Privity

In the legal system, the term privity refers to a connection between parties to a contract. This includes parties who have mutual interest in, or successive rights to, the same property. Privity is an important concept in contract law, which requires that there be a direct relationship, or “privity,” for one party to enforce a contract against another party. To explore this concept, consider the following privity definition.

Definition of Privity

Pronounced

priv-i-tee

Noun

1. The relationship between parties participating in a legal transaction or contract interest.

Origin

1175-1225       Middle English

Privity of Contract

In contract law, the rule of privity ensures that only someone directly involved in a contract or agreement can sue any other party in relation to that contract.

For example:

John enters into a purchase contract for a rental property in which Abigail is already living with a one-year lease. As part of the purchase agreement, John assumes the existing lease. The home’s air conditioning unit is not working properly at the time of the purchase, and the seller, Max, agrees in the contract to have the unit repaired or replaced. Two months later, John is collecting lease payments from Abigail, but nobody has shown up to take care of the air conditioner. When Abigail calls John, he tells her that it is Max’s responsibility.

If Abigail were to file a civil lawsuit against Max, asking the judge to order him to repair or replace the air conditioning unit as he had agreed, her case would likely be dismissed. This is because Max has no contract with Abigail, meaning there is no privity between Max and Abigail, and therefore Abigail cannot sue him for performance of his obligations under the property sale contract.

Abigail can, however, sue her landlord, John, to force him to perform his obligations under their lease contract. If John wants to enforce his contract with Max, he must sue Max himself.

Privity of Estate

Also known as privity of title, privity of estate refers to the legal relationship between parties who hold an interest in the same piece of real property or real estate. A landlord and tenant have both privity of contract and privity of estate. If the tenant finds someone else to take over his lease so that he can move out, and assigns his lease to that new tenant, the new tenant (“assignee”) becomes responsible for the tenant’s obligations under the lease.

In most cases, a tenant cannot legally assign his lease to someone else without the landlord’s express written consent, as this is a transfer of the actual lease contract to another person. An assignment of lease serves to transfer both the original tenant’s interest in the property, or right to be there, to the assignee.

For the original tenant to be released of his obligation under the lease contract, or from his privity of contract, the landlord generally must expressly release him from those obligations in writing. In some jurisdictions, however, the law ends a tenant’s privity of contract when his privity of estate is terminated. If the landlord enters into a new contract with the new tenant, however, the two have established privity of estate and privity of contract, releasing the original lessor.

Privity in a Sublease

If a tenant subleases a leased property, whether the entire property, or only a portion of it, the original tenant remains responsible for his contract with the original landlord, and so is liable for making lease payments to the landlord, and performing any other obligations of that lease contract. This is true even though he no longer has privity of estate, or right to be there. The original tenant retains privity of contract with the original landlord, which means that the individual subleasing the property has no privity with the original landlord, but must go through the original tenant with whom he has a lease agreement.

For example:

Amanda has a one-year lease on her apartment in the city. She has made arrangements to go to South America as an exchange student for six months, and wants to sublet her apartment while she is gone. With permission from her landlord, Nick, Amanda sublets her apartment to Suzanne with a written six-month agreement. Amanda remains responsible to make lease payments to her landlord, as she retains privity through her original lease agreement.

Suzanne has no privity with Nick, and must deal directly with Amanda, both in making her payments, and for any other requests that have to do with the property. In the event Suzanne leaves the apartment damaged, Amanda is responsible to Nick for the damages. If Amanda wants Suzanne to be held responsible, she must sue her directly, and Nick is not required to wait for that process.

Related Legal Terms and Issues

• Civil Lawsuit – A lawsuit brought about in court when one person claims to have suffered a loss due to the actions of another person.
• Jurisdiction – The legal authority to hear legal cases and make judgments; the geographical region of authority to enforce justice.
• Sublet – A leased property that is subleased to another individual.