Many commercial leases include a provision concerning the tenant’s right to assign the lease or sublet the leased premises. These provisions often require the tenant to get the landlord’s consent to any assignment or sublease. This is for good reason – the landlord (or perhaps its predecessor-in-interest) had the opportunity to vet the tenant before signing the lease and generally wants similar protection before someone else takes over either the tenant’s position or possession of the premises. An assignment provision may include a standard by which the landlord can decide whether to consent to a proposed assignment or sublease. But under even the most landlord-favorable standard, can a commercial landlord ever have an absolute right to reject a proposed assignment? Two Florida cases give some guidance, and one suggests that an absolute right exists only if the lease expressly says so.
In the 1981 case Fernandez v. Vazquez, a bakery lease required the landlord’s written consent to an assignment or sublease. The tenant, who operated the bakery, contracted to sell the business and sought to assign the lease to the purchaser. The landlord refused to give consent, and then later offered to consent only if the bakery purchaser would pay an increased rental rate. The purchaser was unwilling to buy the bakery with the increased rent, so he rescinded his contract to purchase the business. The landlord then sued the tenant for unpaid rent and the tenant counterclaimed for breach of the lease for refusing to consent to the assignment.
The appellate court reversed summary judgment for the landlord, based on “the now well-accepted concept that a lease is a contract and, as such, should be governed by the general contract principles of good faith and commercial reasonableness.” The court disavowed the idea that a commercial landlord can arbitrarily reject a proposed assignment, even where the lease has no minimum threshold or standard for consent. Rather, a landlord may breach the lease by rejecting a proposed assignment without good faith and commercial reasonableness.
The lease assignment provision in Fernandez had no standard by which to measure whether the landlord could deny consent. Therefore, implicit in the ruling is the concept that a lease assignment provision with no standard does not give the landlord an absolute right to deny consent to a proposed assignment.
In Speedway SuperAmerica, LLC v. Tropic Enterprises, Inc., an appellate court gave a little more insight into whether a landlord can have an absolute right to deny consent. In that case, the tenant assigned the lease and the assignee took possession of the property. The lease required the landlord’s consent, but provided no standard, and the tenant never requested or obtained consent. The court observed that the lease did not expressly give the landlord absolute discretion to withhold consent. The court reversed the trial court’s ruling that the lease, absent a standard, gave the landlord “the unfettered right to deny consent to the assignment” of the lease.
Like the appellate court in Fernandez, the appellate court in Speedway rejected the idea that a lease provision without a standard by which the landlord’s acceptance or rejection of an assignment must be measured means that the landlord has an absolute right of rejection. While neither court addressed whether a landlord can ever have such an absolute right, Speedway at least suggests that parties to a commercial lease could expressly agree to give the landlord that right.
The court’s observation that the lease did not give an absolute right, coupled with the court’s application of the implied covenant of good faith and fair dealing that is in all Florida contracts, suggests that a provision expressly allowing the landlord to arbitrarily deny consent to an assignment could be enforceable. Absent a court explicitly ruling as much, though, landlords and tenants should be mindful of Fernandez, Speedway, and the implied covenant of good faith in denying consent to a proposed assignment.
This post is adapted from an article that was originally published in the Winter 2017 issue of ActionLine, a Florida Bar Real Property and Trust Law Section publication.