Lease Assignments Are Not Guaranteed

There are commercial tenants out there who operate under the mistaken belief that they can simply have another tenant take their place and ride off into the sunset. It doesn’t work that way in most instances. To have another tenant take its place, the original tenant must, in most circumstances, properly assign the lease to the new tenant and obtain the landlord’s consent. Similarly, there are landlords out there who fail to pay sufficient attention to this important issue.

What a tenant may or may not do depends, of course, on what is permitted in the lease. A lease may contain an outright restriction on assignments, allow assignments subject to certain restrictions and requirements, or allow assignments with no restrictions. There are a number of considerations that a landlord and tenant must take into account when drafting an assignment provision in a lease, depending upon the particular circumstances.

In many instances, however, the parties agree that assignment is permitted provided that the landlord consents to the assignment, but the landlord will not unreasonably withhold or condition or delay its consent. From the tenant’s standpoint, the qualifier “unreasonably” is essential, because without that agreement, a landlord need not be “reasonable” in granting or withholding consent.

What is considered an “unreasonable” refusal to consent to an assignment? Simply because a landlord refuses to consent does not mean that the refusal is unreasonable. Like most things in the law, whether the landlord is being unreasonable depends upon the facts.

Some of the factors court look to in order to determine whether a landlord has reasonably withheld consent to an assignment include: 1) whether the tenant will guarantee the new tenant’s payment of rent and performance of lease covenants; 2) whether the new tenant is financially viable; 3) the nature of the tenant’s new business, and its suitability for the premises; 4) the extent to which the premises must be altered to accommodate the new tenant; 5) whether the proposed use will place the landlord in default of another lease, such as an exclusivity clause; 6) whether the assignment will implicate environmental considerations detrimental to the landlord; 7) the increased costs the new tenant’s use will have on the building’s operations; 8) whether the assignment would constitute a default by the landlord of a ground lessor or lender; and 9) whether the assignment will interfere with any guarantee of the initial lease.

Lease assignment clauses are critical for both landlord and tenant, and care and attention must be paid in drafting assignment language that addresses the needs and concerns of both parties relative to their respective bargaining positions.

If you have any questions about this post or any other related matter, please contact me at tpmckeown@nmmlaw.com.