Privity of Estate/Privity of Contract

Analyzing assignment questions in the landlord/tenant context requires an understanding of privity of estate and privity of contract. In fact, these concepts are essential to answering such questions correctly.

Let's assume that landlord (x) leases property to tenant (y). The lease is a contract, so x and y are in privity of contract. In addition, a lease of property gives rise to a privity of estate, so x and y are in privity of estate. These privities cause legal obligations from x->y, and from y->x. As an example, y owes rent to x, and x can collect this rent because of the privity of contract and privity of estate that he has with y.

Now let's assume that y assigns his lease with x to an assignee (z). Z never directly contracted with x, so z and x are not in privity of contract. But because z is now the assignee of the lease, z is in privity of estate with x. This allows x to collect rent from z. And although y is no longer in privity of estate with x (because y assigned his lease to z) y is still in privity of contract with x. This allows x to collect rent from y, if x first tries unsuccessfully to collect rent from z.

And now let's assume that z further assigns the lease to a second assignee (t). Z was never in privity of contract with x, and z lost his privity of estate with x when he assigned his lease to t. Therefore because z is in neither privity of estate nor privity of contract with x, z no longer has any obligations towards x. T, however, now has an obligation towards x, based upon his privity of estate with x. And if t fails to pay, x can still go after y because they are still in privity of contract.

Know the privities well, as they will lead you to the correct answer, if analyzed properly.