There have been conflicting court decisions regarding...

There have been conflicting court decisions regarding clauses in commercial leases that provide that the tenant may not assign or sublet the landlord’s consent.

The issue recently was decided by the California Supreme Court.

The court adopted the rule that a lessor may withhold consent to an assignment or subletting only if he has a commercially reasonable objection.

If the lease is silent on the issue of assignment or subletting, the tenant has a right to assign or sublet without the landlord’s consent.

The court ruled that a restriction on transferring an interest in a commercial lease is a restraint against alienation. Further, the court held that there is an implied covenant of good faith and fair dealing in every lease, which implies reasonableness on the part of the landlord. Therefore, all landlords of commercial property must act in a “commercially reasonable manner” in consenting or refusing to consent to an assignment or subletting of the property.

Whether a landlord is acting reasonably depends on the circumstances of each case. Some of the facts that might be considered are the financial responsibility of the assignee

or subtenant, any new proposed use, and the need for alteration of the premises to satisfy the requirements of the new occupant. A landlord may not withhold consent solely on the basis of personal taste, convenience, or “sensibility.”

At times, the tenant will wish to find a new occupant because the value of the property has increased and he can make a profit by charging higher rent than he is paying. This fact alone is probably not a justifiable reason for withholding consent by the landlord.

This California Supreme Court case is limited to commercial leases, and the issue of whether a similar clause in a residential lease carries with it the implied condition that the landlord must act reasonably has not yet been decided, although it seems logical that the court might well extend this rule to residential leases.

Finally, also of significance is a suggestion in the recent decision that parties to a commercial lease may provide in their original lease for the allocation of increased rentals on assignment or subletting, which in many instances, would make assignment or subletting much more palatable to the landlord.