May the Landlord Unreasonably Withhold Consent to Assignment?-an Update
| Publication year | 1987 |
| Pages | 799 |
| Citation | Vol. 16 No. 5 Pg. 799 |
1987, May, Pg. 799. May the Landlord Unreasonably Withhold Consent to Assignment?-An Update
A previous article that appeared in The Colorado Lawyer in 1983(fn1) concluded that assignment and subleasing by a tenant are freely permitted in the absence of express restrictions on such rights in the lease. Based on the Colorado Court of Appeals' decision in Carleno v. Volmert Tire Co.,(fn2) in Colorado, if a clause in a lease required a landlord's consent to assignment and subleasing, the landlord could arbitrarily withhold consent for any reason or even for no reason at all. Such a clause did not require the landlord to act reasonably.
If the lease provided that consent could not be unreasonably withheld, under Colorado law an objective, reasonable person standard could have been used to determine what was reasonable. The financial responsibility of the proposed assignee or subtenant, the proposed use of the leased premises and the business character of the proposed assignee or subtenant were all matters that might properly be considered by a landlord. Personal taste or convenience were unacceptable matters for a landlord to consider in making such a decision.
Recent Colorado cases have changed the law in this state as it relates to the withholding of consent by a landlord to assignment or subletting. This article presents an update to the 1983 article.
In Schneiker v. Gordon,(fn3) the Colorado Supreme Court unequivocally held that the law of contracts, as opposed to the law of real property, was applicable to commercial leases. Viewing the facts of the case under traditional property law and early cases in Colorado, the court recognized that termination of the primary lease would prevent the lessee-sublessor from recovering rent due under the sublease. However, the court held that there was no reason why the covenant to pay rent should be treated differently from a covenant to pay as contained in any other contract. Hence, the court reversed the decision of the Court of Appeals, holding that public policy favored the application of contract principles to the circumstances at bar and that the covenant to pay rent continued after termination of the sublease.(fn4)
Although the Colorado Supreme Court did not state that its decision in Schneiker overrules or rejects the Court of Appeals' decision in Carleno, it may have done so by implication. Carleno formed the basis for the previous conclusion that if a lease required a landlord's consent to assignment or subletting, the landlord does not have to act reasonably in deciding whether to consent. If contract principles apply to a lease, the general contract principles of good faith and commercial reasonableness should also be implied to prohibit arbitrary withholding of consent. Even if Schneiker does not make the holding in Carleno questionable, it appears that, at the first opportunity, the Court of Appeals will overrule its own decision in Carleno.
In Basnett v. Vista Village Mobile Home Park,(fn5) the Court of Appeals declined to follow its previous holding in Carleno. Instead, it adopted § 15.2(2) of the Restatement (Second) of Property (1977), which imposes a duty of good faith and fair dealing. The court's decision was reversed by the Colorado Supreme Court on the ground that the record did not support the finding on which the ruling was based. However, it is likely that, given another opportunity, the Court of Appeals will apply § 15.2(2) of the Restatement, which provides that
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.
The comments to § 15.2(2) indicate that the reasonableness determination should be made in light of the type and length of the term of the lease. The shorter the lease, the less the need to justify a refusal to consent to alienation. As the Colorado Supreme Court pointed out in Basnett,(fn6) some
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