This section is from the book "Real Property, An Introductory Explanation Of The Law Relating To Land", by Alfred F Topham. Also available from Amazon: The New Law Of Property.
(a) Assignment. - When the tenant transfers his whole interest in the lease, he is said to assign it.
Thus, in 1880 A granted land to B for 50 years. In 1900 B transferred the residue of the term of 50 years (= 30 years) to C. C is an assignee.
The assignee of a lease stands in the place of the original lessee and becomes a tenant of the original landlord.
(b) Sub-lease (or underlease). - When the tenant transfers to another a part of his interest, he is said to sub-let it.
Thus, if in the last example B had in 1900 leased the land to C for a term of 20 years only, C would be a sub-lessee.
Even if B had transferred to C the whole remaining 30 years of his term except the last day, C would be a sub-lessee.
A sub-lessee is not a tenant of the original landlord; but he is a tenant of the sub-lessor (i.e. the original lessee).
Result of this distinction. - An assignee of a lease is liable to the original landlord to perform the covenants in the lease (or such of them as "run with the land," see p. 203).
Since the assignee holds his estate as tenant of the original landlord there is said to be "privity of estate " between them.
There is privity of estate between two persons whenever one is tenant of the other.
The assignor, however, also remains liable to the original landlord; for he cannot get rid of his liability to perform the contract which he made with the landlord. The original lessee actually made a contract with the landlord; there is said therefore to be "privity of contract" between them.
Thus the landlord may sue either the assignor or the assignee. If the assignor is sued the assignee must indemnify him.
When there is no "privity of estate" and no "privity of contract" between two parties, neither can sue the other on the covenants.
Thus (1) An assignee who assigns the lease to another is not liable for breaches of covenant which occur after he has assigned.
For he made no contract with the original lessor, and he no longer has any estate in the land. Therefore there is no privity of contract and no privity of estate.
(2) A sub-lessee is not liable to the original landlord to perform the covenants in the original lease.
For he is not tenant of the original landlord, and he did not make any contract with the landlord.
A sub-lessee is liable to the sub-lessor on the covenants in the sub-lease.
For the sub-lease contains an express contract between the sub-lessor and the sub-lessee.
Covenants in a lease which are binding on the transferee are said to " run with the land " - that is, they pass to the assignee of the lease and bind him without any further express covenant on his part.