What Exactly is Privity?

One of the knocks against the legal profession is that it uses terms that are obscure or undecipherable by the rest of the population. One of those terms is “privity.” It gets thrown around in some circles with less than a full understanding of what the term means and how it may apply. Generally, the term “privity” connotes a close, direct, or successive relationship; one having a mutual interest or right. In the Landlord/Tenant context a Landlord and a Tenant have both “privity of contract” and “privity of estate.” There are significant differences between the two types of privity.

For example, privity of contract allows one party to a contract to enforce the other party’s promises. Let’s say Party A sells property to Party B. Parties A and B are in privity, and each may enforce the other’s promises as contained in the contract. However, Party B’s tenant is not in privity with Party A, and therefore has no right to enforce the terms of the contract between Party A and Party B against Party A. Thus, if Party A failed to make repairs as required in his contract with Party B, the tenant cannot sue Party A for failing to do so. There is no privity between Party A and the tenant. Party B, however, does have a right to enforce Party A’s promise to make repairs.

Privity of estate, on the other hand, allows a party to enforce promises that are considered to run with the land: that is, promises whose substance touches and concerns the land. The promise must relate directly to occupation, use or enjoyment of the premises. For example, a successor to a landlord, although not the original landlord, can enforce provisions in the lease relating to a tenant’s obligations to pay rent, taxes, and insurance and to make repairs. Tenants, on the other hand, have the right to enforce against a Landlord’s successor the right to quiet enjoyment of the property, a tenant’s option rights, exclusivity rights, and extension rights.

Privity becomes important when a tenant decides to assign his lease to a third party. Unless the assignee agrees to assume the lease, there is no privity between the landlord and the assignee. As a result, neither can enforce the lease against the other. In assignment situations, the landlord usually consents to the assignment and privity is not an issue. There are situations, however, where the landlord does not know of the assignment and the assignee does not assume the lease. Apart from the fact that this usually constitutes a default under the lease, there is no privity between landlord and the new “tenant” and neither can enforce the terms of the lease against the other.

In a sublease situation (where the tenant assigns less than the entire leased premises to a third party), there is no privity between the landlord and the sub-lessee. However, the sub-lessee, is in privity with the tenant-sublessor, who would be responsible for enforcing the lease provisions against the landlord.

Both parties in a landlord-tenant relationship should have a firm grasp of the concept of privity and how it may impact the rights and responsibilities of the parties in the event a third party is introduced into the relationship.

If you have any questions about this post or any other related matter, please contact me at tpmckeown@nmmlaw.com.