ALI-ABA Course of Study Modern Real Estate Transactions July 25 ...

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ALI-ABA Course of Study
Modern Real Estate Transactions
July 25 - 28, 2007
San Francisco, California
Assignment and Subletting
By
John W. Daniels, Jr.
Quarles & Brady LLP
Milwaukee, Wisconsin

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ASSIGNMENT AND SUBLETTING
John W. Daniels, Jr. 1
I. GENERAL PRINCIPLES AND MATTERS.
Quarles & Brady LLP
Milwaukee, Wisconsin
A. Business and Practical Aspects of Tenant’s Right to Assign and Sublet. 1 MILTON
R. FRIEDMAN, FRIEDMAN ON LEASES § 7.1 (4th ed. 1997 & Supp. 2002). A
Tenant should understand that it assumes significant liabilities when it enters into
a lease and should presume that it will be responsible for performance under the
lease for the entire length of the term. As a practical matter, the right to assign or
sublease its interest may be of vital importance to a Tenant, who may otherwise
be obligated to pay rent and maintenance costs, as well as perform other duties,
for property of no economic value to the Tenant; in many cases, a Landlord does
not need to find a replacement Tenant, should the original Tenant quit the
premises prior to the expiration of the lease’s term.
B. Definition and Effects of Operative Terms. 49 AM. JUR. 2d Landlord and Tenant
§ 1076 (1995 & Supp. 2002); RAYMOND J. WERNER AND ROBERT KRATOVIL,
REAL ESTATE LAW (10th ed. 1993).
1. Assignment. An assignment is a transfer of the entire leasehold interest in
all or a part of the demised premises for the unexpired term of the original
lease. See New Amsterdam Casualty Co. v. Nat’l Union Fire Ins. Co. of
Pittsburgh, Pa., 266 N.Y. 254, 194 N.E. 745 (1935); Waller v. Comm’r of
Internal Revenue, 40 F.2d 892 (5th Cir. 1930).
2. Subleasing. A sublease is a transfer of only a part of the leasehold; the
sublessor retains a reversion (even if only minimal). See Marcelle, Inc. v.
Sol & S. Marcus Co., 274 Mass. 469, 175 N.E. 83 (1931); Coles Trading
Co. v. Spiegel, Inc., 187 F.2d 984 (9th Cir. 1951).
3. Common Law on the Right to Assign. MacFadden-Deauville Hotel,
Inc. v. Murrell, 182 F.2d 537 (5th Cir. 1950); Valley Oil Co. v. Barberian,
344 Mass. 759, 183 N.E.2d 109 (1962); Presby v. Benjamin, 169 N.Y.
377, 380, 62 N.E. 430, 431 (1902); 2 RICHARD POWELL AND ROY BELDEN,
LAW OF REAL PROPERTY § 17.04 (2003); 1 AMERICAN LAW OF PROPERTY
§ 3.75 (1952 & Supp. 1980); Annotation, Right of Lessee in Absence of
Covenant to Assign Lease or Sublet Premises, 70 A.L.R. 486 (1931); 51C
C.J.S. Landlord and Tenant § 31 (1968 & Supp. 2002); 49 AM. JUR. 2d
Landlord and Tenant § 1082 (1995 & Supp. 2002); ROBERT S.
1 This outline was prepared with the assistance of Shawn D. Gould (Boalt Hall 2001), an associate in the Real Estate
Practice Group of the firm.
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SCHOSHINSKI, AMERICAN LAW OF LANDLORD AND TENANT § 8:10 (1980 &
Supp. 2003).
i. Absent express restriction, general rule allows assignment or
subletting (even where lease contains percentage rent provision).
49 Am. Jur. 2d Landlord and Tenant § 1082 (1995 & Supp. 2002);
Crestwood Plaza, Inc. v. Kroger Co., 520 S.W.2d 93 (Mo. App.
1974); Rowe v. Great Atl. & Pac. Tea Co., 61 A.D.2d 473, 402
N.Y.S.2d 593 (App. Div. 1978), rev’d, 412 N.Y.S.2d 827, 385
N.E.2d 566 (1978).
ii.
Exceptions (farm lease, tenancy-at-will).
4. Assignment and Sublease Distinguished. 49 AM. JUR. 2d Landlord and
Tenant § 1077 (1995 & Supp. 2002); 1 HERBERT TIFFANY, REAL
PROPERTY § 123 (3d ed. 1939); Wallace, Assignment and Sublease, 8 IND.
L.J. 359 (1939); 51C C.J.S. Landlord and Tenant §§ 37, 43 (1968 & Supp.
2002); ROBERT S. SCHOSHINSKI, AMERICAN LAW OF LANDLORD AND
TENANT, § 8:10 (1980 & Supp. 2003); 1 MILTON R. FRIEDMAN,
FRIEDMAN ON LEASES, § 7.401 n.1; Joseph Oros. Co. v. F.W. Woolworth
Co., 844 F.2d 369 (6th Cir. 1988) (under Ohio law, a transfer of a
leasehold for a period one day less than the term of the main lease is a
sublease and not an assignment); Tidewater Investors Ltd. v. United
Dominion Realty Trust, Inc., 804 F.2d 293 (4th Cir. 1986) (Virginia law);
In re Miami Dyeing & Printing, Inc., 14 B.R. 947 (S.D. Fla. 1981);
Walgreen Arizona Drug Co. v. Plaza Ctr. Corp., 132 Ariz. 512, 647 P.2d
643 (Ct. App. 1982); Rocklen, Inc. v. Radulesco, 10 Conn. App. 271, 522
A.2d 846 (1987); Dayenian v. Am. Nat'l Bank & Trust Co., 91 Ill. App. 3d
622, 414 N.E.2d 1199 (1980); Italian Fisherman, Inc. v. Middlemas, 313
Md. 156, 545 A.2d 1 (1988); Hardle v. Preston Energy, Inc., 374 N.W.2d
807 (Minn. Ct. App. 1985); Weeks v. Cal-Maine Foods, Inc., 522 So. 2d
725 (Miss. 1987); Capoccia v. Brognano, 135 A.D. 2d 1010, 522
N.Y.S.2d 733 (1987), appeal dismissed (N.Y. App. Div. 1987), 71 N.Y.2d
1022, 526 N.E.2d 48, 530 N.Y.S.2d 557 (1988); McSpadden v. Dawson,
117 A.D.2d 453, 503 N.Y.S.2d 357 (1986); Bostonian Shoe Co. v.
Wulwick Assocs., 119 A.D.2d 717, 501 N.Y.S.2d 393 (1986), appeal
dismissed; Conklin Dev. Corp. v. Acme Mkts., Inc., 89 A.D.2d 769, 453
N.Y.S.2d 930 (1982), appeal dismissed, 58 N.Y.2d 929, 460 N.Y.S.2d
532, 447 N.E.2d 80 (1983); Anchor Holding Co. v. Michael's Coffee Shop,
81 A.D.2d 535, 438 N.Y.S.2d 104 (1981); Krasner v. Transcon. Equities,
Inc., 70 A.D.2d 312, 420 N.Y.S.2d 872 (1979); Neal v. Craig Brown, Inc.,
86 N.C. App. 157, 356 S.E.2d 912 (1987), review denied, 320 N.C. 794,
361 S.E.2d 80 (1987); Castle v. Double Time, Inc., 737 P.2d 900 (Okla.
1986); Parr v. Farmers State Bank, 659 S.W.2d 883 (Tex. App. 1983); L
& M Corp. v. Loader, 688 P.2d 448 (Utah 1984); Estate of Whitley v.
Anning, 392 So. 2d 799 (La. Ct. App. 1980); Chemical Dynamics, Inc. v.
Newfeld, 728 S.W.2d 590 (Mo. Ct. App. 1987); Joseph Bros. Co. v. F.W.
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Woolworth Co., 844 F.2d 369 (6th Cir. 1988); F.W. Woolworth Co. v.
Plaza North, Inc., 493 N.E.2d 1304 (Ind. Ct. App. 1986); Maxima Corp. v.
Cystic Fibrosis Found., 81 Md. App. 602, 568 A.2d 1170 (1990);
Northside Station Assocs. P’ship v. Maddry, 105 N.C. App. 384, 413
S.E.2d 319 (1992); Burgess Pic-Pac, Inc. v. Fleming Cos., Inc., 190 W.
Va. 169, 437 S.E.2d 742 (1993); Lamonts Apparel, Inc. v. Si-Lloyd
Assocs., 157 Or. App. 44, 967 P.2d 905 (1998).
i. Privity of contract ("POC") and privity of estate ("POE"). First
Am. Nat'l Bank v. Chicken Sys. of Am., Inc., 616 S.W.2d 156
(Tenn. Ct. App. 1980); L & M Corp. v. Loader, 688 P.2d 448
(Utah 1984) (assignor could not sue Landlord for breach of right of
first refusal because right was transferred to assignee by
assignment of lease); OTR v. Flakey Jake's, Inc., 112 Wash. 2d
243, 710 P.2d 629 (1989); Satellite Gateway Communications, Inc.
v. Musi Dining Car Co., 110 N.J. 280, 540 A.2d 1267 (1988)
(attorney fees relative to default); North Bergen Rex Transp., Inc.
v. Trailer Leasing Co., 158 N.J. 561, 730 A.2d 843 (1999); Cmty.
Realty Mgmt., Inc. v. Harris, 155 N.J. 212, 714 A.2d 282 (1998).
(a)
(b)
Matters prior or subsequent to transfer not covered by POE.
POE affects matters "running with land."
ii.
iii.
iv.
Reservations of time, rent, re-entry, etc. 1 MILTON R. FRIEDMAN,
FRIEDMAN ON LEASES § 7.403a (4th ed. 1997 & Supp. 2002).
Majority rule. This is also called the “English Rule” and states that
an assignment, rather than a sublease, exists only if the transfer of
the leasehold interest is complete and the transferee does not retain
a reversion. See 1 MILTON R. FRIEDMAN, FRIEDMAN ON LEASES §
7.403a (4th ed. 1997 & Supp. 2002); Davidson v. Minn. Loan &
Trust Co., 158 Minn. 411, 197 N.W. 833 (1924);
Minority rule. Courts adopting this view look at the intent of the
parties to determine whether the transfer of the leasehold interest is
an assignment or a sublease. See Jaber v. Miller, 219 Ark. 59, 239
S.W.2d 760 (1951); Ernst v. Conditt, 54 Tenn. App. 328, 390
S.W.2d (1965); but see Northside Station Assocs. P’ship v.
Maddry, 105 N.C. App. 384, 413 S.E.2d 319 (1992).
C. Lessor Assignment. A number of states have statutes permitting a Landlord to
transfer its interest in the leased premises without the consent of the Tenant, as
long as the lease itself does not expressly prohibit such transfer. See
RESTATEMENT (SECOND) OF PROPERTY, § 15.1 stat. n. 3 (1977 & Supp. 2003).
D. Statute of Frauds and Other Requisites. 49 AM. JUR. 2d Landlord and Tenant §§
1086-1087 (1995 & Supp. 2002).
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II.
APPLICABILITY OF RESTRICTIONS ON ASSIGNMENT AND SUBLEASING.
A. Statutory, Tenancy-at-Will, Concessions. RESTATEMENT (SECOND) OF PROPERTY,
§ 15.2 (1977 & Supp. 2003); 1 MILTON R. FRIEDMAN, FRIEDMAN ON LEASES §§
7.301-7.302 (4th ed. 1997 & Supp. 2002).
B. Standard of Strict Construction. 49 AM. JUR. 2d Landlord and Tenant §§ 1088,
1090, 1092, 1093 (1995 & Supp. 2002); 1 MILTON R. FRIEDMAN, FRIEDMAN ON
LEASES § 7.303 (4th ed. 1997 & Supp. 2002).
1. Limited to the Category Described (i.e. merely stating that assignments
are prohibited may not prohibit subleases).
2. Prime Lease Limitation Effect On Sublease. 49 AM. JUR. 2d Landlord
and Tenant § 1157 (1995 & Supp. 2002).
3. For Benefit of Lessor. 49 AM. JUR. 2d Landlord and Tenant § 1148 (1995
& Supp. 2002).
i. Transfer in violation not void but voidable.
ii.
Transferee has "limited" right to raise breach as defense.
4. Part or Whole. 49 AM. JUR. 2d Landlord and Tenant § 1166 (1995 &
Supp. 2002).
C. Express Restrictions. Courts generally look with disfavor on non-assignment
clauses and strictly construe them against the Landlord, because they are viewed
as restraints on the free alienation of property. See ROBERT S. SCHOSHINSKI,
AMERICAN LAW OF LANDLORD AND TENANT § 8:16, 583 (1980 & Supp. 2003); 1
AMERICAN LAW OF PROPERTY, § 358 (1952 & Supp. 1977). The Restatement
would propose that a restraint on the alienation of either the Tenant’s or the
Landlord’s interest without the consent of the other party be valid, but that the
other party’s consent may not be unreasonably withheld unless a “freely
negotiated provision in the lease” gives the other party the absolute right to
withhold consent. See RESTATEMENT (SECOND) OF PROPERTY § 15.2 (1977 &
Supp. 2003); see also Paul J. Weddle, Pacific First Bank v. New Morgan Park
Corporation: Reasonable Withholding of Consent to Commercial Lease
Assignments, 31 WILLAMETTE L. REV. 713 (1995); Martha Wach, Withholding
Consent to Alienate: If Your Landlord is in a Bad Mood, Can He Prevent You
From Alienating Your Lease, 43 DUKE L.J. 671 (1993); Todres and Lerner,
Assignment and Subletting of Leased Premises: The Unreasonable Withholding of
Consent, 5 FORDHAM URB. L.J. 195 (1977); Annotation, When Lessor May
Withhold Consent Under Unqualified Provision in Lease Prohibiting Assignment
or Subletting of Leased Premises Without Lessor's Consent, 21 A.L.R. 4th 188
(1983 & Supp. 2002); 49 AM. JUR. 2d Landlord and Tenant § 1090 (1995 &
Supp. 2002); Effect of Leasehold Provisions Requiring the Lessor's Consent to
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Assignment, 21 HASTINGS L.J. 516 (1970); 1 MILTON R. FRIEDMAN, FRIEDMAN ON
LEASES, § 7.303 (4th ed. 1997 & Supp. 2002).
1. Absolute Restriction (i.e. no mention of Landlord’s consent): e.g.
“Tenant shall not assign or sublet its interest under this Lease.”
2. Assignment with Consent of Landlord: e.g. “Tenant shall not assign or
sublet its interest under this Lease without Landlord’s prior written
approval.” See Effect of Leasehold Provisions Requiring the Lessor's
Consent to Assignment, 21 HASTINGS L.J. 516 (1970); Annotation, 54
A.L.R. 3d 679 (1973 & Supp. 2002). There is a great deal of variance in
the application of the consent standard, but the “majority” rule is that, if
the lease is silent, the Landlord need not be reasonable in withholding its
consent. See 421 Willow Corp. v. Callowhill Center Assocs., 2003 WL
21361362 (Pa. Com. Pl. 2003) (holding that Pennsylvania follows the
majority rule and that no requirement of acting reasonably will be imposed
upon Landlord’s right to consent to assignments); but see Morgan
Products, Ltd. v. Park Plaza of Oshkosh, Inc., 229 Wis.2d 231, 598
N.W.2d 626 (1999) (holding that Landlord must be reasonable in refusing
consent, but that Tenant bears the burden of proving Landlord’s
unreasonableness); Carey v. Lincoln Loan Co., 165 Or. App. 657, 998
P.2d 724 (2000) (holding that the phrase “which consent shall not be
unreasonably withheld” is engrafted onto clauses merely stating that
Tenant may not assign with Landlord’s consent). For other cases
addressing this issue, see the following: Manley v. Kellar, 47 Del. 511, 94
A.2d 219 (1952); Trusghinger v. Pak, 513 So. 2d 1151 (La. Ct. App.
1987); Lilawanti Enter., Inc. v. Walden Book Co., 670 So. 2d 588 (La. Ct.
App. 1996); 68 Beacon Street, Inc. v. Sohier, 289 Mass. 354, 194 N.E. 303
(1935); Gruman v. Investors Diversified Serv. Inc., 247 Minn. 502, 78
N.W.2d 377 (1956); Segre v. Ring, 103 N.H. 278, 170 A.2d 265 (1961);
Mann Theatres Corp. v. Mid-Island Shopping Plaza Co., 94 A.D.2d 466,
464 N.Y.S.2d 793 (1983); Ithaca Assocs. Co. v. Plataniotis, 274 A.D.2d
640, 710 N.Y.S.2d 688 (2000); Isbey v. Crews, 55 N.C. App. 47, 284
S.E.2d 534 (1981); Slavin v. Rent Control Bd. of Brookline, 406 Mass.
458, 548 N.E.2d 1226 (1990); Dobyns v. South Carolina Dep’t of Parks,
Recreation & Tourism, 317 S.C. 353, 454 S.E.2d 374 (Ct. App. 1995);
Snortland v. Larson, 364 N.W.2d 67 (N.D. 1985) (applying Minnesota
law); F & L Ctr. Co. v. Cunningham Drug Stores, Inc., 19 Ohio App. 3d
72, 19 Ohio B.R. 156, 482 N.E.2d 1296 (1984); Shoney’s, Inc. v. Winthan
Prop., 2001 Ohio 3965 (Ct. App. 2001); Reynolds v. McCullough, 739
S.W.2d 424 (Tex. Ct. App. 1987) (writ denied); 718 Assocs., Ltd. v.
Sunwest N.O.P., 1 S.W.3d 355 (Tex. Ct. App. 1999); Trinity Prof’l Plaza
Assocs. v. Metrocrest Hosp. Auth., 987 S.W.2d 621 (Tex. Ct. App. 1999);
Twelve Oaks Tower I, Ltd. v. Premier Allergy, Inc., 938 S.W.2d 102 (Tex.
Ct. App. 1996); compare Arrington v. Walter E. Heller Int'1 Corp., 30 Ill.
App. 3d 631, 333 N.E.2d 50 (1975); Homa-Goff Interiors, Inc. v. Cowden,
350 So. 2d 1035 (Ala. 1977); Rowley v. City of Mobile, 676 So. 2d 316
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(Ala. Civ. App. 1995); Julian v. Christopher, 320 Md. 1, 575 A.2d 735
(1990); Hendrickson v. Freericks, 620 P.2d 205 (Alaska 1980); Campbell
v. Westdahl, 148 Ariz. 432, 715 P.2d 288 (Ct. App. 1985); Warmack v.
Merchants Nat'l Bank of Fort Smith, 272 Ark. 166, 612 S.W.2d 733
(1981); Kendall v. Ernest Pestana, Inc., 40 Cal. 3d 488, 709 P.2d 837, 220
Cal. Rptr. 818 (1985); Ilkhchooyi v. Best, 37 Cal. App. 4th 395, 45 Cal.
Rptr. 2d 766 (1995); Warner v. Konover, 210 Conn. 150, 553 A.2d 1138
(1989); Fernandez v. Vazquez, 397 So. 2d 1171 (Fla. Dist. Ct. App. 1981);
First Nationwide Bank v. Florida Software Serv., 770 F. Supp. 1537 (M.D.
Fla. 1991); Funk v. Funk, 102 Idaho 521, 633 P.2d 586 (1981); First Fed.
Sav. Bank of Ind. v. Key Mkts., Inc., 532 N.E.2d 18 (Ind. Ct. App. 1988);
Newman v. Hinky Dinky Omaha-Lincoln, Inc., 229 Neb. 382, 427 N.W.2d
50 (1988); Boss Barbara, Inc. v. Newbill, 97 N.M. 239, 638 P.2d 1084
(1982); Castle v. McKnight, 116 N.M. 595, 866 P.2d 323 (1993);
Economy Rentals, Inc. v. Am. Toyota, Inc., 112 N.M. 748, 819 P.2d 1306
(1991); see also Basnett v. Vista Vill. Mobile Home Park, 699 P.2d 1343
(Colo. Ct. App. 1984), rev'd, 731 P.2d 700 (Colo. 1987); Sterns Gallery
of Gifts, Inc. v. Corporate Prop. Investors, Inc., 176 Ga. App. 586, 337
S.E.2d 29 (1985); Citizens Bank & Trust Co. v. Barlow Corp., 295 Md.
472, 456 A.2d 1283 (1983); Healthco, Inc. v. E & S Realty Assocs., 400
Mass. 700, 511 N.E.2d 579 (1987); Jonas v. Prutaub Joint Venture, 237
N.J. Super. 137, 567 A.2d 230 (Ct. App. 1989). For a thorough analysis,
see also Coskan, Assignment and Sublease Restrictions: The Tribulations
of Leasehold Transfers, 22 LOY. L.A. L. REV. 405 (1989).
3. Consent of Lessor Not Unreasonably Withheld. Construction and effect
of provision in lease that consent to subletting or assignment will not be
arbitrarily or unreasonably withheld. 54 A.L.R. 3d 679 (1973 & Supp.
2002); 1 MILTON R. FRIEDMAN, FRIEDMAN ON LEASES § 7.304c (4th ed.
1997 & Supp. 2002); Annotation, 21 A.L.R. 4th 188, 198 et seq. (1983 &
Supp. 2002).
4. Relevant Factors for Subparagraphs (2) and (3) above. 2
2 Numerous cases cite the Restatement (Second) as authority for what is reasonable. The
Restatement, in turn, cites American Book Co. v. Yeshiva University Development Foundation,
Inc., 59 Misc. 2d 31, 33, 297 N.Y.S.2d 156, 169 (Sup. Ct. 1969), for several criteria a landlord
may apply to a prospective tenant, including: (i) financial responsibility (probably the single
most recognized criterion); (ii) the 'identity' or 'business character' of the transferee, i.e., the
transferee's suitability for the particular building; (iii) the legality of contemplated transferee’s
proposed use of the premises; and (iv) the nature of the occupancy (i.e., office, factory, clinic). A
Florida court adopted these factors in Fernandez v. Vazquez, 397 So. 2d 1171 (Fla. Dist. Ct. App.
1981), along with the need for alteration of the premises. Friedman cites several additional
factors, including avoidance of subjecting existing tenants to competition, protection of the
landlord's "tenant mix", reduction in rental value or increased fire hazard. FRIEDMAN supra, at §
7.304c (1983). Factors that a landlord may not reasonably consider include race, doctrinal
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i. Creditworthiness.
ii.
iii.
iv.
Use.
Competition.
Business character of proposed transferee.
v. Status of Transferee as existing tenant in building or project.
vi.
vii.
viii.
Tenant mix in building.
Prospective tenant.
Ability to Define "Reasonableness" by Agreement.
ix. Notice. Hendrickson v. Freericks, 620 P.2d 205 (Alaska 1980)
(court described Restatement as only applicable where tenant asks
for consent first); Healthco, Inc. v. E & S Realty Assocs., 400
Mass. 700, 511 N.E.2d 579 (1987) (court refused to consider
reasonableness of landlord's refusal to consent where tenant failed
to seek consent first); Reston Recreation Ctr. Assocs. v. Reston
Prop. Investors Ltd. P’ship, 238 Va. 419, 384 S.E.2d 607 (1989);
see also RESTATEMENT (SECOND) OF PROPERTY § 15.2, comment g
(1977 & Supp. 2003).
5. Potential Remedies for Landlord Unreasonably Withholding Consent.
A Tenant might seek damages, an injunction, specific performance, or
termination of the lease, depending on the Tenant’s jurisdiction and the
applicable provisions of the lease. See 1 MILTON R. FRIEDMAN, FRIEDMAN
ON LEASES § 7.304c (4th ed. 1997 & Supp. 2002); E. Fed. Corp. v. State
Office Supply Co., 646 So.2d 737 (Fla. Dist. Ct. App. 1995) (holding that
injunction was proper remedy when Landlord was found to have a pattern
and practice of unreasonably withholding consent to prospective
subtenants); Gladliz, Inc. v Castiron Court Corp., 177 Misc.2d 392, 677
N.Y.S.2d 662 (1998) (holding that lease provision limiting Tenant’s
remedies to seeking either a declaratory judgment or specific performance
was enforceable); Manhattan Embassy Co. v. Burns, 185 Misc.2d 692,
713 N.Y.S.2d 799 (2000) (holding that Tenant was entitled to damages
resulting from Landlord unreasonably withholding consent when lease
predated statute limiting such remedies).
anathema, and personal objection to the proposed business where not otherwise excluded by the
lease.
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D. Transferees That Implicate Non-assignment Provisions.
1. Co-tenants.
2. Partnerships. Heflin v. Stiles, 663 S.W.2d 131 (Tex. Ct. App. 1983);
Borgen v. Wiglesworth, 190 Kan. 367, 375 P.2d 601 (1962); Miller v.
Pond, 214 Mich. 186, 183 N.W. 24 (1921), Annotation, 17 A.L.R. 179
(1921); Madison 52nd Corp. v. Luxenberg, 8 N.Y.2d 955, 168 N.E.2d 851,
204 N.Y.S.2d 185 (1960), noted in 7 N.Y.L.F. 118 (1961); Morris Glick v.
Grubman, 56 N.Y.S.2d 324 (Sup. Ct. 1945); 51C C.J.S. Landlord and
Tenant § 33(6) (1968 & Supp. 2002); Fidelity Trust Co. v. BVD Assocs.,
196 Conn. 270, 492 A.2d 180 (1985) (transfer of interest in limited
partnership not in violation of mortgage due on sale provision).
i. Transfer of partnership interest.
ii.
iii.
Entry of new partner(s) or exit of existing partner(s).
Deceased partner(s).
3. Corporations. See generally Alabama Vermiculite Corp. v. Patterson,
124 F. Supp. 441, 445 (W.D.S.C. 1954); Richardson v. La Rancherita La
Jolla, Inc., 98 Cal. App. 3d 73, 159 Cal. Rptr. 285 (1979); Ser-Bye Corp.
v. C. P. & G. Markets, Inc., 78 Cal. App. 2d 915, 179 P.2d 342 (1947);
Branmar Theatre Co. v. Pranmar, Inc., 264 A.2d 526 (Del. Ch. 1970);
Burrows Motor Co. v. Davis, 76 A.2d 163 (D.C. Mun. Ct. App. 1950);
Posner v. Air Brakes & Equip. Corp., 2 N.J. Super. 187, 62 A.2d 711
(1948); Rubinstein Bros. v. Ole of 34th St., Inc., 101 Misc. 2d 563, 421
N.Y.S.2d 534 (Civ. Ct. 1979); Comment, Amalgamation Transactions of
Corporate Lessees as Breaches of Nonassignment Covenants: Another
Plea for Substance Over Form, 69 YALE L.J. 1292 (1960); see attached
Case Update II (D)(3); In re Ames Dep’t Stores, Inc., 127 B.R. 744 (D.
N.Y. 1991); Kelly v. Alstores Realty Corp., 250 N.J. Super. 11, 593 A.2d
347 (Ct. App. 1991).
i. Transfer of Stock. In the opinion of some, a transfer of stock may
circumvent ordinary non-assignment clauses prohibiting the
transfer of the Tenant’s interest in the leasehold. The best way to
address this possibility, is to specifically make the unauthorized
transfer of the control of the stock of the Tenant an impermissible
assignment. 3 See 1 MILTON R. FRIEDMAN, FRIEDMAN ON LEASES §
3 Friedman notes that even a clause to this effect may not be completely effective, because like
other restraints on alienation, this provision will be construed strictly against the restriction.
Therefore, a clause applicable literally to any stock transfer may not bar the creation of enough
new stock, and its issuance to a third party, to change stock control with the same effect as if
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7.303cl (4th ed. 1997 & Supp. 2002); see also Hugh M. Boss,
Selected Real Estate Aspects of Corporate Acquisitions, 38 BUS.
LAW 147, 153 (1982); Rubinstein Bros. v. Ole of 34th St., Inc., 101
Misc. 2d 563, 421 N.Y.S.2d 534 (Civ. Ct. 1979) (finding that, if
Landlord had truly wanted to protect itself against change in the
control of Tenant’s stock, it could have written into the lease a
condition subsequent, but that such a condition could not be
implied); Richardson v. La Rancherita La Jolla, Inc., 98 Cal. App.
3d 73, 159 Cal. Rptr. 285 (1979) (refusing to violate the corporate
form by holding subsequent stock transfer violative of the nonassignment
clause).
ii.
iii.
Addition of new class(es) of stock.
Merger. There is little authority analyzing the effect of a nonassignment
clause on a merger or consolidation of a corporate
tenant. See 1 MILTON R. FRIEDMAN, FRIEDMAN ON LEASES §
7.303e2, 251 (4th ed. 1997 & Supp. 2002); see also, Annotation,
39 A.L.R. 4th 879 (1983 & Supp. 2002); Middendorf v. Fuqua
Indus., Inc., 623 F.2d 13 (6th Cir. 1980); Shakey’s Inc. v. Caple,
855 F. Supp. 1035 (E.D. Ark. 1994); Kelly v. Alstores Realty
Corp., 130 N.J. 313, 613 A.2d 1163 (1992).
(a)
Bare Non-assignment Clauses. Courts have held that bare
non-assignment clauses (a clause that does not reference
transfers by operation of law) are intended to reach only
voluntary acts of the tenant and that transfers by operation
of law are involuntary by nature. See ROBERT S.
SCHOSHINSKI, AMERICAN LAW OF LANDLORD AND TENANT
§ 8:16 n.1 (1980 & Supp. 2003); Dodier Realty &
Investment Co. v. St. Louis National Baseball Club, Inc.,
361 Mo. 981, 238 S.W.2d 321, 24 A.L.R. 2d 683 (1951)
(holding that non-assignment clause did not prohibit
transfers of the tenant’s interest by operation of law such as
by merger); see also United States v. Seattle-First National
Bank, 321 U.S. 583, 587-88 (1944) (ruling that one must
look only at the “immediate mechanism by which the
transfer is made effective,” which, if effecting an
“automatic transfer” would be “wholly by operation of
law”); Segal v. Greater Valley Terminal Corp., 83 N.J.
Super. 120, 199 A.2d 48 (Ct. App. 1964); Zwietusch v.
Luehring, 156 Wis. 96, 144 N.W. 257 (1914).
there has been a transfer of the original stock. See 1 MILTON R. FRIEDMAN, FRIEDMAN ON
LEASES § 7.303cl (4th ed. 1997 & Supp. 2002).
QBMKE\5419766.5 9

2236
(b)
Non-assignment Clause Prohibiting Transfers “By
Operation of Law.” Courts are split as to whether the
unauthorized merger of a Tenant violates a non-assignment
clause prohibiting transfers “by operation of law.”
(i)
(ii)
Merger is a Violation. It would seem to follow from
the reasoning in Dodier, supra, that, if a lease
explicitly forbids assignment by operation of law,
the Tenant’s unauthorized merger should constitute
a breach, and some courts have so held. See 1
MILTON R. FRIEDMAN, FRIEDMAN ON LEASES §
7.303e2 (4th ed. 1997 & Supp. 2002); Citizens Bank
& Trust Co. v. Barlow Corp., 295 Md. 472, 456
A.2d 1283 (1983) (holding that a lease containing a
prohibition of assignments “by operation of law”
was violated by tenant’s merger) 4 ; Pacific First
Bank v. New Morgan Park Corp., 122 Or. App.
401, 857 P.2d 895 (1993) (holding that Tenant’s
unauthorized merger was a violation of the nonassignment
clause in the lease prohibiting transfers
“by operation of law”) 5 ; see also Parks v. CAI
Wireless Sys., Inc., 85 F. Supp. 549 (D. Md. 2000).
Merger Not Necessarily a Violation. Other courts
have held that an unauthorized merger of a Tenant
did not violate a non-assignment provision
prohibiting assignments “by operation of law.” See
Standard Operations, Inc. v. Montague, 758 S.W.2d
442 (Mo. 1988) 6 ; see also TXO Prod. Co. v. Mark,
999 S.W.2d 137 (Tex. Ct. App. 1999).
4 The Barlow court reasoned that "assignment by operation of law" clauses are considered by
most to be "of the strict type." If the Tenant wanted a more liberal clause, it should have
bargained for it. The court stated that carving merger out of the "operation of law" language
would raise doubts as to whether the language had any meaning at all.
5 Pacific First Bank was affirmed by the Oregon Supreme Court in Pacific First Bank v. New
Morgan Park Corp., 319 Or. 342, 876 P.2d 761 (1994), on the grounds that the lease was explicit
in prohibiting any “transfer” of the Tenant’s interest without the Landlord’s consent. “Transfer”
was interpreted as including “all forms of passing of rights and obligations.” Id. at 248, 876 P.2d
at 764-65.
6 The Montague Court discussed its earlier decision in Dodier and correctly differentiated the
lease provisions in the two cases (the Dodier clause only prohibited voluntary assignments,
whereas the Montague clause attempted to prohibit both voluntary and involuntary assignments).
See Standard Operations, Inc. v. Montague, 758 S.W.2d 442, 433 (Mo. 1988). However, the
Court held that this distinction would not merit a finding that the non-assignment provision
forbade the merger, noting that forfeitures are viewed with disfavor and that instruments should
QBMKE\5419766.5 10

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iv.
Dissolution.
(a)
Not Considered Breach of Non-assignment Clause.
Most cases considering whether dissolution of a
corporation violates a non-assignment clause deal with bare
non-assignment clauses. The courts in these cases have
followed a Dodier-type of reasoning, construing the antiassignment
language narrowly, in favor of the Tenant.
These courts often cite state laws that allow a dissolved
corporation to reinstate itself within a certain number of
years and to retain assets for purposes of "winding up" its
affairs. The test for these courts then becomes whether the
lease was abandoned or treated as a valuable asset of the
corporation that the liquidating trustees retain for the
benefit of the shareholders. If the former is true, the lease
remains a primary obligation of the corporation, and,
therefore, no assignment is made. If the latter is true, the
lease passes to the shareholders, who succeed to the rights
and obligations of the corporation in the leasehold estate.
See Haddad v. Francis, 40 Conn. Supp. 567, 537 A.2d 174
(1986), aff’d 13 Conn. App. 324, 536 A.2d 597 (1988);
Middendorf v. Fuqua Indus., Inc., 623 F.2d 13, 17 (6th Cir.
1980); Rauch v. Circle Theatre Co., 176 Ind. App. 130, 374
N.E.2d 546 (1978); Hampton v. Hampton Beach
Improvement Co., 107 N.H. 89, 218 A.2d 442 (1966);
Shakey’s Inc. v. Caple, 855 F. Supp. 1035 (E.D. Ark.
1994); Kelly v. Alstores, 130 N.J. 313, 613 A.2d 1163
(1992); 21 Merchants Row Corp. v. Merchants Row, Inc.,
412 Mass. 204, 587 N.E.2d 788 (1992); Ernst Home Ctr.,
Inc. v. Sato, 910 P.2d 486 (Wash. Ct. App. 1996); Lamont’s
Apparel, Inc. v. Si-Lloyd Assocs., 157 Ore. App. 342, 967
P.2d 905 (1998); Carma Developers, Inc. v. Marathon Dev.
California, Inc., 2 Cal. 4th 342, 826 P.2d 710, 6 Cal. Rptr.
2d 467 (1992); Trinity Prof’l Plaza Assocs. v. Metrocrest
Hosp. Auth., 987 S.W.2d 621 (Tex. Ct. App. 1999); Julian
v. Christopher, 320 Md. 1, 575 A.2d 735 (1990); see also
Airport Plaza, Inc. v. Blanchard, 188 Cal. App. 3d 1594,
234 Cal. Rptr. 198 (1987).
be construed to "avoid the divestment or impairment of valuable rights unless the language is
compelling." Id. at 444. The Court reasoned that the "by operation of law" language in the lease
was intended to forbid only involuntary assignments, whereas the merger in Montague was both
voluntary and inappropriately described as an assignment. According to the Montague Court, a
Tenant who fears merger may obtain the desired protection by insisting on express "anti-merger
language." Id. at 444.
QBMKE\5419766.5 11

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(b)
(c)
Found to be a Breach of a Non-assignment Clause. At
least one case holds that mere dissolution breaches a "nonassignment
by operation of law" clause regardless of the
treatment of the lease on dissolution. See Messall v.
Merlands Club, Inc., 244 Md. 18, 222 A.2d 627 (1966)
(holding that forfeiture of corporate charter violated lease
provision prohibiting devolution of the lease by operation
of law).
Post Dissolution Defaults. Even if the dissolution does
not violate a non-assignment clause, the clause may be
violated by subsequent reincorporation or transfer of the
lease following dissolution. See 1 MILTON R. FRIEDMAN,
FRIEDMAN ON LEASES § 7.303c2 (4th ed. 1997 & Supp.
2002).
v. Liquidation.
4. Fiduciaries.
5. Retransfer to Original Tenant. 49 AM. JUR. 2d Landlord and Tenant
§ 1092 (1995 & Supp. 2002).
6. Application to Modern Entity Vehicles Such as LLCs & LLPs.
i. Uniform Acts:
(a) The draft Uniform Limited Liability Partnership Act (1996)
states that when a partnership converts to a limited liability
partnership (and vice versa), the converted entity is the
same entity that existed before the conversion for all
purposes. See Unif. Ltd. Liability P’ship Act draft § 904
(1996).
(b)
The Uniform Limited Liability Company Act also states
that a partnership or limited partnership that has been
converted into a limited liability company is for all
purposes the same entity that existed before the conversion.
All property owned by the converting entity vests in the
limited liability company. See Unif. Ltd. Liablity Co. Act §
903 (1996). The comment to section 903 states that a
conversion is not a conveyance or transfer and that title to
all property vests in the LLC as a matter of law without
reversion or impairment. See id. cmt.
ii.
Cases and Commentary. There have been very few cases or
articles dealing with the effect of a conversion of a partnership to a
LLC and a LLP. See generally Elizabeth S. Miller, The Advent of
QBMKE\5419766.5 12

2239
LLCs and LLPs in the Case Law: A Survey of Cases Dealing with
Registered Limited Liability Partnerships and Limited Liability
Companies, VPC0312 ALI-ABA 11 (2002). Some have opined
that it would be logical for consents not to be required since the
debts and liabilities of the converted entity remain the same. See
James E. Abbott and Raymond R. Ferrell, Mergers, Consolidations
and Conversions under the New York Limited Liability Company
Law, in Karon S. Walker, NEW YORK LIMITED LIABILITY
PARTNERSHIPS: A GUIDE TO LAW AND PRACTICE ch. 11 (New York
Practice Series 2002). Some courts have interpreted their state
equivalent of the U.L.L.C.A. conversion provision as mandating
that a conversion would transfer the pre-converted entity’s interests
to the converted entity by “operation of law.” See C&J Builders
and Remodelers, LLC v. Geisenheimer, 249 Conn. 415, 733 A.2d
193 (1999) (holding that a conversion of a sole proprietorship to a
limited liability company transferred all of its interest by operation
of law); see also Mandell v. Comm’r of Revenue Servs., 2001 WL
1375153 (unpublished opinion) (holding that the conversion of an
individual owner of commercial property to a single-member
limited liability company would not require a transfer fee); but see
Wolter v. Wis. Dep’t of Revenue, 231 Wis.2d 651, 605 N.W.2d 283
(1999) (holding that recording of notice of conversion of
partnership to LLC, as required under the statutes, was subject to
transfer tax).
E. Volitional Actions or Events that Implicate Assignment or Subletting Provisions.
1. Pledge.
2. Mortgage. See 49 AM. JUR. 2d Landlord and Tenant § 1095 (1995 &
Supp. 2002); Hasty Inc. v. Inwood Buckhorn Joint Venture, 908 S.W.2d
494 (Tex. Ct. App. 1995) (holding that non-assignment clause not
breached by Tenant assigning lease to lender as security and bank
releasing same after Landlord claimed default).
3. License.
4. Partial Transfer.
5. Appointment of a Receiver. 49 AM. JUR. 2d Landlord and Tenant § 1099
(1995 & Supp. 2002).
6. Consolidation.
F. Non-Volitional Actions Implicating Assignment or Subleasing Prohibitions. 49
AM. JUR. 2d Landlord and Tenant § 1096 (1995 & Supp. 2002).
QBMKE\5419766.5 13

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1. Assignment By Operation of Law. 1 MILTON R. FRIEDMAN, FRIEDMAN ON
LEASES § 7.303d (4th ed. 1997 & Supp. 2002).
2. Eminent Domain.
3. Execution Sale.
4. Bankruptcy.
5. Death. 49 AM. JUR. 2d Landlord and Tenant § 1102 (1995 & Supp. 2002).
III.
RIGHTS AND LIABILITIES BY OR AMONG PARTIES TO ASSIGNMENT OR SUBLEASE. See
ROBERT S. SCHOSHINSKI, AMERICAN LAW OF LANDLORD AND TENANT §§ 8:1-8:2 and
8:12 (1980 & Supp. 2003).
A. Rights of Parties on Assignment. See 49 AM. JUR. 2d Landlord and Tenant §
1112 (1995 & Supp. 2002).
1. Lessor v. Lessee.
i. Implied covenants; e.g., rent vs. express covenant may be released.
See 49 AM. JUR. 2d Landlord and Tenant § 1122-1124 (1995 &
Supp. 2002).
ii.
iii.
Extensions or renewals.
Contractual assumption.
(a)
(b)
Must assumption be expressed.
Lease provision that covenants and binds "heirs, executors,
successors and assigns" does not normally create
contractual liability. See 49 AM. JUR. 2d Landlord and
Tenant § 1135 (1995 & Supp. 2002).
2. Lessor v. Assignee.
3. Lessee v. Lessor.
4. Lessee v. Assignee.
5. Assignee v. Lessor.
6. Assignee v. Lessee.
i. Lack of covenants.
ii.
Misrepresentation.
QBMKE\5419766.5 14

2241
B. Liabilities of Parties on Assignment. See 49 AM. JUR. 2d Landlord and Tenant
§ 1112 (1995 & Supp. 2002).
1. Lessor v. Lessee.
2. Lessor v. Assignee.
3. Lessee v. Lessor ("surety status").
4. Lessee v. Assignee.
5. Assignee v. Lessor.
6. Assignee v. Lessee.
C. Sublease Rights. See 49 AM. JUR. 2d Landlord and Tenant §§ 1176-1186 (1995
& Supp. 2002).
1. Lessor v. Lessee.
2. Lessor v. Sublessee.
3. Lessee v. Lessor (including breach by sublessee).
4. Lessee v. Sublessee.
5. Sublessee v. Lessor.
6. Sublessee v. Lessee.
D. Sublease Liabilities. See 49 AM. JUR. 2d Landlord and Tenant §§ 1176-1186
(1995 & Supp. 2002).
1. Lessor v. Lessee.
2. Lessor v. Sublessee.
3. Lessee v. Lessor.
4. Lessee v. Sublessee.
5. Sublessee v. Lessor.
6. Sublessee v. Lessee.
E. Modification by Assumption. 1 MILTON R. FRIEDMAN, FRIEDMAN ON LEASES
§ 7.501c2 (4th ed. 1997 & Supp. 2002); First Am. Nat'l Bank v. Chicken Sys. of
Am., Inc., 616 S.W.2d 156 (Tenn. Ct. App. 1980).
QBMKE\5419766.5 15

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1. Modification by Agreement.
i. Generally.
ii.
Prospective.
2. Modification by Conduct.
3. Anti-merger.
F. Modification of Terms as Releasing Non-party to Modification. See 1 MILTON R.
FRIEDMAN, FRIEDMAN ON LEASES § 7.502 (4th ed. 1997 & Supp. 2002); Raskel v.
Hollander, 68 F.2d 265 (1st Cir. 1933) (renewal at increased rent); T.A.D. Jones
Co. v. Winchester Repeating Arms Co., 55 F.2d 944 (D. Conn. 1932), aff'd, 61
F.2d 774 (2d Cir. 1932), cert. denied Southeastern Inv. Co. v. Tobler, 288 U.S.
609 (1933).
IV. ENFORCEMENT OF ASSIGNMENT OR SUBLETTING PROVISIONS. See 1 MILTON R.
FRIEDMAN, FRIEDMAN ON LEASES § 7.304a et seq. (4th ed. 1997 & Supp. 2002).
A. Damages.
B. Specific Performance.
C. Termination.
D. Relationship of Mitigation Obligation.
E. English Rule. A qualification of the non-assignment clause stating that the
Landlord’s consent shall not “unreasonably” be withheld has been interpreted as
not being an obligation of the Landlord, the breach of which could lead to its
liability for damages.
V. ADDITIONAL CONSIDERATIONS FREQUENTLY RAISED BY LESSOR.
A. Waiver. See 49 AM. JUR. 2d Landlord and Tenant § 1104 (1995 & Supp.); In re
Duplan Corp., 473 F. Supp. 1089 (S.D.N.Y. 1979); Hendrickson v. Freericks, 620
P.2d 205 (Alaska 1980); Karbelnig v. Brothwell, 244 Cal. App. 2d 333, 53 Cal.
Rptr. 335 (1966); Blanchard v. Shrimp Boats of Louisiana, Inc., 305 So. 2d 748
(La. Ct. App. 1974); West 70th, Inc. v. Koch, 298 Minn. 121, 213 N.W.2d 332
(1973); Finkbeiner v. Lutz, 44 Ohio App. 2d 223, 337 N.E.2d 655 (1975); Smith v.
Hegg, 88 S.D. 29, 214 N.W.2d 789 (1974); Jensen v. O.K. Inv. Corp., 29 Utah 2d
231, 507 P.2d 713 (1973); Kem Cleaners, Inc. v. Shaker Pine, Inc., 217 A.D.2d
787, 629 N.Y.S.2d 492 (1995); Martinez v. Selenko, 625 So. 2d 524 (La. Ct. App.
1993); Western World, Inc. v. Fletcher, 603 So. 2d 597 (Fla. Dist. Ct. App. 1992);
Wandler v. Lewis, 1997 S.D. 98, 567 N.W.2d 377 (1997); Lynaum Funeral Home,
Inc. v. Hodge, 576 So. 2d 169 (Ala. 1991); 49 AM. JUR. 2d Landlord and Tenant
§§ 330, 332, 336 (1995 & Supp. 2002); 51C C.J.S. Landlord and Tenant § 117
QBMKE\5419766.5 16

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(1968 & Supp. 2002). Conflicting authority on landlord's right to accept rent and
rely on a provision in the lease disclaiming waiver. USA Petroleum Corp. v. Jopat
Bldg. Corp., 343 So. 2d 501 (Ala. 1977).
1. Receipt of Rents.
2. Subsequent Approvals (Dumpor's Case; (Assignment vs. Sublease,
Compare Restatement § 16.1)).
B. Increased Rental on Transfer. The propriety of a Landlord's attempt to "exact"
either a fee from the original Tenant or a higher rent from a subtenant (or
assignee) as a condition to consent to a sublease or assignment depends not only
upon the specific lease provisions, but also on whether a court imposes a standard
of commercial reasonableness on the Landlord. Courts generally treat conditional
consent as a denial of consent. The question then becomes whether the Landlord
had a duty to act in good faith in withholding consent. There are essentially three
types of contractual provisions that limit the Tenant's right to sublease or assign;
(i) absolute prohibition; e.g., "Tenant shall not assign or sublet (a "Type I"
restriction); (ii) a prohibition that the Tenant shall not assign or sublet without the
consent of Landlord "which consent shall not be unreasonably withheld" (a "Type
II" restriction); and (iii) tenant "shall not assign or sublet without the consent of
the Landlord" (a "Type III" restriction).
1. Type I Restriction: Absolute Prohibition. An absolute prohibition against
assignment and subletting authorizes a landlord to refuse permission for
any or no reason. See 1 MILTON R. FRIEDMAN, FRIEDMAN ON LEASES §
7.304a (4th ed. 1997 & Supp. 2002); Truschinger v. Pak, 513 So. 2d 1151
(La. 1987); Healthco, Inc. v. E & S Realty Assocs., 400 Mass. 700, 511
N.E.2d 579 (1987); Leonard, Street & Deinard v. Marquette Assoc., 353
N.W.2d 198 (Minn. Ct. App. 1984); F & L Ctr. Co. v. Cunningham Drug
Stores, Inc., 19 Ohio App. 3d 72, 482 N.E.2d 1296 (1984); Kendall v.
Ernest Pestana, Inc., 40 Cal. 3d 488, 496, 709 P.2d 837, 841, 220 Cal.
Rptr. 818, 822 (1985); 1 AMERICAN LAW OF PROPERTY § 3.58, at 302
(1952); 51C C.J.S. Landlord and Tenant § 423 (1970 & Supp 2002); 21
A.L.R. 4th 188 (1983 & Supp. 2002). It follows that a landlord could
grant conditional permission, provided the condition is not against public
policy. Renegotiating rent payments should therefore be permissible.
2. Type II Restrictions: Prohibition Unless Landlord Consents (which may
not be Unreasonably Withheld). With this type of clause, there is no
question that the Landlord must be reasonable in considering whether to
grant or deny consent to the proposed assignment or sublease. Many
courts have held that a Landlord’s conditioning consent on payment of a
fee or increased rent is unreasonable. See Ringwood Associates, Ltd. v.
Jack’s of Route 23, 153 N.J. Super. 294, 379 A.2d 508 (1977) (holding
that Landlord acted unreasonably in conditioning consent on an increase in
QBMKE\5419766.5 17

2244
rent) 7 ; Chanslor-Western Oil & Development Co. v. Metropolitan Sanitary
District, 131 Ill. App. 2d 527, 266 N.E.2d 405 (1970) (holding that the
district acted unreasonably in conditioning consent to sublease on
reappraisal of rent); 1010 Potomac Assoc. v. Grocery Manufacturers, 485
A.2d 199 (D.C. App. 1984) (holding that Landlord acted unreasonably in
withholding consent to a sublease of an option period solely to extract
additional rent) 8 ; Economy Rentals, Inc. v. Garcia, 112 N.M. 748, 819
P.2d 1306 (1991).
3. Type III Restrictions: Prohibition Without Landlord’s Consent. This type
of clause omits an express requirement that the Landlord be reasonable in
withholding its consent. When a lease contains this type of restriction and
a Landlord has asked for a fee or increased rental as a condition to its
consent to an assignment or sublease, the court must first decide whether it
will impose an implied covenant of good faith or reasonableness on the
Landlord. In general, courts from jurisdictions that cling to the majority
rule allowing refusal of consent do not prohibit the Landlord from
conditioning his consent to an assignment or sublease on an increased
rental. Courts from jurisdictions imposing the reasonableness standard,
however, generally hold that such conditional consent is forbidden.
i. Jurisdictions following the "majority" rule. In general, courts
in jurisdictions that have not adopted the implied covenant of
commercial reasonableness will allow the Landlord to condition its
consent on an increased rental or a fee. Courts following the
majority rule generally reason that if the parties wished to
incorporate a standard of reasonableness, they were free to do so
when the lease was drafted. These courts generally refuse to
"rewrite" the clear and unambiguous language of a lease
agreement. See Illinois Central Gulf Railroad Co. v. International
Harvester Co., 368 So. 2d 1009 (La. 1979) (holding that Landlord
could withhold consent for purely economic reasons); B & R Oil
Co. v. Ray’s Mobile Homes, Inc., 422 A.2d 1267 (Vt. 1980).
ii.
Jurisdictions following the "minority " rule. In these
jurisdictions, the court adopted the "minority" position, imposing
7 The court noted that the Landlord failed to provide an adequate reason for denial of the
assignment, particularly since the original Tenant had unequivocally guaranteed performance of
all tenant covenants under the lease, the Landlord did not question the solvency of the proposed
Tenant, no alterations to the premises were necessary in order to convert the same for the
proposed use, and the Landlord did not object to the nature of the proposed Tenant’s use.
8 The Potomac court reasoned that the purpose of a consent provision in any assignment/sublease
clause is to protect the landlord’s ownership and operation of the particular property, not to
protect the landlord’s general economic condition. Relying on the “rule” that the legal remedy of
damages is presumed to be inadequate in disputes involving real property, the court granted the
lessee specific performance.
QBMKE\5419766.5 18

2245
C. Concurrent Liability.
1. Assignment.
2. Sublease.
D. Bankruptcy of Lessee or Transferee.
an implied requirement of commercial reasonableness on the
landlord. Uniformly, the courts held that the landlord's request for
an increased rental as a condition for consent to an assignment or
sublease was unreasonable. See Campbell v. Westdahl, 148 Ariz.
432, 715 P.2d 288 (Ct. App. 1985) (holding that Landlord’s refusal
to consent to the assignment because the Landlord was displeased
with the low rent under the current lease was unreasonable);
Kendall v. Ernest Pestana, Inc., 40 Cal. 3d 488, 709 P.2d 837, 22
Cal. Rptr. 818 (1985) (holding that a non-assignment clause’s
purpose is to protect the property and to insure that the Landlord is
in as good a position with the new Tenant as Landlord was with
the original Tenant); Warner v. Konover, 210 Conn. 150, 553 A.2d
1138, 1141 (1989) (finding that, although the Landlord had
“substantial discretion” with regard to accepting offered assignees,
the Landlord’s came under doubt when the acceptance of an
“impeccable assignee” was conditioned upon an increase in rent);
Fernandez v. Vazquez, 397 So. 2d 171 (Fla. Dist. Ct. App. 1981);
Funk v. Funk, 102 Idaho 521, 633 P.2d 586 (1981); Economy
Rentals, Inc. v. Garcia, 112 N.M. 748, 819 P.2d 1306 (1991).
E. Transfer by Sublessee/Assignee (Covenant Runs With Leasehold; i.e., Tenants
and Assigns or Transferees).
F. Expenses to Consider Assignment.
G. Statute of Frauds.
H. Effect on Aggregated Excluded Transactions.
I. Notice. Subtenant's assumption, required by the prime lease, establishing privity
between landlord and subtenant. Cordonier v. Central Shopping Plaza Assocs., 82
Cal. App. 3d 991, 147 Cal. Rptr. 558 (1978).
J. Prior Consent.
K. Assumption of Liability by Assignee or Sublessee.
L. Use.
M. Net Worth or Financial Capacity of Assignee or Sublessee.
QBMKE\5419766.5 19

2246
N. Reputation of Assignee or Sublessee.
O. Percentage Rent Expectancy.
P. Not in Conflict with Other Agreements of Lessor.
Q. Partial Interest.
R. Effect of Violation or Agreement in Violation.
1. Lessee.
2. Sublessee/Others.
S. Effect of Acceptance of Rents.
T. Assignee (Sublessee) Automatically Assumes All Obligations in Lease ("Running
With Land" or Otherwise).
U. Limit Damage Claim.
V. Right to Terminate vs. Consent.
W. Calculations of Profits ("Net Gain or Loss").
1. Fees and Expenses of Tenant or Landlord.
2. Computation of Time Value of Rent Differentiation.
X. Scope of "Prohibited" Transactions.
Y. Release, If Any, Limited to Matters Subsequent to Assignment.
Z. Sublessee Attornment at Lessor's Option.
AA.
BB.
CC.
DD.
EE.
Prohibition on Offer or Advertise Availability.
Sublessee or Assignee Not Approved Until Delivery of Acceptable Transfer
Documents.
Sublessee's or Transferee's Agreement That Sublease/Assignment Limitations
Apply to Subsequent Transfer.
No Sublease or Assignment Which Conflicts With Other Agreements of Lessor.
Limitation on Sublease or Assignment to Other Tenants in Project.
QBMKE\5419766.5 20

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VI.
ADDITIONAL CONSIDERATIONS FREQUENTLY RAISED BY LESSEE.
A. Time of Approval.
B. Data Required for Approval.
C. Rejections and Reasons for Rejections.
D. Agreement to Sublease or Assign No Violation.
E. Reasonableness Defined.
F. Relationship with Other Lease Provisions.
1. Use.
2. Waiver.
3. Alteration.
4. Percentage Rent.
5. Continuous Operating Covenant.
i. Corporation.
ii.
iii.
Partnership.
Other.
6. Default (Need For Forfeiture Provision).
G. Damages.
H. Excluded Events.
1. Related Entity.
2. Sale of Business.
3. Merger.
4. Portion of Premises.
5. Mortgage.
I. Notice of Default.
J. Right to Cure.
QBMKE\5419766.5 21

2248
1. Curable Events.
2. Non-Curable Events.
K. Right to Terminate (Withdrawal on Landlord's Termination).
L. Obligation to Mitigate.
M. Release Mechanism.
N. Holdover of Subtenant (or Assignee).
O. Estoppel Certificate.
P. Obligation for Term Beyond Initial Term.
Q. Subsequent Assignment Prohibited (or Release of Lessee).
R. Delivery of Transfer and Subletting Documents to Lessor (Drafts or Terms Only).
VII.
ADDITIONAL CONSIDERATIONS FREQUENTLY RAISED BY ASSIGNOR/TRANSFEREE AND
TRANSFER DOCUMENTS.
A. Assumption of Liability (Versus "Subject to") (See I(B)(4) Above).
B. Default by Lessee.
1. Right to Cure.
2. Bankruptcy.
C. Non-disturbance Agreement.
D. Accrual of Obligation "From and After."
E. Acceptance or Consent by Lessor (Caveat - Covenants Running With Land).
F. Warranty of Title.
G. Estoppel Certificate.
VIII.
ADDITIONAL CONSIDERATIONS FREQUENTLY RAISED BY SUBLESSOR/SUBLESSEE
TRANSFER DOCUMENT.
A. Cure Provisions.
B. Bankruptcy of Sublessor/Sublessee.
C. Accrued Obligations.
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D. Consent of Lessor.
E. Notice of default.
F. Effect of Lessee Default (on either non-leased premises or sublease premises).
G. Warranty of Title.
H. Surrender by Lessee.
I. Non-Disturbance Agreement.
J. Sublease Subordinate to Lease.
K. Renovations.
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