Chapter § 34.4 RESTRICTIONS ON TRANSFERS

• Jurisdiction: Oregon

§ 34.4 RESTRICTIONS ON TRANSFERS

The foregoing discussion in this chapter has made clear the need for restrictions on lease transfers. In fact, most all forms of lease today include some restrictive language related to assignments and subleasing. The relevant question is therefore not whether to include a restriction on transfers, but what form of restriction to include. Will the restriction be absolute or subject to the landlord's consent? If subject to the landlord's consent, will the consent be given at the landlord's sole discretion or will the landlord be required to not unreasonably withhold consent? Will there be carve-outs for certain types of transfers—like asset or stock sales? What conditions may be imposed on the transfer or the landlord's consent?

The majority rule in the United States is that if the restrictive covenant does not expressly obligate the landlord to act reasonably in granting consent, then the landlord has the right to arbitrarily refuse consent. However, in Pac. First Bank v. New Morgan Park Corp., 319 Or 342, 876 P2d 761 (1994), Oregon adopted the minority rule:

We conclude that the principles enunciated in this state's common-law good faith cases are applicable here. That is, we conclude that, as a general proposition, a duty of good faith applies to lease agreements as it does to other contracts. In so holding, we join the jurisdictions referred to by one commentator as a "rapidly growing minority" that recognize this principle. See [Milton R. Friedman, 1 Friedman on Leases §7.304a (3d ed 1990)] (noting that "there is a rapidly growing minority to the effect that if [a] lease states 'tenant may assign only with landlord's consent' or 'tenant may not assign without landlord's consent' there is engrafted on this language by implication the phrase 'which consent shall not be unreasonably withheld.'").

Pac First Bank, 319 Or at 353.

The court in Pac First Bank, however, emphasized that "the doctrine of good faith is to be applied in a manner that will effectuate the reasonable contractual expectations of the parties." Pac First Bank, 319 Or at 353. In Pac First Bank, the lease agreement included one provision regarding assignments and a separate provision regarding subleases. The provision regarding assignments allowed for "unilateral, unrestricted exercise of discretion by [l]andlord." Pac First Bank, 319 Or at 354. In contrast, the provision regarding subleases required that "[l]andlord will not unreasonably withhold its...