§ 31.02 The Various State Laws and Views
| Jurisdiction | United States |
| Publication year | 2022 |
§ 31.02 The Various State Laws and Views1
This section reviews and examines the various state laws and views on assignment and subletting as they apply to the following issues:
(1) May a landlord arbitrarily and unreasonably withhold consent under an unqualified provision in the lease prohibiting assignment or subletting of the leased premises without the landlord's consent?
(2) Must the landlord's refusal to consent to assignment or subletting be based on reasonable grounds where the lease provides that consent shall not be withheld unreasonably?
(3) Can a tenant freely assign or sublease the leased premises without securing the landlord's consent where the lease has no provision regarding assignment or subletting?
The selection of cases and interpretations of them are the views of the co-authors and not an opinion of law in any of the jurisdictions. The discussion in this Section services as an overview or guide to sensitize the readers to the identification and treatment by each state of assignment and sublease issues in a lease.
[1]—Alabama
Under Alabama law, a landlord may not arbitrarily withhold consent under an unqualified provision in the lease prohibiting assignment or subletting of the leased premises without his consent.2 The Supreme Court of Alabama has held that despite the existence of a lease provision restricting the tenant's right to assign or sublease all or any part of the demised premises without the landlord's written consent, the landlord may not unreasonably and capriciously withhold his consent to a sublease or assign-ment.3 The Court rationalized its view by stating that the ever-increasing urban society of modern times requires a reasonable alienation of commercial building space.4
Where the lease provides that consent shall not be withheld unreasonably, the landlord's refusal to consent should be based on reasonable grounds judged under a test applying a reasonable commercial standard.5 Furthermore, a landlord's refusal to consent is arbitrary and unreasonable if the landlord places conditions as prerequisites to his consent.6 The reasonableness of the landlord's consent is a question of fact to be determined by the jury.7
The Homa-Goff rule that "a landlord may not unreasonably and capriciously withhold his consent to a sublease agreement" and that "[a] landlord's rejection should be judged under . . . a reasonable commercial standard," still controls.8 However, this does not apply to all assignment or sublease rejections. Specifically, parties may contract out of a commercial reasonableness standard by giving "sole discretion" over assignment or subleasing to one particular party.9 Thus, in a 2009 case, the Eleventh Circuit held that the commercial reasonableness standard did not apply to a lease granting one party sole discretion over assignment and subleasing because "'sole discretion' means an absolute reservation of a right . . . [and] is not mitigated by an implied covenant of good faith and fair dealing in contracts."10
Alabama has retained the common law rule that in the absence of a restrictive provision in the lease, the tenant can freely assign or sublease the leased premises without the landlord's consent.11 Restrictive provisions on alienation are disfavored by the law and are strictly construed in favor of the tenant.12
Finally, Alabama has adopted the Restatement (Second) of Contracts § 205, which requires the exercise of good faith in the performance or enforcement of all contracts including assignments and subleases.13 Furthermore, Alabama law gives the landlord the same right to enforce his lien against the subtenant or assignee that the landlord had against the original tenant.14
[2]—Alaska
The Alaska Code imposes a duty of good faith in performance or enforcement of all lease or sublease contracts or duties.15 Thus, a landlord may not arbitrarily withhold consent under an unqualified provision in the lease prohibiting assignment or subletting of the leased premises without the landlord's consent.16 The Supreme Court of Alaska has held that no-assignment and subletting clauses do not give to the landlord an absolute right to control assignments of his property.17 Where the landlord's consent is required before an assignment can be made, he may withhold his consent only if he has reasonable grounds to do so.18 While a restraint on alienation without the consent of the landlord is valid, such consent cannot be withheld unreasonably unless a freely negotiated clause in the lease gives the landlord an absolute right to withhold consent.19
Where the lease provides that consent shall not be withheld unreasonably, the landlord's refusal to consent must be based on reasonable grounds.20 In another Alaska case, the state's Supreme Court adopted the "commercially reasonable standard."21 The court argued that while it is unreasonable for a landlord to withhold consent in order to charge a higher rent than he originally contracted for, it is reasonable for a landlord to withhold consent to a sublease because a proposed subtenant would compete with other businesses in the center and thereby potentially affect the landlord's relationship with other tenants.22
Where the lease has no provision regarding assignment or subletting, a tenant can freely assign or sublease the leased premises without requesting the landlord's con-sent.23 While the general policy against restraints on alienation of property does not totally prohibit restraints, the validity of such a restraint in a particular case is greatly reduced because the law disfavors and interprets narrowly such restraints.24 Finally, the Alaska Code imposes an obligation of good faith in the performance or enforcement of all contracts or duties including leases and subleases.25
[3]—Arizona
In Arizona, a landlord may not arbitrarily withhold consent under an unqualified provision in the lease prohibiting assignment or subletting of the leased premises without the landlord's consent.26 In the absence of Arizona authority on an issue, Arizona courts will follow the Restatement of the Law.27 Thus, in a 1985 case, the Arizona Court of Appeals adopted the rule in Section 15.2(2) of the Restatement (Second) of Property (1977), which provides:
"A restraint on alienation without the consent of the landlord of the tenant's interest in the leased property is valid, but the landlord's consent to an alienation by the tenant cannot be withheld unreasonably, unless a freely negotiated provision in the lease gives the landlord an absolute right to withhold consent."28
Where the lease provides that consent shall not be withheld unreasonably, the landlord's refusal to consent to assignment or subletting must be based on reasonable grounds.29 According to the Arizona Court of Appeals, a landlord's reason for refusing consent to an assignment or sublease, in order for it to be reasonable, must be objectively sensible and of some significance.30 The Court stated that good faith reasonable objections may include the subtenant's inability to satisfy the terms of the lease, the subtenant's financial irresponsibility or instability, the subtenant's unlawful use of the premises, or the unsuitability of the subtenant's business for the premises.31 A landlord's refusal to consent to an assignment or subletting because the landlord is unsatisfied with the low rent provided under the existing lease is unreasonable.32
Where the lease has no provision regarding assignment or subletting, a tenant can freely assign or sublease the leased premises without securing the landlord's consent.33 The generally accepted rationale for this rule is that restrictions against alienation are not favored by the law and are strictly construed against the landlord.34 Finally, the Arizona Commercial Code imposes an obligation of good faith in the performance or enforcement of every contract including assignments and subleases.35 The Arizona Court of Appeals emphasized this rule holding that in every agreement there is an implied covenant of good faith and fair dealing so that neither the landlord nor the tenant may do anything that will injure the rights or interests of the other to the agreement.36
[4]—Arkansas
Until 1981, Arkansas followed the common law rule allowing a landlord to arbitrarily withhold consent under an unqualified provision in the lease prohibiting assignment or subletting of the leased premises without the landlord's consent.37 This rule was abandoned by the Arkansas Supreme Court, which adopted the Restatement (Second) of Property § 15.2:
"A restraint on alienation with the consent of the landlord of the tenant's interest in the leased property is valid, but the landlord's consent to an alienation by the tenant cannot be withheld unreasonably, unless a freely negotiated provision in the lease gives the landlord an absolute right to withhold consent."38
According to the court, where the lease provides that consent shall not be withheld unreasonably, the landlord's refusal to consent to assignment or subletting must be based on reasonable grounds.39 The landlord's refusal to consent is arbitrary and unreasonable if it is made without fair, solid and substantial cause or reason.40 Where the lease has no provision regarding assignment or subletting, a tenant can freely assign or sublease the leased premises without asking for the landlord's consent.41 The rationale for this rule is that restraints on alienation of the lease inhibit the maximum use of the leased property and are considered against public policy.42 Such restrictive provisions in the lease are disfavored and are strictly construed against the landlord.43
[5]—California
In recent years, the California legislature has dealt with assignment and subletting issues directly by enacting statutes to address alienation of leases. As one court asserted:
The statutory scheme allows a lease to absolutely prohibit assignment or to provide that the assignment "is subject to any express...
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