract to the contrary, carries with it all securities held by the assignor as collateral to the claim and all rights incidental thereto and vests in the assignee the equitable title to such collateral securities and incidental rights. An unqualified assignment of a contract or chose in action, however, with no indication of the intent of the parties, vests in the assignee the assigned contract or chose and all rights and remedies incidental thereto.

More examples: In Strosberg v. Brauvin Realty Servs ., 295 Ill. App. 3d 17 (Ill. App. Ct. 1st Dist. 1998), the court held that the assignee of a party to a subordination agreement is entitled to the benefits and is subject to the burdens of the agreement. In Florida E. C. R. Co. v. Eno , 99 Fla. 887 (Fla. 1930), the court held that the mere assignment of all sums due in and of itself creates no different or other liability of the owner to the assignee than that which existed from the owner to the assignor.

And note that even though an assignment vests in the assignee all rights, remedies, and contingent benefits which are incidental to the thing assigned, those which are personal to the assignor and for his sole benefit are not assigned. Rasp v. Hidden Valley Lake, Inc ., 519 N.E.2d 153, 158 (Ind. Ct. App. 1988). Thus, if the underlying agreement provides that a service can only be provided to X, X cannot assign that right to Y.

Novation Compared to Assignment:

Although the difference between a novation and an assignment may appear narrow, it is an essential one. “Novation is a act whereby one party transfers all its obligations and benefits under a contract to a third party.” In a novation, a third party successfully substitutes the original party as a party to the contract. “When a contract is novated, the other contracting party must be left in the same position he was in prior to the novation being made.”

A sublease is the transfer when a tenant retains some right of reentry onto the leased premises. However, if the tenant transfers the entire leasehold estate, retaining no right of reentry or other reversionary interest, then the transfer is an assignment. The assignor is normally also removed from liability to the landlord only if the landlord consents or allowed that right in the lease. In a sublease, the original tenant is not released from the obligations of the original lease.

Equitable Assignments:

An equitable assignment is one in which one has a future interest and is not valid at law but valid in a court of equity. In National Bank of Republic v. United Sec. Life Ins. & Trust Co. , 17 App. D.C. 112 (D.C. Cir. 1900), the court held that to constitute an equitable assignment of a chose in action, the following has to occur generally: anything said written or done, in pursuance of an agreement and for valuable consideration, or in consideration of an antecedent debt, to place a chose in action or fund out of the control of the owner, and appropriate it to or in favor of another person, amounts to an equitable assignment. Thus, an agreement, between a debtor and a creditor, that the debt shall be paid out of a specific fund going to the debtor may operate as an equitable assignment.

In Egyptian Navigation Co. v. Baker Invs. Corp. , 2008 U.S. Dist. LEXIS 30804 (S.D.N.Y. Apr. 14, 2008), the court stated that an equitable assignment occurs under English law when an assignor, with an intent to transfer his/her right to a chose in action, informs the assignee about the right so transferred.

An executory agreement or a declaration of trust are also equitable assignments if unenforceable as assignments by a court of law but enforceable by a court of equity exercising sound discretion according to the circumstances of the case. Since California combines courts of equity and courts of law, the same court would hear arguments as to whether an equitable assignment had occurred. Quite often, such relief is granted to avoid fraud or unjust enrichment.

Note that obtaining an assignment through fraudulent means invalidates the assignment. Fraud destroys the validity of everything into which it enters. It vitiates the most solemn contracts, documents, and even judgments. Walker v. Rich , 79 Cal. App. 139 (Cal. App. 1926). If an assignment is made with the fraudulent intent to delay, hinder, and defraud creditors, then it is void as fraudulent in fact. See our article on Transfers to Defraud Creditors .

But note that the motives that prompted an assignor to make the transfer will be considered as immaterial and will constitute no defense to an action by the assignee, if an assignment is considered as valid in all other respects.

Enforceability of Assignments:

Whether a right under a contract is capable of being transferred is determined by the law of the place where the contract was entered into. The validity and effect of an assignment is determined by the law of the place of assignment. The validity of an assignment of a contractual right is governed by the law of the state with the most significant relationship to the assignment and the parties.

In some jurisdictions, the traditional conflict of laws rules governing assignments has been rejected and the law of the place having the most significant contacts with the assignment applies. In Downs v. American Mut. Liability Ins. Co ., 14 N.Y.2d 266 (N.Y. 1964), a wife and her husband separated and the wife obtained a judgment of separation from the husband in New York. The judgment required the husband to pay a certain yearly sum to the wife. The husband assigned 50 percent of his future salary, wages, and earnings to the wife. The agreement authorized the employer to make such payments to the wife.

After the husband moved from New York, the wife learned that he was employed by an employer in Massachusetts. She sent the proper notice and demanded payment under the agreement. The employer refused and the wife brought an action for enforcement. The court observed that Massachusetts did not prohibit assignment of the husband’s wages. Moreover, Massachusetts law was not controlling because New York had the most significant relationship with the assignment. Therefore, the court ruled in favor of the wife.

Therefore, the validity of an assignment is determined by looking to the law of the forum with the most significant relationship to the assignment itself. To determine the applicable law of assignments, the court must look to the law of the state which is most significantly related to the principal issue before it.

Assignment of Contractual Rights:

Generally, the law allows the assignment of a contractual right unless the substitution of rights would materially change the duty of the obligor, materially increase the burden or risk imposed on the obligor by the contract, materially impair the chance of obtaining return performance, or materially reduce the value of the performance to the obligor. Restat 2d of Contracts, § 317(2)(a). This presumes that the underlying agreement is silent on the right to assign.

If the contract specifically precludes assignment, the contractual right is not assignable. Whether a contract is assignable is a matter of contractual intent and one must look to the language used by the parties to discern that intent.

In the absence of an express provision to the contrary, the rights and duties under a bilateral executory contract that does not involve personal skill, trust, or confidence may be assigned without the consent of the other party. But note that an assignment is invalid if it would materially alter the other party’s duties and responsibilities. Once an assignment is effective, the assignee stands in the shoes of the assignor and assumes all of assignor’s rights. Hence, after a valid assignment, the assignor’s right to performance is extinguished, transferred to assignee, and the assignee possesses the same rights, benefits, and remedies assignor once possessed. Robert Lamb Hart Planners & Architects v. Evergreen, Ltd. , 787 F. Supp. 753 (S.D. Ohio 1992).

On the other hand, an assignee’s right against the obligor is subject to “all of the limitations of the assignor’s right, all defenses thereto, and all set-offs and counterclaims which would have been available against the assignor had there been no assignment, provided that these defenses and set-offs are based on facts existing at the time of the assignment.” See Robert Lamb , case, above.

The power of the contract to restrict assignment is broad. Usually, contractual provisions that restrict assignment of the contract without the consent of the obligor are valid and enforceable, even when there is statutory authorization for the assignment. The restriction of the power to assign is often ineffective unless the restriction is expressly and precisely stated. Anti-assignment clauses are effective only if they contain clear, unambiguous language of prohibition. Anti-assignment clauses protect only the obligor and do not affect the transaction between the assignee and assignor.

Usually, a prohibition against the assignment of a contract does not prevent an assignment of the right to receive payments due, unless circumstances indicate the contrary. Moreover, the contracting parties cannot, by a mere non-assignment provision, prevent the effectual alienation of the right to money which becomes due under the contract.

A contract provision prohibiting or restricting an assignment may be waived, or a party may so act as to be estopped from objecting to the assignment, such as by effectively ratifying the assignment. The power to void an assignment made in violation of an anti-assignment clause may be waived either before or after the assignment. See our article on Contracts.

Noncompete Clauses and Assignments:

Of critical import to most buyers of businesses is the ability to ensure that key employees of the business being purchased cannot start a competing company. Some states strictly limit such clauses, some do allow them. California does restrict noncompete clauses, only allowing them under certain circumstances. A common question in those states that do allow them is whether such rights can be assigned to a new party, such as the buyer of the buyer.

A covenant not to compete, also called a non-competitive clause, is a formal agreement prohibiting one party from performing similar work or business within a designated area for a specified amount of time. This type of clause is generally included in contracts between employer and employee and contracts between buyer and seller of a business.

Many workers sign a covenant not to compete as part of the paperwork required for employment. It may be a separate document similar to a non-disclosure agreement, or buried within a number of other clauses in a contract. A covenant not to compete is generally legal and enforceable, although there are some exceptions and restrictions.

Whenever a company recruits skilled employees, it invests a significant amount of time and training. For example, it often takes years before a research chemist or a design engineer develops a workable knowledge of a company’s product line, including trade secrets and highly sensitive information. Once an employee gains this knowledge and experience, however, all sorts of things can happen. The employee could work for the company until retirement, accept a better offer from a competing company or start up his or her own business.

A covenant not to compete may cover a number of potential issues between employers and former employees. Many companies spend years developing a local base of customers or clients. It is important that this customer base not fall into the hands of local competitors. When an employee signs a covenant not to compete, he or she usually agrees not to use insider knowledge of the company’s customer base to disadvantage the company. The covenant not to compete often defines a broad geographical area considered off-limits to former employees, possibly tens or hundreds of miles.

Another area of concern covered by a covenant not to compete is a potential ‘brain drain’. Some high-level former employees may seek to recruit others from the same company to create new competition. Retention of employees, especially those with unique skills or proprietary knowledge, is vital for most companies, so a covenant not to compete may spell out definite restrictions on the hiring or recruiting of employees.

A covenant not to compete may also define a specific amount of time before a former employee can seek employment in a similar field. Many companies offer a substantial severance package to make sure former employees are financially solvent until the terms of the covenant not to compete have been met.

Because the use of a covenant not to compete can be controversial, a handful of states, including California, have largely banned this type of contractual language. The legal enforcement of these agreements falls on individual states, and many have sided with the employee during arbitration or litigation. A covenant not to compete must be reasonable and specific, with defined time periods and coverage areas. If the agreement gives the company too much power over former employees or is ambiguous, state courts may declare it to be overbroad and therefore unenforceable. In such case, the employee would be free to pursue any employment opportunity, including working for a direct competitor or starting up a new company of his or her own.

It has been held that an employee’s covenant not to compete is assignable where one business is transferred to another, that a merger does not constitute an assignment of a covenant not to compete, and that a covenant not to compete is enforceable by a successor to the employer where the assignment does not create an added burden of employment or other disadvantage to the employee. However, in some states such as Hawaii, it has also been held that a covenant not to compete is not assignable and under various statutes for various reasons that such covenants are not enforceable against an employee by a successor to the employer. Hawaii v. Gannett Pac. Corp. , 99 F. Supp. 2d 1241 (D. Haw. 1999)

It is vital to obtain the relevant law of the applicable state before drafting or attempting to enforce assignment rights in this particular area.

Conclusion:

In the current business world of fast changing structures, agreements, employees and projects, the ability to assign rights and obligations is essential to allow flexibility and adjustment to new situations. Conversely, the ability to hold a contracting party into the deal may be essential for the future of a party. Thus, the law of assignments and the restriction on same is a critical aspect of every agreement and every structure. This basic provision is often glanced at by the contracting parties, or scribbled into the deal at the last minute but can easily become the most vital part of the transaction.

As an example, one client of ours came into the office outraged that his co venturer on a sizable exporting agreement, who had excellent connections in Brazil, had elected to pursue another venture instead and assigned the agreement to a party unknown to our client and without the business contacts our client considered vital. When we examined the handwritten agreement our client had drafted in a restaurant in Sao Paolo, we discovered there was no restriction on assignment whatsoever…our client had not even considered that right when drafting the agreement after a full day of work.

One choses who one does business with carefully…to ensure that one’s choice remains the party on the other side of the contract, one must master the ability to negotiate proper assignment provisions.

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