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the question in the end is an empirical one.12 Some tenants may gain from the IWH, but others, who cannot afford to pay more for housing even if the quality is higher, may lose. No one has yet demonstrated that the gainers outnumber the losers—or vice versa. Nor do we have any clear idea how large the relevant gains and losses are.
Perhaps the most unsettling aspect of the IWH is that it is not clear whether the change has had much impact on the welfare of low-income tenants. Appellate decisions interpreting the IWH are few in number, as compared to, say, decisions explicating products liability law. Litigation is expensive, and the amount in controversy in most cases involving an alleged breach of the IWH is small. Given the many uncertainties about the IWH, the absence of appellate decisions suggests either that most cases settle, or tenants do not assert IWH claims very often. If a high rate of settlement is the explanation, then the IWH may have some impact, even if it does not show up in reported appeals. If tenants simply do not assert the IWH very often, then the doctrine is probably not having much impact. Here too, it would be useful to have more empirical information.
Transferring Leasehold Interests
With a few prominent exceptions like the mandatory IWH in residential leases, the modern conception of the landlord-tenant relationship is very much like that of an ordinary bilateral contract. This means the lease can contain virtually any sort of promise the
12.See Bruce Ackerman, Regulating Slum Housing Markets on Behalf of the Poor: Of Housing Codes, Housing Subsidies and Income Redistribution Policy, 80 Yale L.J. 1093 (1971); Bruce Ackerman, More on Slum Housing and Redistribution Policy: A Reply to Professor Komesar, 82 Yale L.J. 1194 (1973); Neil K. Komesar,
Return to Slumville: A Critique of the Ackerman Analysis of Housing Code Enforcement and the Poor, 83 Yale L.J. 1175 (1973); see also Richard A. Posner, Economic Analysis of Law 259–73 (1973).
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parties want it to contain: The landlord can promise to shine the tenant’s shoes, and the tenant can promise to walk the landlord’s dog. If either the landlord or the tenant transfers their interest to a third party, however, we see a significant shift toward standardization of the respective interests.
Suppose the landlord sells the reversion to a third party. The ordinary rule here is that the third party will take “subject to” any unexpired leases. Does this mean that if the original landlord promised to shine the tenant’s shoes, the new landlord must continue to shine the tenant’s shoes? Probably not: The common law rule is that only promises in the original lease that “touch and concern” the land run to successors in interest. This mysterious requirement is hard to define with any precision; basically what it means in this context is that only those terms in the lease that affect the scope of the property rights or the condition of the land are binding on successors in interest. Promises by the landlord to provide a parking place for the tenant and heat for the building would touch and concern the land; a promise to shine the tenant’s shoes probably would be regarded as a personal promise that does not run with the land.
Suppose the tenant decides to transfer the tenant’s remaining interest under the lease. The common law rule here is that absent an agreement in the lease to the contrary, the tenant’s interest is freely alienable. The landlord will often be concerned about who the tenant might transfer to; at a minimum, the landlord will want assurance that the new tenant is a good credit risk. Landlords are therefore free to include a clause in the original lease providing that the tenant may not transfer without the landlord’s permission. Historically, these permission clauses were understood to give the landlord complete discretion in deciding whether or not to permit a transfer, unless the tenant negotiated for additional language stating that consent to transfer will not be “unreasonably withheld.” Some jurisdictions have recently rejected this interpretation, however, and have ruled that a permission clause will be construed to mean the landlord must have a commercially reasonable ground
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for withholding consent, unless the landlord has negotiated for additional language stating that consent can be withheld for any reason.13 This may well be a better default rule and prevents the landlord from extracting gains in the market value of leases that some tenants legitimately expect to capture. Nevertheless, since most lease transfers involve long term commercial leases where both parties are represented by counsel, it is not clear that tinkering with the default interpretation of permission clauses in this fashion is worth the disruption to settled expectations.
Tenant transfers are subject to a further type of standardization, in that they can be achieved in only two ways: through assignment or a subletting. An assignment occurs when the tenant transfers the entire remaining interest in the lease to a third party, such that the new tenant steps into the shoes of the original tenant. When this happens, the original tenant is still liable to the landlord under privity of contract—for the obligations set forth in the original lease (including the obligation to walk the dog). But the new tenant now holds directly from the landlord, and so is said also to be obligated to the landlord under “privity of estate.” This means the new tenant must perform all obligations of the original lease that “touch and concern” the land, in exact parallel to what happens when the landlord sells the reversion to a third party. So the new tenant has to pay the rent to the landlord, but probably does not have to walk the dog.
A sublease occurs when the tenant does not transfer the entire remaining interest in the lease to a third party, but retains some interest for him or herself. For example, if the lease has one year to run, the prime tenant could transfer the summer months to a third party but then retain the last nine months for him or herself. When this happens, the prime tenant remains obligated to the landlord under privity of contract and hence must perform all the provisions of the original lease (including walking the dog). But in a clear echo
13. See Kendall v. Ernest Pestana, Inc. 709 P.2d 837 (Cal. 1985).