Tenant shall not sublet or assign this Lease, in whole or in part, without Landlord’s prior consent, which shall not be unreasonably withheld, conditioned or delayed.
A recent case involving a landlord’s covenant not to unreasonably withhold its consent to a sublet or assignment should make landlords sit up and take notice. In Ernst Home Center v. Sato, 80 Wash. App. 473 (1996), Ernst requested the landlord’s consent to an assignment of its lease to Value Village. When the landlord denied the request, Ernst sued the landlord for allegedly violating the lease requirement that the landlord not unreasonably withhold its consent.
The ensuing litigation centered on whether or not the landlord’s decision was reasonable. The landlord stated that its decision was based out of a concern that Value Village’s business of selling second hand merchandise did not fit the character of its shopping center – something most landlords want to be able to decide for themselves. Ernst introduced evidence at trial that, among other things, Value Village was a strong financial company and that allegedly in other shopping centers it was a contributor to a strong, profitable center. The court found that landlord was unreasonable in withholding its consent to this proposed assignment. The court ruled that in determining whether to withhold consent to an assignment, a landlord may reasonably consider the financial strength and responsibility of the proposed assignee, the legality of the assignee’s intended use for the property, and the nature of the occupancy, and consider issues of personal taste and convenience. A landlord is also entitled to consider “tone” and “image,” but only from the perspective of a “reasonably prudent person” in the landlord’s position. As a practical matter, this means that a landlord must have objective proof that a tenant would be detrimental to the property. See also, Roundup Tavern, Inc. v. Pardini, 68 Wash.2d 513, 413 P.2d 820 (1966) (holding that landlord’s objection to an assignment of a lease to a tavern, based on the landlord’s personal dislike of taverns, was unreasonable).
The moral of the story: landlords beware! Agreeing to be reasonable is at its core a subjective covenant. “Reasonable” to the landlord may mean a tenant well suited for the building with a sterling reputation and proven business track record. “Reasonable” to the tenant may mean any entity able to pay most of the first month’s rent. And, “reasonable” to a judge or arbitrator, or –heaven forbid – a jury, may mean something else entirely. Consider the following attempts by the Washington Supreme Court to define the standard of reasonableness under a contract:
“It is to be measured by the action which would be taken by a reasonable man in like circumstances.” Robbins v. Hunts Food & Industries, Inc., 64 Wash.2d 289, 296, 319 P.2d 713 (1964).
“Whim, caprice, or opportunism, however expedient the end, will not suffice.” Id. at 296-297.
“Reason, fairness, and good faith must be the guide.” Id. At 296.
The landlord may take steps in the lease to mitigate its potential damages in the event of an Ernst-like holding that it unreasonably withheld its consent. The tenant’s damages in this situation, in addition to direct damages, may include all sorts of consequential damages (e.g., bankruptcy as a result of not being able to transfer the lease). The landlord can limit the tenant’s remedies to include only specific