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Hey, Hey . . . Ho, Ho, Sometimes You Just Have To Let Them Go: Reasonableness in Dealing with Lease Assignment Requests

So…your lease prohibits its assignment or transfer without the landlord's prior written consent, [wait for it…] which consent shall not be unreasonably withheld or delayed. Tenant decides to assign the lease to Widget Warehouse, which coincidently happens to also be in negotiations with the landlord for a different space at the same property. Tenant calls landlord and asks for its written consent to assign the lease, to which the landlord immediately says "No" and hangs up the phone. Has the landlord been reasonable in withholding consent? What if the tenant had instead been a well-known doughnut retailer franchisee looking to sublet the premises to Hometown Bakery, a start-up bakery proposed by the former employee of a local bakery that recently went out of business?

Here, the reasonableness standard applies because it is expressly stated in the lease. It is also common for courts to imply a reasonableness standard based on the general requirement that parties in a landlord-tenant relationship deal with one another in good faith. As such, all but the most obvious of assignment or sublease situations require a careful analysis of what would constitute an unreasonable refusal to consent to the proposed assignment or sublet.

There are numerous reasons why a landlord may reasonably withhold consent to a proposed assignment or sublease. For instance, a landlord could withhold consent if the consent would violate a current tenant exclusive right. A landlord may also want to prevent a revenue loss because of a percentage rent provision or maintain commercial objectives for the property, such as having a certain mix of tenants. These are all common bases for withholding consent. However, there are many other rationales given for withholding consent to an assignment that are not as clear cut. For example, what if the Landlord withholds consent to an assignment because it wants to avoid competition for an existing tenant even though no exclusivity rights exist for that tenant? Is the potential souring of a relationship between the landlord and existing tenant sufficient grounds to reasonably withhold consent to the assignment/sublet?

A key element for the landlord to satisfy the reasonableness standard is to evaluate information about the proposed transfer, and quantify the reasons for withholding consent. If a landlord does decide to withhold consent, it should articulate the reasons for refusal to establish the reasonableness of its conclusion, thereby circumventing arguments that it acted arbitrarily. Accordingly, our landlord in the Widget Warehouse scenario risks a claim of unreasonableness by seemingly dismissing the assignment request out of hand.

The landlord is not the only one with work to do when a tenant makes an assignment request. It is the tenant's obligation to provide sufficient information for the landlord to consider the assignment or sublease request. In this regard, the tenant in our Widget Warehouse example should have presented sufficient information to landlord to advise it about the requested assignment, rather than simply making the request for written consent over the phone.

Information shared with landlord should cover the areas of concern for the landlord based on the lease. For instance, if the lease has a percentage rent provision, tenant should provide information so that landlord is able to evaluate the impact on revenue if consent is given. When making an assignment request, tenant should also provide landlord adequate time to consider the request. A lack of sufficient time will undercut an argument that landlord acted unreasonably in evaluating the request.

When negotiating a lease, the parties should give careful consideration to whether the reasonableness standard should be more clearly articulated. The assignment provisions can be drafted to limit areas of dispute by defining circumstances under which assignments are permitted or prohibited. Rather than providing no direction beyond mere "reasonableness", the assignment provision could specify that assignments to a substantially similar business, or one dealing in similar merchandise or services would not be subject to Landlord consent.

In the Hometown Baker scenario, the Lease could have been negotiated to include certain economic factors or experience in the industry that would be considered. While including specific criteria will not resolve all possible conflicts, the inclusion of that type of criteria could provide invaluable guidance to the parties during the process.

©2020 von Briesen & Roper, s.cNational Law Review, Volume III, Number 343
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About this Author

Chris A. Jenny, von Briesen Roper Law Firm, Madison, Corporate, Real Estate and Family Estate Law Attorney

Chris A. Jenny is a Shareholder in the Madison office of von Briesen & Roper, s.c. He focuses his practice on representing business owners in a wide variety of niche markets to become more profitable while minimizing their risk and expenses. Chris’s practice has a heavy concentration in the real estate, construction, and information technology industries. This practical experience is a tremendous benefit to the contractors, suppliers, landlords, tenants and real estate developers he represents. Chris’s construction...

608-661-3973
William West, von Briesen Roper Law Firm, Milwaukee, Corporate and Real Estate Law Attorney

Bill West is a Shareholder. He Chairs the Firm’s Business Section and the Firm’s Mergers & Acquisitions Section.

Bill is a trusted advisor to his clients and they rely on his ability to achieve desired outcomes in a practical, timely and cost-effective manner – in other words, he gets things done. He has over 30 years of experience in corporate and business related transactions including:

  • Mergers and acquisitions

  • Complex corporate and commercial transactions

  • Corporate governance and business counseling

  • Business formation, strategy and structure

  • Business succession planning

  • Commercial real estate

Bill’s clients are involved in a range of industries, and include public and privately held businesses engaged in a wide variety of domestic and international transactions including asset and equity acquisitions, mergers, reorganizations, divestitures and restructurings.

Bill is also co-chair of the firm’s Retail Real Estate section. He represents clients nationwide in the purchase and sale of commercial real estate. Bill has a national practice handling the retail real estate leasing needs of both tenants and landlords.

Bill is a member of the American Bar Association (member of the Business Law, Real Estate and Taxation sections), and the State Bar of Wisconsin. He is also a co-author of LLCs and LLPs: A Wisconsin Handbook, 1st, 2nd and 3rd Editions, published by the State Bar of Wisconsin.

Bill is recognized by The Best Lawyers in America® as “Lawyer of the Year” for Closely Held Companies and Family Businesses Law in Milwaukee (2017). He is listed in The Best Lawyers in America® for Business Organizations (including LLCs and Partnerships) (2015-2018) as well as Closely Held Companies and Family Businesses Law (2014-2018).

Bill served as Chair and a member of the Board of Directors of Catholic Memorial High School.

414-287-1375
James Wawrzyn, von Briesen Roper Law Firm, Milwaukee and Waukesha, Corporate and Healhcare Law Attorney

James Wawrzyn counsels clients on commercial contract negotiation, mergers and acquisitions, supply-chain alternatives, and general corporate matters. James collaborates with clients to identify and implement their priorities. For each project, James has a results-oriented approach. He continuously engages the stakeholders to recognize and actively address obstacles to finalizing priority items.

James is skilled in the preparation and negotiation of technology-based agreements such as master services, development and licensing...

414-287-1476
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