When Your Tenant Wants to Assign Your Commercial Lease – What Landlords Need to Know Before Withholding Consent
January 07, 2020
Many commercial real estate landlords would be surprised to learn that, under Florida common law, a tenant has the right to assign a lease without the landlord’s consent. That right derives from the principle that the law generally favors free alienation of property.
This common law right can, however, lawfully be restricted or eliminated by contract, and indeed, most landlords today include an express provision in their lease agreements prohibiting any assignment or subletting without the landlord’s prior written consent.
Most such assignment provisions include language stating that the landlord’s consent will “not be unreasonably withheld.” But what does that mean, exactly?
According to at least one appellate court in Florida, it means a landlord cannot deny consent because it wishes to enter into an entirely new lease with the proposed subtenant or assignee to charge a higher rent than originally contracted. See Fernandez v. Vazquez, 397 So.2d 1171, 1174 (Fla. 3d DCA 1981). That’s because in every contract there is an implied covenant of good faith and fair dealing. Lease agreements are, of course, contracts, which means this principle applies to them, too. Thus, along with a denial based on the landlord’s desire to charge a higher rent than contracted for in the original lease, denying consent to an assignment because of personal taste, convenience or sensibility are considered arbitrary reasons that fail the tests of good faith and reasonableness under commercial leases. See id.
Most importantly, however, a withholding of consent to assign a lease that fails the tests for good faith and commercial reasonableness constitutes a breach of the lease agreement that could put a landlord in the position of being sued by the tenant. See id. Courts have held a landlord’s refusal to consent to an assignment of the lease to a tenant who is acceptable by reasonable commercial standards to be an unreasonable exercise and thus violative of the lease. Id.
Some factors the jury will consider in applying the standards of good faith and commercial reasonableness—and thus, some factors a landlord should weigh in making its decision—include:
(a) the financial responsibility of the proposed subtenant or assignee;
(b) the “identity” or “business character” of the subtenant or assignee (such as the proposed subtenant or assignee’s suitability for a particular building);
(c) the need for alteration of the premises;
(d) the legality of the subtenant or assignee proposed use of the premises; and
(e) the nature of the occupancy (that is, whether it’s an office, factory, clinic, etc.).
Landlords most often encounter assignment requests when a commercial tenant wants to sell its business. If this issue arises in your commercial real estate business and you’re considering withholding consent, be sure to check the particular assignment provision in your lease first and then consult with a lawyer.
The AV-rated attorneys at Chane Socarras regularly handle real estate and commercial landlord/tenant disputes and litigation. For more information on this or other topics related to commercial landlord-tenant law, click here to contact the business litigation firm of Chane Socarras, PLLC or call us at (561) 309-3190.