Opinion ID: 2180190
Heading Depth: 1
Heading Rank: 4

Heading: Appellants' Status: The Assignment and the Contractual Prohibition Against Assignment

Text: A tenant's leasehold interest is generally freely and completely transferable. POWELL ON REAL PROPERTY § 17.04[1][b], at 17-43 (citing RESTATEMENT (SECOND) OF PROPERTY, § 15.1 and comment (b) (other citations omitted)), However, the tenant's right to transfer, that is, to assign or sublet his leasehold interest, may be restricted: [A]n express lease provision [may] restrict[ ] the tenant's power to transfer the leasehold interest without the landlord's consent. Id. § 17.04[1][c], at 17-44. But, a landlord may also waive a prohibition on assignment. Id. § 17-04[1] [c], at 17-49. Evidence of a waiver may be found in the landlord's continued acceptance of rent coupled with knowledge of the assignment. Id. § 17.04 [2][a], at 17-50. Before examining whether the lease agreement precluded assignment, and if it did, whether the landlord waived the lease prohibition, we must ascertain which of the transaction documents executed by appellants and Mr. Gebremedhin purported to assign the lease to appellants. The Management Agreement does not qualify as an assignment. Rather, its focus is on Ms. Touelde's management of the then existing restaurant at the U Street property, the Super Cafe, including her responsibility for paying the monthly rent. Since Mr. Gebremedhin could terminate the Management Agreement, he retained at least a reversionary interest in the rental space at that point. Arguably, the undated Sales Agreement which appears in the record, and which the court found to have been executed in mid-1998, could be deemed an assignment of the lease upon the satisfaction of a specified condition. The Sales Agreement provided in the introductory paragraph that $10,000 would be paid at settlement, for good-will, trade name, fixtures, balance of the lease term, and any and all equipment connected with the ... business. The Sales Agreement provided that [s]ettlement shall be made on August 14, 1998. In the document dated November 24, 1998, Assignment of Lease, Mr. Gebremedhin explicitly assign[ed] and transfer[red] to [Sarete] all [of his] rights, title and interest as Tenant in, to and under the Lease and the Security Deposit posted by [him] with [the] [l]andlord pursuant to the Lease. The Assignment and Assumption of Lease [was] specifically conditioned upon [Sarete's] purchase from [Mr. Gebremedhin] of the assets of Cafe Tango. And, the Assignment of Lease was signed by Ms. Myers as Landlord. Both the Sales Agreement and the Assignment of Lease raise questions as to the effective date of the asset sale, and the trial court's findings leave doubt as to that date since they refer to three possible effective dates: August 14, 1998, November 24, 1998, and February 1999. Arguably, then, either the Sales Agreement between Mr. Gebremedhin, or the Assignment of Lease between Mr. Gebremedhin and Sarete could be deemed an effective assignment. Nevertheless, assuming that either document could be considered effective as an assignment of the lease, the next question is whether the Contract of Lease between Mr. Gebremedhin and 1344 U Street prohibited the assignment. The trial court concluded that it did, and on this point we agree. The general view is that restrictions on the tenant's right to transfer are to be strictly construed. POWELL ON REAL PROPERTY § 17.04[1][c], at 17-46. In that regard, a prohibition on assignment, without more, has been strictly construed to permit the sale of the controlling stock in the tenant corporation. Id. Here, since Mr. Gebremedhin signed the lease agreement with U Street as an individual, rather than in behalf of a corporation, the sale of controlling stock exception would not be applicable. At any rate, § 12(a) of the lease agreement between Mr. Gebremedhin and U Street expressly precluded a change of beneficial or legal stock ownership by the tenant. And, §§ 12(a) and 12(e), respectively, were drafted tightly in the landlord's favor to avoid loopholes, making it explicit that no assignment or transfer would be valid without the prior written consent of [the][l]andlord and without written notice to the landlord. Since Mr. Gebremedhin did not give written notice to U Street, and did not obtain U Street's prior written consent to the assignment to Sarete, it was not valid under § 12 of the Contract of Lease.