Kendall v. Ernest Pestana

Supreme Court of California · 1985 · Property

PropertyLandlord and TenantCommercial LeasesAssignments and SubleasesRestraints on Alienationcommercial leaseassignmentsublease

Facts

A sublease for hangar space at the San Jose Municipal Airport provided that the lessee could not assign the lease without the lessor's written consent and that an assignment without consent made the lease voidable at the lessor's option. Bixler, the existing lessee operating an airplane maintenance business, agreed to sell the business and assign the lease to Kendall and others, who allegedly had stronger finances and were willing to be bound by the lease terms. The successor lessor, Ernest Pestana, Inc., refused consent and asserted an absolute right to do so arbitrarily. The complaint alleged that the lessor demanded increased rent and other more onerous terms as the price of consent.

Issue

When a commercial lease bars assignment or subletting without the lessor's prior written consent, but does not expressly say consent cannot be unreasonably withheld, may the lessor arbitrarily and unreasonably refuse consent? Or must the lessor have a commercially reasonable objection to the proposed assignee or use?

Rule

Where a commercial lease provides for assignment or sublease only with the prior consent of the lessor, the lessor may withhold consent only where the lessor has a commercially reasonable objection to the proposed assignee or the proposed use, even if the lease does not expressly state that consent may not be unreasonably withheld. Whether the refusal was reasonable is a question of fact, judged by standards of good faith and commercial reasonableness.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Maple Street Design Studio leases retail space in Sacramento from Sierra Harbor Properties under a commercial lease stating that the tenant may not assign the lease without the landlord’s prior written consent. When the studio agrees to assign the lease to Nora Patel, whose finances are stronger and who will continue the same lawful retail use, the landlord says it will consent only if Nora agrees to a substantial rent increase and a new security deposit far above the lease terms.

If the tenant sues in California, which is the best answer?

Explanation. Under the majority opinion, in a commercial lease requiring landlord consent to assignment or sublease, consent may be withheld only for a commercially reasonable objection unless the lease expressly provides otherwise. A refusal aimed at obtaining higher rent or more onerous terms than originally contracted for is not commercially reasonable because it is unrelated to protecting the landlord’s interest in the property and lease performance.