Andy leases to Burgertown Franchise Corporation a 10,000 square-foot building under a written lease with a twenty-year term, rent payable annually. The lease includes a clause stating that Burgertown is responsible for making all necessary repairs, including rebuilding the structure after its destruction by any cause beyond Andy's control. The lease does not include a clause concerning its assignment. One day after the tenth rental payment, Burgertown, without Andy's knowledge or consent, assigns its interest in the lease to Chicken Hut Restaurants, Inc. Meanwhile, Andy dies and Dotty inherits Andy's interest in the building. Without the knowledge or consent of either Burgertown or Chicken Hut, Dotty sells the building to Earnest Investments, Inc. The next month, the building is destroyed

Question

in the flood of a nearby river. Burgertown rebuilds it and files a suit against Earnest for the expense. Earnest responds that the lease has terminated. Is Earnest correct? If so, when did the lease terminate? If not, is Earnest liable for the cost of rebuilding the structure? Why or why not?

What will be an ideal response?

Answer 1

Earnest is not correct. The lease has not terminated. Absent a provision in the lease to the contrary, its assignment is not prohibited, even without the consent of the landlord. The death of a landlord does not terminate a lease, unlike some other contracts. The owner's sale of leased premises to a third party does not terminate a lease, even without the consent of the tenant. Normally, the destruction of rental property would terminate a lease, but this commercial lease contained, as do many long-term commercial leases, a clause that required the tenant to rebuild the structure if it was destroyed by a cause beyond the landlord's control, which includes a flood. Such clauses are legally binding. Thus, none of these events¾Burgertown's assignment of the lease to Chicken Hut, Andy's death, Dotty's sale of the property to Earnest, or the destruction of the building in a flood¾terminated this lease. Although there may be a reduction in the amount of rent Burgertown, who remains liable despite the assignment, must pay while the premises are being rebuilt. Earnest is not liable for the cost of rebuilding the structure. Again, the lease required the tenant to rebuild the destroyed structure at the tenant's expense.