390 S.W.2d 703
In June 1960, B. Walter Ernst and his wife Emily Ernst leased a tract of land in Davidson County, Tennessee, to Frank D. Rogers for a term of one year and seven days beginning June 23, 1960.1 The lease required Rogers to pay annual rent of $4,200, either $350 monthly or 15 percent of gross receipts, whichever was greater.2 Rogers took possession and built an asphalt race track, fencing, and floodlights for operating a Go-Cart track.3 The lease prohibited assignment or subletting without the lessors' prior written approval and required the lessee to remove all above-ground improvements upon termination, excluding surface paving.4
In July 1960, Rogers negotiated the sale of the business to A. K. Conditt.5 Conditt wanted a two-year lease, so Rogers and Conditt obtained an amendment from the Ernsts extending the term to July 31, 1962.6 The amendment also adjusted rent payment timing and required development of additional acreage.7 It expressly consented to subletting the premises to Conditt on the condition that Rogers remain personally liable for all lease obligations.8 Rogers then executed a document subletting the premises to Conditt, who accepted it, with Rogers promising to remain liable for performance.9
Conditt operated the Go-Cart track from August to November 1960 and paid rent directly to the Ernsts for August, September, and October.10 He made one additional payment of $350 in June 1961 but no further payments.11 Conditt remained in possession of the property until the lease expired on July 31, 1962.12 On July 10, 1962, the Ernsts notified Conditt by letter that the lease would end at midnight on July 31 and demanded payment of past due rent plus removal of improvements.13
On August 1, 1962, the Ernsts filed suit against Conditt seeking $2,404.58 in unpaid basic rent for the first year, $4,200 for the second year, and costs to remove the improvements.14 The Chancellor heard the case on depositions and documentary evidence.15 The defendant offered no testimony or evidence.16 The Chancellor entered judgment for the plaintiffs, and Conditt appealed.17
Whether the agreement between Rogers and Conditt is an assignment of the lease or a sublease?18
The common law distinction between an assignment of a lease and a sublease is that an assignment conveys the whole term, leaving no interest nor reversionary interest in the grantor or assignor. A sublease is a transaction whereby a tenant grants an interest in the leased premises less than his own, or reserves to himself a reversionary interest in the term. If the instrument purports to transfer the lessee’s estate for the entire remainder of his term it is an assignment, regardless of its form or of the parties’ intention. Conversely, if the instrument purports to transfer the lessee’s estate for less than the entire term it is a sublease, regardless of its form or of the parties’ intention.19 Tennessee follows the modern rule of construction. Courts ascertain the intention of the parties from the language of the instrument read in the light of the surrounding circumstances. The court gives effect to the object and purpose to be effected by the contract. The court considers all facts and circumstances so as to determine what was within the contemplation of the parties.
Yes. The agreement executed on August 4, 1960, between Rogers and Conditt transferred to Conditt the right to possession of the property for the entire remaining term of the lease as amended, ending July 31, 1962.20 Rogers parted with his entire interest in the property for value received and on Conditt’s promise to perform all conditions of the lease as amended.21 Conditt went into possession of the property and paid rent directly to the Ernsts for the months of August, September, and October 1960, with one additional payment of the basic monthly rental in June 1961.22
Conditt remained in possession of the property until the expiration of the leasehold on July 31, 1962. Although the amendment to the lease and the document executed by Rogers used the words sublet and subletting and provided that Rogers would remain personally liable for performance of the lease, these provisions did not create a reversionary interest or right of re-entry in Rogers.23 The express agreement of Rogers to remain liable created no greater obligation on his part or interest in the leasehold other than as set forth in the original lease of June 18, 1960.24 Rogers reserved no part or interest in the lease and did not reserve a right of re-entry in the event of a breach by Conditt.25
The context of the instrument and the facts and circumstances surrounding its execution, including Conditt’s insistence on an extension of the term before purchasing the business and his subsequent ownership of the improvements with the right to remove them, demonstrate that the parties intended an assignment rather than a sublease.26