When Can a Landlord's Consent to Assignment be Reasonably Withheld?

Warmack v. Merchants Nat'l. Bank of Fort Smith, 612 S.W.2d 733, 735 (Ark. 1981): The court held it was reasonable for the owner of a mall to refuse to consent to the proposed sublease of a bank tenant's lease to a savings and loan (even when the subtenant guaranteed payment of rent) because: 1) the proposed savings and loan already had a facility in the mall, 2) the original lease required the tenant to build and operate a drive-in bank on the premises; and 3) while similar to a bank, a savings and loan would not attract the same customers to the mall. The court found persuasive the testimony of the landlord as well as an expert in marketing who explained that to be economically successful, a mall must have a “good mix of tenants,” and that if the savings and loan were allowed another branch with a drive-in option outside of the mall, the number of potential customers for the other stores in the mall would suffer. Id. at 735. The court also recognized that a “mall complex was no ordinary landlord-tenant arrangement” and that the mere guarantee of rent could not outweigh other potential harms that could affect the shopping center and each tenant's contribution thereto. Id.

Withholding Consent Due to Philosophical Differences Is Likely Unreasonable

Am. Book Co. v. Yeshiva Univ. Dev. Found., Inc., 297 N.Y.S.2d 156 (N.Y. Sup. Ct. 1969): The landlord, Yeshiva University Development Foundation, Inc. (Yeshiva) withheld its consent to a proposed sublease of office space in a building it owned by the American Book Company to Planned Parenthood Federation of America. Yeshiva refused to consent to the sublease, stating the “'activities of proposed subtenant to be inconsistent with the present use of the premises and with the educational activities of the University.'” Id. at 158. The Yeshiva court found that while “[d]ifferences of creed may be taken into account when the property is owned by a religious institution and is used 'for religious purposes,'” when the landlord is a religious or religiously affiliated educational institution, if it “operates a commercial enterprise or owns commercial property, it is to be held to the established standards of commercial responsibility.” Id. at 163.

Withholding Consent to Protect Against Losing Other Tenants May Be Unreasonable

Brigham Young Univ. v. Seman, 672 P.2d 15 (Mont. 1983): Brigham Young University (BYU) owned office space in a building in Montana. The original tenant relocated to a different building in town and proposed assigning its lease to the Montana Board of Parole and Probation (MBPP). As BYU's building manager considered the proposal, several existing tenants in the building expressed their opposition to MBPP as a co-tenant. Responding to these reservations, the building manager sent a questionnaire to existing tenants to gauge opposition to the proposed tenancy to which he received several negative responses. The manager also sought advice of counsel in response to one tenant's threat to sue BYU if MBPP was allowed to lease the office space. Ultimately, BYU refused to consent, fearing that other tenants would not renew their leases if MBPP became a tenant. The trial court found that BYU's withholding of consent was unreasonable because: 1) MBPP had leased office space in other buildings in the city and no complaints of misconduct had been made by other tenants based on the behaviors of visitors to such offices; 2) there were several criminal defense attorneys leasing office space in BYU's building at that time; and 3) the questionnaire sent to the existing tenants was “biased in that it was not designed to evoke a favorable response.” Id. at 17. The court upheld the trial court's finding of fact that BYU's withholding of consent was unreasonable and not “governed by principles of fair dealing and commercial reasonableness.” Id. at 18. In making its determination, the appellate court also noted that BYU had previously attempted to lease the premises to MBPP directly. Id.

Withholding Consent to a Proposed Assignment or Sublease to a Competitor May Be Reasonable or Unreasonable

Tenet HealthSys. Surgical, L.L.C. v. Jefferson Par. Hosp. Serv. Dist. No. 1, 426 F.3d 738 (5th Cir. 2005): Landlord, the operator of an adjacent hospital, leased space in a shopping center to an outpatient surgical center. When the surgical center sought to assign its lease to an occupational medical clinic, the landlord withheld consent because the proposed assignee intended to use the premises in a way that competed with the landlord. Id. at 740. Applying Louisiana law, the court held that “refusal of consent to the assignment of the lease on the basis of increased competition was unreasonable;” the landlord's denial of consent was “wholly personal to [the Landlord] and does not relate in any way to an objective evaluation of [assignee] as a tenant.” Id. at 744.