negotiating commercial leases 2015 -...

© Practising Law Institute

REAL ESTATE LAW AND PRACTICECourse Handbook Series

Number N-628

Negotiating CommercialLeases 2015

Volume One

Co-ChairsJohn Busey WoodMichael E. Meyer

To order this book, call (800) 260-4PLI or fax us at (800) 321-0093. Ask our Customer Service Department for PLI Order Number 57787, Dept. BAV5.

Practising Law Institute1177 Avenue of the Americas

New York, New York 10036


3

Supplement To: Must A Commercial Landlord Act Reasonably When Responding To A Request By A Tenant Under A Lease To Assign Or Sublet?

Submitted by: John Busey Wood

Akerman Senterfitt LLP

Reprinted from the PLI Course Handbook, Negotiating Commercial Leases 2014 (Order #50533)

Supplement to Research by Nazar Kahn

Research by Anne C. Cataldo, Sarah Farhadian, and Tomoeh Tse (June–July 2012)

Edited by Anne C. Cataldo

If you find this article helpful, you can learn more about the subject by going to www.pli.edu to view the on demand program or segment for which it was written.

1-169


1-170


3

ALABAMA

In Alabama, the Homa-Goff rule that “a landlord may not unreasonably and capriciously withhold his consent to a sublease agreement” and that “[a] landlord’s rejection should be judged under . . . a reasonable commercial standard,” still controls.1 However, this does not apply to all assignment or sublease rejections. Specifically, parties may contract out of a commercial reasonableness standard by giving “sole discretion” over assignment or subleasing to one particular party.2 Thus, in Shoney’s LLC v. Mac East, the commercial reasonableness standard did not apply to a lease granting one party sole discretion over assignment and subleasing because “‘sole discretion’ means an absolute reservation of a right . . . [and] is not mitigated by an implied covenant of good faith and fair dealing in contracts.”3

ALASKA

The Alaska Code continues to impose a duty of good faith in perfor-mance or enforcement of all lease or sublease contracts or duties.4

1. Chrysler Capital Corp. v. Lavender, 934 F.2d 290, 293 (11th Cir. 1991) (citing

Homa-Goff Interirors, Inc. v. Cowden, 350 So.2d 1035, 1038 (Ala. 1977)). See also Mac E. LLC v. Shoney’s, 535 F.3d 1293, 1988 (11th Cir. 2008) (“[P]arties are free to contract to whatever standard they please to govern a landlord’s withhold-ing of consent to a proposed sublease or assignment.”).

2. Shoney’s LLC v. Mac E., LLC, 27 So. 3d 1216, 1223 (Ala. 2009). 3. Id. at 1220. When addressing the certified question of whether decisions by a

landlord with “sole discretion” should be subject to a commercial reasonableness standard, the Eleventh Circuit concluded similarly. It affirmed that “when an assignment of a contract grants the assignor the ‘sole discretion’ to withhold con-sent to a proposed sublease, the exercise of that ‘sole discretion’ is not subject to a commercial reasonableness standard or any other standard.” Mac E., LLC v. Shoney’s, 578 F.3d 1282, 1282 (11th Cir. 2009). Thus, in that case, Shoney’s was not liable for breach of contract because it retained “‘sole discretion’ to withhold consent to a proposed lease.” Id. at 1282-83. On remand, the Alabama District Court again confirmed this standard. Mac E., LLC v. Shoney’s, Inc., No. 2:05-cv-1038-MEF (WO), 2009 WL 3591727, at *1 (M.D. Ala. Oct. 26, 2009).

4. Ak. Stat. § 45.01.304 (current as of 2012).

1-171


4

ARIZONA

A landlord’s refusal to consent to an assignment may still be found to be unreasonable, even if the refusal is in response to the tenant’s contractual breach.5 In Ponderosa Manufactured Homes, L.L.C. v. EZ Ventures, Inc.,6 the landlord argued that it could “ignore the subsequent requests for consent and instead terminate the lease” because the tenant breached its lease contract by assigning the property without consent.7 The Arizona Court of Appeals upheld the lower court’s ruling that the “[the tenant] was allowed to cure its [immaterial] breach, which it did by expressly seeking consent and providing [the landlord] with financial information about [the assignee].”8

Additionally, unlike in Alabama, “the ‘sole discretion’ language in [a] . . . Lease [does] not give the [landlord] the ability to withhold con-sent unreasonably.”9

ARKANSAS

No notable changes in the law.

CALIFORNIA

In recent years, the California legislature has dealt with assignment and subletting issues directly by enacting statutes to address alienation of leases. As one court asserted,

The statutory scheme allows a lease to absolutely prohibit assignment or to provide that the assignment ‘is subject to any express standard or condition....’ (§ 1995.240.) With respect to the latter provision, ‘a lease may require the lan-dlord’s consent for [assignment] subject to any express standard or condition for giving or withholding consent, including, but not limited to... [¶] (a) [t]he landlord’s consent may not be unreasonably withheld [or] [¶] (b) [t]he landlord’s consent may be withheld subject to express standards or conditions.’ If a ‘lease requires the landlord’s consent for [assignment] but provides no standard for giving or withholding consent, the restriction on [assignment] shall

5. Ponderosa Manufactured Homes, L.L.C. v. EZ Ventures, Inc., No. 1 CA-CV 07-

0879, 2008 WL 4853604 (Ariz. Ct. App. 2009). 6. No. 1 CA-CV 07-0879, 2008 WL 4853604 (Ariz. Ct. App. 2009). 7. Id. at *7. 8. Id. 9. Tamayo v. Lizarraga, 1 CA-CV 07-0446, 2008 WL 4416049, at *9 (Ariz. Ct. App.

Sept. 25, 2008) (internal citations omitted).

1-172


5

be construed to include an implied standard that the landlord’s consent may not be unreasonably withheld.’ Any ambiguity in a lease regarding restriction on assignment ‘shall be construed in favor of transferability.’10

Specifically, section 1995.260 codified the California Supreme Court’s holding in Kendall and states,

If a restriction on transfer of the tenant’s interest in a lease requires the lan-dlord’s consent for transfer but provides no standard for giving or withholding consent, the restriction on transfer shall be construed to include an implied standard that the landlord’s consent may not be unreasonably withheld. Whether the landlord’s consent has been unreasonably withheld in a particular case is a question of fact on which the tenant has the burden of proof. The tenant may satisfy the burden of proof by showing that, in response to the tenant’s written request for a statement of reasons for withholding consent, the landlord has failed, within a reasonable time, to state in writing a reasonable objection to the transfer.11

This law “applies only to leases entered into after September 23, 1983.12 It is only relevant to issues of “lease provisions requiring the lessor’s consent to transfer where no standard for giving or withholding consent is included,”13 and it does not apply to lease termination provisions.14

In Carma Developers (California), Inc. v. Marathon Development California, the Supreme Court of California, en banc, assessed “the validity of a provision in a commercial lease allowing the lessor to terminate the lease and recapture the leasehold upon notice by the lessee of intent to sublet or assign”15 under both prior law and under California Civil Code § 1995.260.16 The initial suit began after the plaintiff notified the defen-dant that it was going to sublet the premises and the defendant terminated the lease.17 A jury awarded damages to the plaintiff, and on appeal, applying

10. Gewant v. Leisure Props. Ltd., No. B219505, 2010 WL 4457761, at *5 (Cal. Ct.

App. Nov. 9, 2010) (internal citations omitted). 11. CAL. CIV. CODE § 1995.260 (West 2012). See also Nev. Atl. Corp. v. Wrec Lido

Venture, LLC, No. G039825, 2008 WL 5065977 (Cal. Ct. App. Dec. 2, 2008) (nonpublished/noncitable pursuant to California Rules of Court, but instructive as to court interpretation of the statute).

12. Carma Developers (Cal.), Inc. v. Marathon Dev. Cal., 2 Cal. 4th 342, 366-67 (Sup. Ct. Cal. 1992) (en banc).

13. Id. at 367. 14. Seth Dallob Enters. v. Pomona Unified Sch. Dist., B197976, 2008 WL 2807230,

*7 (Cal. Ct. App. July 22, 2008) (nonpublished/noncitable pursuant to California Rules of Court, but instructive as to court interpretation of the statute).

15. Carma Developers (Cal.), Inc., 2 Cal. 4th at 349. 16. Id. at 354. 17. Id. at 350.

1-173


6

Kendall, the lower court found that the defendant breached its contract under the commercial reasonableness standard.18 The Supreme Court of California determined, however, that the defendant “was justified in terminating the lease as permitted by its terms and such termination was not a breach of the covenant of good faith and fair dealing,” and held in the defendant’s favor.19

This line of reasoning also applies if there is a second sublease that (1) references a master sublease, but (2) lacks any explicit consent provi-sion. Thus, in Head and Neck Associates of Orange County v. Coastal Vascular Specialists Corporation,20 the Court of Appeals of California held that a lease provision requiring subletters to obtain a landlord’s consent before subleasing the premises bound sub-sublessors, even though the sub-sublease did not itself include a consent provision.21 The court noted that section 1995.250 empowered landlords to restrict subleasing and assignment by including consent provisions in lease agreements.22 Although the sub-sublease did not expressly require sub-sublessors to obtain the landlord’s consent, the sub-subletters still needed the landlord’s consent because “the sublease include[d] a provision that it ‘[was] subject to all the provisions of the Sublease.’”23

“California rules disfavoring forfeiture do not apply when the plaintiff is seeking to quiet title and obtain possession for a breach of a covenant not to sublet when the lessee neither sought nor obtained consent.”24 “[U]nder California law the breach of [a] lease violate[s] the covenant not to sublet without written consent.”25

COLORADO


18. Id. 19. Id. at 351. See also Seth Dallob Enters., 2008 WL 2807230, at *5 (citing Carma’s

holding). 20. G039159, 2008 WL 4606532 (Cal. Ct. App. Oct. 17, 2008) (nonpublished/ noncitable

pursuant to California Rules of Court, but instructive as to court interpretation of the statute).

21. Id., 2008 WL 4606532. 22. Id. at *3. 23. Id. 24. Roco Inv. Holding, LLC v. PWS, Inc., B218156, 2010 WL 2702990, at *4 (Cal.

Ct. App. July 9, 2010) (nonpublished/noncitable pursuant to California Rules of Court, but instructive as to court interpretation of the statute).

25. Id.

1-174


7

CONNECTICUT

A landlord’s right to refuse to consent to an assignment or sublet is limited by his duty to mitigate damages.26 However, this limitation only applies to assignments and subleases.27 Thus, this limitation would not apply to “an arrangement that substantially modifies the terms of the existing lease” that “cannot be characterized as either an assignment or a sublease.”28

DELAWARE


FLORIDA

In Speedway Superamerica, LLC v. Tropic Enterprises, Inc.,29 the District Court of Appeal of Florida applied the Fernandez standard to “a dispute arising from a landlord’s refusal to grant consent to the assignment of a commercial lease.”30 The court reversed and remanded a lower court decision granting the landlord summary judgment on the basis that the landlord “had an unfettered right under the lease to withhold its consent” and that the tenants assigned the lease without first obtaining the landlord’s consent.31 The court noted that contractual relationships include an implied duty of good faith, which applies to lease contracts and applies to assignment provisions requiring a landlord’s consent.32 Additionally, the court pointed to the factors used by the Fernandez court to determine whether withholding consent is arbitrary33 and ultimately found that the statute did not grant the landlord absolute discretion to refuse consent.34

26. Brennan Assocs. v. Obgyn Specialty Grp., 127 Conn. App. 746, 756 (2011). 27. Id. at 756 (distinguishing assignments and subleases from modifications of a lease). 28. Id. at 757. 29. 966 So. 2d 1 (D. Fla. 2007). 30. Id. at 1. 31. Id. 32. Id. at *4. 33. These factors include, “(a) financial responsibility of the proposed subtenant[,]

(b) the ‘identity’ or ‘business character’ of the subtenant, i.e., suitability for the particular building, (c) the need for alteration of the premises, (d) the legality of the proposed use, and (e) the nature of the occupancy, i.e., office, factory, clinic, etc.” Speedway Superamerica, LLC v. Tropic Enters., Inc., 966 So. 2d 1, 4 (D. Fla. 2007) (citing Fernandez v. Vazquez, 397 So. 2d 1171, 1174 (Fla. D. Ct. App. 1981)).

34. Id. at *4-5.

1-175


8

GEORGIA

While Georgia courts have provided that lease agreements may include specific provisions allowing landlords to arbitrarily withhold consent to assignment and subleasing, subsequent courts have noted that this is a narrow exception to the general rule.

In Hunting Aircraft v. Peachtree City Airport,35 the Georgia Court of Appeals noted that, “absent an express contractual provision to the contrary, a duty of good faith and fair dealing is implied into all nonleasehold contract provisions granting discretion to one of the parties.”36 Further, reasonableness requirements in leases do not imply a restriction on a landlord’s free discretion as to his consent, “even [if] the lease [does] not contain any language granting the landlord absolute discretion in this regard.”37 However, the court declined to extend this line of reasoning on the basis that “good faith and fair dealing are implied in all contracts” and held that “the parties entered an access easement agreement, not a lease, and therefore the limited exception set forth in these cases does not apply.”38

Finally, “the duty to mitigate damages set forth in [Georgia statutory law] does not apply to lease contracts”39 unless “the landlord accepts the tenant’s surrender or the tenant successfully terminates the lease.”40

HAWAII


IDAHO


ILLINOIS


35. 281 Ga. App. 450 (2006). 36. Id. 37. Id. at 454. 38. Id. 39. Sirdah v. N. Springs Assocs. LLLP 304 Ga. App. 348, 350 (2010). 40. Id. (citing Allen v. Harkness Stone Co., 271 Ga. App. 397, 400(1) (2004)).

1-176


9

INDIANA

Courts have noted that “Indiana has not adopted the Restatement (Second) of Contracts provision that, ‘[E]very contract imposes upon each party a duty of good faith and fair dealing in its performance and enforcement.”41

IOWA

Recently, the Iowa Supreme Court set forth and applied the commercial reasonableness standard in Van Sloun v. Agans Brothers, Inc.42 There, the court analyzed the reasonableness of “reasonableness” in a lease pro-vision which stated that the premises “shall not be unreasonably withheld.”43 Ultimately, the court held that “a landlord may only withhold consent under a reasonableness clause where a prudent person in the landlord’s potion exercising reasonable commercial responsibility has a good faith and reasonable objection to assignment of the lease or subletting.”44 It found that the lower court correctly applied a general balancing test45 to the facts of the case to determine whether refusal to consent was reasonable.46 In applying the commercial reasonableness standard, no single factor is determinative. Id.

KANSAS


KENTUCKY


41. Hamlin v. Steward, 622 N.E.2d 535, 540 (Ind. Ct. App. 1993). 42. 778 N.W.2d 174 (Iowa 2010). 43. Id. at 179. 44. Id. at 180. 45. The factors considered by the court were: “(1) the financial responsibility of the

proposed assignees, (2) the original tenant’s failure to comply with the lease con-ditions, (3) the original tenant’s failure to indicate a willingness to remain obligated on the lease, (4) the legality of the proposed use and need for alteration of the pre-mises, and (5) the nature of the existing use and the proposed use by the tenant.” Van Sloun v. Agans Brothers, Inc., 778 N.W.2d 174, 180 (Iowa 2010).

46. Id. at 181.

1-177


10

LOUISIANA

The United States District Court for the Eastern District of Louisiana clarified that if a landlord “withheld its consent to the subleases in order to extract a financial gain for itself, such would be unreasonable.”47

MAINE

No notable changes in case law.

MARYLAND


MASSACHUSETTS

A landlord “is not in default for failure to consent unless the tenant pro-duces a candidate ready, willing, and able to fulfil [sic] the tenant’s obligations under the sublease.”48 Unwillingness or inability to perform may be shown by evidence that a potential subtenant had “provided inade-quate financial information, had no operating capital in the bank, and even lacked a business plan.”49

MICHIGAN


MINNESOTA


MISSISSIPPI


47. STC Five v. Mudbugs W. Bank Dev. Corp., Inc., CIV.A 09-3163, 2010 WL

497760 (E.D. La. Feb. 5, 2010). 48. WHTR Real Estate Ltd. P’ship v. Venture Distrib., Inc., 63 Mass. App. Ct. 229,

232-33, 825 N.E.2d 105, 109 (2005). 49. Darin, LLC v. Stratedge Corp., Inc., 2008 Mass. App. Div. 91 (2008).

1-178


11

MISSOURI

“[An] attempt to condition consent to sublease on a renegotiation of the underlying lease” is “anything but reasonable.”50 Such action by a landlord was viewed by the Missouri Court of Appeals as an attempt to negotiate the lease by the landlord because it was unprofitable at the time.51

Where a lease agreement states consent to a sublease may not be unreasonably withheld and the landlord first denies, without seeing the terms of the sublease; and then, without first pointing to anything in the proposed sublease which would have a negative impact on the landlord, then insists on reworking the terms of the original lease, the only conclusion is that the landlord’s actions were unreasonable.52

MONTANA


NEBRASKA

There have been no major changes in case law.53 However, the Supreme Court of Nebraska has elaborated on the rationale behind the rule that “assignment by a lessee of an interest in a lease which prohibits such assignment without the lessor’s consent generally is ineffective without such consent.” It explained that “[a]ssigning an interest in a lease directly affects the parties’ actual performance of the contract, whereas the assignment of a right to collect damages for a breach of contract . . . [for example,] does not.”54

NEVADA


50. D.L. Dev., Inc. v. Nance, 894 S.W.2d 258, 260-61 (Mo. Ct. App. 1995). 51. Id. 52. Id. 53. Newman v. Hinky Dinky continues to be applied by Nebraska courts. See No Frills

Supermarkets, Inc. v. Brookside Omaha Ltd. P’ship, A-10-652, 2011 WL 2624932 (Neb. Ct. App. July 5, 2011), review denied (Aug. 24, 2011).

54. Folgers Architects Ltd. v. Kerns, 262 Neb. 530, 546, 633 N.W.2d 114, 126 (Neb. 2001).

1-179


12

NEW HAMPSHIRE


NEW JERSEY

“In withholding consent to a proposed sublease, if a landlord considers matters (even if legitimate) that are unrelated to the ownership and oper-ation of the particular property, its decision to refuse an assignment is made without fair, solid and substantial cause or reason. It is the tenant’s burden to prove that a landlord’s conduct is unreasonable.”55

NEW MEXICO

In Econ. Rentals, Inc. v. Garcia,56 the Supreme Court of New Mexico clarified its holding in Boss Barbara, Inc. v. Newbill57 by stating:

The statement in Boss Barbara, reiterated in Cowan, that a tenant’s accepta-bility must be gauged by the same standards as were applied when the original lease was entered into was not meant to limit all bases for refusing consent to those expressed or implied in the original lease. Many circumstances may change; many conditions originally unforeseen may arise; many facts may develop from the time the original lease is signed to the time of a proposed assignment or sublease that may well justify a lessor’s withholding of consent in light of the circumstances obtaining at the time of the proposed transfer and in light of the terms of the transfer itself. We know of no authority expressly holding that the reasonableness of a refusal to consent to a proposed transfer can only be measured by looking at the terms of the original lease.58

The Court then put forth a test for whether a lessor’s refusal of consent is reasonable:

Under the decided cases and in light of the applicable implied covenants in a commercial lease, we believe a fair formulation of an appropriate test is the following: A lessor may refuse consent when the proposed assignment or sub-lease would injure or impair the lessor’s interest in the leased property, such as

55. Buck Consultants, Inc. v. Glenpointe Assocs., 217 F. App’x 142, 148 (3d Cir. 2007)

(citing Ringwood Assocs. Ltd. v. Jack’s of Route 23, Inc., 153 N.J. Super. 294, 379 A.2d 508, 512 (N.J. Super. Ct. Law Div. 1977), aff’d in relevant part, 166 N.J. Super. 36, 398 A.2d 1315 (N.J. Super. Ct. App. Div. 1979)) (internal citations omitted).

56. 112 N.M. 748 (1991). 57. 97 N.M. 239, 638 P.2d 1084 (1982). 58. Econ. Rentals, Inc., 112 N.M. at 758.

1-180


13

by devaluing it (and thereby reducing the benefits bargained for in the original lease), but not when the lessor seeks to improve its economic position, such as by sharing in the sublease rent or by securing a benefit not bargained for in the original lease. And, in light of existing caselaw and considering the disfavor in which restraints on alienation are viewed, the lessor’s interest to be protected by refusing consent must relate to the ownership and operation of the leased property, not the lessor’s general economic interest.59

Finally, the court held that if a lessor’s motivation in denying consent to a subtenant is “increasing the economic benefit from the lease . . . it [i]s unreasonable.”60

NORTH CAROLINA

The Court of Appeals of North Carolina upheld Isbey v. Crews61 in Sylva Shops Ltd. P’ship v. Hibbard,62 stating that courts in North Carolina uphold clauses requiring the tenant to obtain the landlord’s approval before assigning or subletting a lease, “even when they do not place any limitations on the landlord’s ability to withhold consent to an assignment of the lease.”63 In that case, the Court further noted that, where parties enter into a contract on equal footing and “bargain[] over the specific pro-visions of the lease,” and where the clause “[is] included after a bargained-for negotiation, it must be enforced between the parties.”64 Ultimately, the court concluded that “the public policy of this State cannot relieve a party of the consequences of a commercial agreement that, in hindsight, proved not to be advantageous.”65

NORTH DAKOTA


59. Id. at 758. 60. Id. at 759. 61. 284 S.E.2d 524 (N.C. App. 1981) 62. 175 N.C. App. 423, 431 (2006). 63. Id. 64. Id. 65. Id.

1-181


14

NEW YORK

No notable changes in the case law, and current cases continue to support the proposition that a landlord may arbitrarily withhold consent under an unqualified provision in the lease prohibiting assignment or subletting of the leased premises without the landlord’s consent.66

OHIO

F&L Center Co. v. Cunningham Drug Stores67 has been called into question by another more recent decision, Littlejohn v. Parish.68 In that case, the Ohio Court of Appeals noted that F & L Ctr. Co. was “a two- to-one decision more than 20 years ago.”69 It quoted the dissent that “[r]estrictions against the assignment of leases are restraints against the alienation of property interests.”70 It further noted that a Florida court that held that “a landlord could not arbitrarily or unreasonably refuse consent because ‘a lease is a contract and, as such, should be governed by the general contract principles of good faith and commercial rea-sonableness.’”71

OKLAHOMA


OREGON

More recently, lower courts have recognized abrogation of the rule that a landlord may not arbitrarily withhold consent to assignment or sublet of the leased premises that he may impose supplemental conditions when granting his consent, even if the lease provides that he may do so.72

66. E.g., Gen. Trading Co., Inc. v. Royal Farms, Inc., 02 CIV. 6767 (DC), 2003 WL 1936143 (S.D.N.Y. Apr. 23, 2003) (the plaintiffs “[were] not obligated to assume the Lease as a condition to withholding its consent to the Surrender Agreement.”).

67. 482 N.E.2d 1296 (Ohio Ct. App. 1984). 68. 839 N.E.2d 49, 51-52 (Ohio Ct. App. 2005). 69. Id. 70. Id. 71. Id. 72. Carey v. Lincoln Loan Co., 125 P.3d 814, 830 (Or. App. 2005) (stating that

Oregon law now holds that a requirement for consent to an assignment of a lease necessarily includes a reasonableness requirement).

1-182


15

PENNSYLVANIA

Under current law, landlords still may arbitrarily refuse to consent to a proposed assignment or sublet if the lease prohibits tenants from assigning or subletting the property without the landlord’s consent.73

RHODE ISLAND


SOUTH CAROLINA

The South Carolina Code requires tenants to obtain the landlord’s consent before subleasing the premises.74 The statute states:

A sublease by a tenant without written consent of the landlord is a nullity insofar as the rights of the landlord are concerned, except that rent collected by a tenant from a subtenant shall be deemed to be held in trust by the tenant for the benefit of the landlord until the payment of the landlord’s claim for rent.75

Thus, in Nexsen v. Haddock, the South Carolina Court of Appeals held that “‘the language in the lease agreement that the tenant shall ‘use and occupy the premises as desired, including the construction of a dwelling, etc., thereon’” did not “convey to [the tenant] the right to sublease the property” without the landlord’s consent.76

SOUTH DAKOTA


TENNESSEE

More specifically, First American Bank, N.A. v. Woods77 stands for the narrow proposition that, when there is a provision with a reasonableness

73. 421 Willow Corp. v. Callowhill Ctr. Assoc., 1848 May Term 2001, 2003 WL

21361362 (May 23, 2003). 74. Nexsen v. Haddock, 353 S.C. 74 (S.C. Ct. App. 2002). 75. Id. at 77 (citing S.C. CODE ANN. § 27-35-60 (1976)). 76. Id. at 78 (S.C. Ct. App. 2002). 77. 781 S.W.2d 588, 590 (Tenn. App. 1989).

1-183


16

standard, a commercial reasonableness standard applies, i.e., that of a reasonable landlord in the landlord’s position.

TEXAS

While Texas courts recognize that a landlord has “an undoubted right to control what lawful use his property may be put to, and what persons may lawfully possess the same,”78 courts also recognize that landlords who contract to not unreasonably withhold consent are bound by the commercial reasonableness standard.79 Under this standard, reasonable-ness of refusal to consent depends on whether “a reasonably prudent person in the landlord’s position exercising reasonable commercial responsibil-ity”80 would also refuse to consent. Whether a landlord’s refusal to consent is unreasonable is a question of fact.81

UTAH

With regard to statutory duties, the Utah Code continues to impose a duty of good faith in section 70A-1a-304.82

VERMONT

If a tenant improperly seeks the landlord’s consent prior to assignment of a lease, whether the landlord unreasonably withheld consent is not at issue, and a landlord’s refusal is permissible.83

78. Brigham Young Univ. v. Seman, 206 Mont. 440, 446 (Mont. Sup. Ct. 1983). 79. Id. 80. Id. at 447. 81. Mitchell’s Inc. v. Nelms, 454 S.W.2d 809, 814 (Tex. Ct. Civ. App. 1970). 82. UTAH CODE ANN. § 70A-1a-304 (2012). 83. Waterbury Feed Co., LLC v. O’Neil, 181 Ve. 535, 541 (Sup. Ct. 2006) (“[T]he

letter [seeking assignment of a lease] only notifies a landlord of tenant’s intention to assign the lease; it does not provide the terms and conditions of the proposed assignment, as the lease required. Thus, tenant did not properly seek assignment. Landlord’s obligation under the assignment clause was not triggered, and we need not address whether the landlord unreasonably withheld her consent.”).

1-184


17

VIRGINIA

Current Virginia law continues to disfavor restrictions on alienation.84 Additionally, Virginia courts still strictly construe lease provisions, such as those restricting assignment and subletting of the premises.85

WASHINGTON

The Coulos standard, under which a landlord and tenant may agree to prohibit assignment or subletting of the property without the landlord’s consent, still applies today,86 and the Washington Supreme Court denied further review of Johnson v. Yousoofian.87 Additionally, in the subse-quent case of Denn v. Anderson,88 the Washington Court of Appeals upheld Johnson, stating that “a lease agreement does not give rise to an implied duty of good faith and fair dealing unless there are specific contractual obligations to which the duty can attach” and that “[a] landlord may arbitrarily refuse to consent to a lease assignment when the lease prohibits assignment without the landlord’s consent and imposes no explicit standard of conduct.”89

84. E.g., Halpert v. Dental Care Alliance, LLC, CIV A RDB 05-2776, 2007 WL 1295805, at *9 (D. Md. May 1, 2007) (“Although there are few relevant decisions, anti-assignment clauses are also valid and enforceable in Virginia.”); Taylor v. King Cole Theatres, 31 S.E.2d 260, 261 (Va. 1944) (“In the absence of an express prohibition, all leases are assignable.”); H & W Invs. v. Crown Castle USA, Inc., 69 Va. Cir. 305, 1 (2005) (“in the absence of express prohibition, all leases are assignable.”) (citing Wainwright v. Bankers’ Loan & Inv. Co., 112 Va. 630, 633 (1911)); Healy v. Chesapeake Appalachia, LLC, 1:10CV00023, 2011 WL 24261 (W.D. Va. Jan. 5, 2011) (“In the absence of an express prohibition, all leases are assignable.”) (internal citations omitted).

85. Dobyns v. S.C. Dept. of Parks, Recreation & Tourism, 325 S.C. 97, 102, 480 S.E.2d 81, 84 (1997) (“[T]he benefit of a covenant to renew passes by assignment only in the absence of a contractual restriction. Here, the lease by its terms is personal to the Lessee, and may not be assigned without consent of the Lessor. Such restrictions have been found to prohibit renewal by the heirs/ assigns.”) (internal citations omitted).

86. Munro v. Swanson, 137 Wash. App. 1015, 11 (2007) (“Parties to an original lease may lawfully covenant that no assignment of the lease should be valid without the written consent of the lessor, and an assignment in violation of such a covenant will confer no rights on the assignee.”).

87. Johnson v. Yousoofian, 132 Wash. 2d 1006, Wash., Jun. 09, 1997 (denying further review).

88. No. 42954-0-I, 2000 WL 194679 (Wash. Ct. App. Feb. 14, 2000). 89. Id. at *4.

1-185


18

WASHINGTON D.C.

More recent cases also support the proposition that a landlord does not have a duty to mitigate damages before a lease expires.90

WEST VIRGINIA

Subsequent West Virginia courts have explicitly confirmed that “the test of ‘good faith’ in a commercial setting is ‘. . . honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.’91 “Most recently, in Nowlan v. JP Morgan Chase Bank, N.A.,92 the court upheld the proposition that “[t]he implied covenant of good faith and fair dealing cannot give contracting parties rights which are inconsistent with those [expressly] set out in the contract.”93

Contracts remain strictly construed by the courts.94 Additionally, whether a lease may be freely assigned without the landlord’s consent is one of the factors used to determine whether a lease contains an implied covenant of continuous operation.95

WISCONSIN


90. Simons v. Federal Bar Bldg. Corp., 275 A.2d 545, 550 (D.C. Cir. 1971). 91. LaPosta Oldsmobile, Inc. v. Gen. Motors Corp., 426 F. Supp. 2d 346, 355 (N.D.W.

Va. 2006) (internal citations omitted). In LaPosta Oldsmobile, Inc., the court granted the defendant’s motion to dismiss a claim of breach of an implied covenant of good faith and fair dealing, holding that the parties were bound by their franchise contract and that “the terms of the Dealer Agreement and the implied covenant of good faith and fair dealing [did] not give contracting parties rights which are contrary to those set out in the contract.’” Id. at 355-56 (citing Barn-Chestnut, Inc. v. CFM Dev. Corp., 457 S.E.2d 502, 509 (W.Va.1995)).

92. 2:11-CV-00404, 2012 WL 1029315 (S.D.W. Va. Mar. 26, 2012). 93. Id. at *4 (citing Barn–Chestnut, Inc. 457 S.E.2d at 509. 94. Randolph v. Koury Corp., 173 W. Va. 96, 98 (1984) (“Being a restraint upon

alienation, a condition against assignment by a lessee or an assignee of a lessee is governed by the rule of strict construction, and it does not exist unless it has been clearly and definitely provided in the lease or some other written instrument made collateral thereto.”) (internal citations omitted).

95. Thompson Dev., Inc. v. Kroger Co., 186 W. Va. 482, 486 (W. Va. Sup. Ct. of App. 1991).

1-186


19

WYOMING

While the principle that covenants should be strictly construed still applies, the court still must consider the social impact of strict construction. In Board of County Com’rs of Teton County v. Crow, the court distinguished Kindler v. Anderson,96 where it previously determined that the strict con-struction rule did not apply due to ambiguity in the covenant language, and thus allowed the plaintiffs to sell spirits. Unlike in Kindler, the broad contract language empowering the town to protect community welfare gave the town permission to limit land development and “[did] not exceed the authority delegated to Teton County to ensure the general ‘welfare’ of the people of that county.”97

96. 433 P.2d 268, 271 (Wyo. 1967). 97. Bd. of Cnty. Com’rs of Teton Cnty. v. Crow, 2003 WY 40, 65 P.3d 720, 735 (Wyo.

2003).

1-187


NOTES

1-188

negotiating commercial leases 2015 -...

Documents