Lease Assumptions 101

Last Updated: August 6, 2015By

Contract-rent-apartment-online-safety-real-estate-agencyWhen a tenant must move out of a rental property before the lease expires, another person may choose to take over the former tenant’s lease with a Lease Assumption Agreement. This new tenant, known as the “assignee,” is expected to meet the former tenant’s obligations as stated on the original lease agreement.

How Rental Property Lease Assumptions Benefit Landlords

Although you are not required to allow a new tenant to assume a former tenant’s rental property lease, keep in mind that this type of agreement usually benefits all parties involved. By allowing your tenants to enter into this type of agreement, you avoid the hassle of finding a new tenant to replace the one that is moving out.

It’s important to note that a Lease Assumption Agreement does not relieve your former tenant from the contractual requirements of the original lease. If the new tenant, or assignee, fails to meet these contractual obligations, both tenants may jointly be held liable for damages to your property and unpaid rent.

Lease Assumption Agreement versus Sublease Agreement

Typically, a Lease Assumption Agreement is used when a tenant must move out permanently with no intentions of returning to the rental property. In contrast, if a tenant is only planning to move out temporarily, a Sublease Agreement may be more appropriate. Before approving either type of lease transfer, make sure the correct landlord forms have been completed by both the new and former tenants.

With a Lease Assumption Agreement, the original tenant transfers all remaining interests in the lease to the new tenant, or assignee; whereas in a sublease situation, the original tenant only transfers limited rights to the new tenant, known as the “sub-tenant” or sub-lessee.” The original tenant retains certain rights to use the premises outside of the terms of the Sublease Agreement. The original lease, known as the “master lease,” is still in effect.

For example, say your original tenant signed a 12-month lease for your rental property then signed a Sublease Agreement with a new tenant for three of those months. After the three-month sublease period ends, the original tenant can move back into the rental property, just as long as it still falls within the 12-month term of the original lease agreement (or master lease). During the three-month sublease period, you are considered to be the “sub-landlord” or “sub-lessor.”

How to Minimize Your Risk with a Lease Assumption Agreement

The former tenant may request that you, the landlord, release him from future lease liability once the new tenant moves in. However, by signing a release form, you give up the right to sue the former tenant for damages or unpaid rent if the new tenant, or assignee, doesn’t hold up his end of the deal. This is usually not in the best interest of the landlord.

Before allowing a new tenant to assume an existing rental property lease, confirm that the assignee meets the same criteria that any other potential new tenant must meet before moving in. You certainly want to ensure that the new tenant is able to pay the rent on time, even if the former tenant is still liable for any unpaid rent and damages of the assignee. This can prevent plenty of headaches and hassles in the future.

Landlord-tenant laws often vary from state to state, so before you approve a lease assignment transfer between tenants, protect yourself by discussing the details of the agreement with a real estate lawyer or other legal professional.

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