Many distressed business owners come to me and ask Can a Landlord Refuse Consent to Lease Assignment? A business owner’s lease can be one of its most valuable assets. When negotiating a new lease, many business owners do not consider how this will affect the eventual sale of their businesses. A one-sided lease with assignment provisions requiring the landlord’s consent in his absolute discretion may scare away prospective buyers.
Tenant’s opinions as to whether or nor not the assignee is a suitable tenant can be very different from Landlord’s. The tenant may see the proposed assignee has having a solid business plan but a landlord, possibly not being familiar with the tenant’s industry, may not agree and view the assignee as a future eviction. The tenant has the burden of proving the landlord acted unreasonably and the prerequisites for the landlord even considering the request are that the tenant cannot be in default and must comply with often burdensome requests from the landlord for documentation pertaining to the proposed assignee.
To prove a landlord has been unreasonable, the tenant must show one of two grounds for refusing consent; the landlord was arbitrary or capricious or based his refusal on personal taste, prejudice or convenience. Some standard provisions in lease assignment clauses that relieve the Landlord of even having to consider consent are whether the assignment would be in violation of another tenant’s lease in the building (many times landlords give exclusive rights to tenants that they will rent to competitors) or that the proposed assignee’s business will impose a burden on the building’s resources such as elevators, parking, etc. Other prerequisites to the landlord’s requirement to consider the assignment are that the assignee’s business be in compliance with the use clause in the original lease or that the proposed assignee has not been negotiating with the landlord for the other premises in the building.
The tenant should always insist on language in the lease’s assignment clause requiring that the landlord not unreasonably withhold, delay or condition consent to an assignment. In that case, the landlord will have an obligation to review the information given by the tenant in a timely manner. If he fails to do so, he can be found liable for unreasonably withholding consent.
In most states, landlords are not required to be reasonable when it comes to giving consent to their tenants for the assignment of a leased space. However, this majority view of landlords having “sole discretion” in granting consents is gradually changing in favor of the implied covenant of “good faith” and fair dealing. In jurisdictions where a party is required to act in “good faith,” denial of consent will not be permitted if it leads to the defeat of the tenant’s reasonably expected benefit of the bargain. This is the case even when a landlord has reserved the right to deny its consent for any reason. There is no hard and fast rule pertaining to this. A determination by a Judge or an arbitrator as to whether a landlord has breached his duty to be reasonable will require a hearing on the particular facts of the proposed assignment. Generally landlord’s attorneys insert some ambiguous language regarding the acceptability of an assignee. This makes proving that the landlord acted unreasonably a lengthy and costly process. Most landlords insist in the lease that any potential relief be limited to specific performance, i.e. if they lose, they must accept the proposed assignee but the tenant will not be awarded any monetary damages. Even if the tenant were to win, this is often a pyrrhic victory, the potential assignee has probably moved on to other opportunities.