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Dayenian v. American National Bank & Trust Co.

Appellate Court of Illinois
91 Ill. App. 3d 622, 47 Ill. Dec. 83, 414 N.E.2d 1199 (1980)
ELI5:

Rule of Law:

A lessee's transfer of their entire interest in a leasehold for the full remaining term constitutes an assignment, which extinguishes the lessee's estate and tenant status. The legal effect of the transfer is determined by its substance, not by the labels the parties may use to describe it.


Facts:

  • On July 14, 1978, Ursula Dayenian entered into a lease for an apartment unit for a term running from October 1, 1978, to September 30, 1980.
  • On October 26, 1978, Dayenian signed a document titled 'ASSIGNMENT,' which transferred 'all the Lessee’s right, title and interest in and to the within lease' to W. Carlton Lambert, effective December 1, 1978.
  • The assignment document specified that Dayenian, as the 'Original Lessee,' would not be released from liability under the lease covenants.
  • On November 8, 1978, W. Carlton Lambert signed an 'ACCEPTANCE OF ASSIGNMENT,' assuming all obligations of the lease, and the landlord's agent signed a 'CONSENT TO ASSIGNMENT.'
  • On March 13, 1979, the building's developer, 900/910 Lake Shore Drive Development Company, sent a notice of intent to convert the building to condominiums to W. Carlton Lambert.
  • W. Carlton Lambert did not exercise the right of first refusal to purchase the unit offered in the notice.
  • On May 31, 1979, the developer entered into a contract to sell the unit to a third party.

Procedural Posture:

  • Ursula Dayenian (plaintiff) filed an action for specific performance against 900/910 Lake Shore Drive Development Company and its trustee (defendants) in an Illinois trial court.
  • Defendants moved for summary judgment.
  • The trial court granted the defendants' motion for summary judgment.
  • Plaintiff Ursula Dayenian appealed the trial court's judgment to the Appellate Court of Illinois, First District.

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Issue:

Does a lessee's transfer of their 'entire right, title and interest' in a lease for the full remaining term constitute an assignment, thereby extinguishing the original lessee's statutory right of first refusal in a condominium conversion, even if the parties occasionally referred to the transaction as a 'sublease'?


Opinions:

Majority - Mr. Presiding Justice Goldberg

Yes, the transfer constitutes an assignment. A lessee's transfer of their entire interest for the full remaining term of a lease is an assignment, which divests the original lessee of their status as a tenant. The court determined the key distinction between an assignment and a sublease is whether the lessee transfers their entire estate without reserving any reversionary interest. In this case, Dayenian transferred 'all the Lessee’s right, title and interest' for the entire unexpired term, which created a privity of estate directly between the assignee, Lambert, and the original lessor. Dayenian's remaining liability under the lease was merely that of a surety, not a tenant with an interest in the property. The court rejected the argument that correspondence referring to the transfer as a 'sublease' could change its legal nature, stating that the substance of the unambiguous document controls over the labels used by the parties. Because Dayenian had assigned her lease and was no longer a tenant, she was not entitled to the statutory right of first refusal.



Analysis:

This case reinforces the formal common law distinction between an assignment and a sublease, emphasizing that the transfer of a lessee's entire interest for the full remaining term is the defining characteristic of an assignment. The decision clarifies that the substance of the transaction, rather than the terminology used by the parties, dictates its legal effect. This precedent serves as a clear warning that once a lessee assigns their entire interest, they lose their status as a 'tenant' for the purpose of statutory rights, such as a right of first refusal in a condominium conversion, even if they retain financial liability as a guarantor.

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