Can I Assign My Commercial Lease? (Part 1- When Can The Landlord Refuse To Consent?)
Businesses’ needs are constantly evolving. As a company’s size grows or shrinks through the natural business cycle, changes in the business model, mergers, spinoffs, retirements, and other factors, the company’s need for leased space also changes. Changes are not always predictable far in advance. As a result, your business might sign a long-term lease for space, projecting your future needs as best as you can today. But what happens when it no longer makes sense for you to occupy the leased space, and the commercial lease is far from expiring?
While it is typical for commercial leases to restrict or prohibit the tenant’s assignment of rights under the lease, individual lease provisions on this topic vary greatly, and the language restricting the assignment will be critical to determine the parties’ rights. The starting point in analyzing the question of lease assignability is the principle of the free market. Generally speaking, the interests of the landlord and of the tenant in the leased property are generally freely transferable, unless: (1) a tenancy at will is involved; (2) the lease requires significant personal services from either party and a transfer of the party’s interest would substantially impair the other party’s chances of obtaining those services; or (3) the parties to the lease “validly agree otherwise.”
Most commercial leases give the landlord the right to withhold consent to the tenant’s assignment of the lease. Typically, such provisions state that the landlord’s consent shall not be “unreasonably withheld.” This places on the landlord a duty to consent to the assignment unless there is a commercially reasonable basis to object. Such reasons could include, for example: poor credit of the proposed assignee; the assignee having a type of business which might make the property less desirable; zoning violations; or business activities which subject the landlord to liability. Washington differs from most other jurisdictions in one important respect: where the anti-assignment provision in a lease does not require a particular standard of the landlord in granting or withholding consent to the assignment, the landlord’s discretion is generally absolute and need not be commercially reasonable. A majority of other jurisdictions require the landlord to have a commercially reasonable justification for withholding consent unless the contract specifically provides otherwise.
Whether you are a commercial tenant looking to assign your lease, or you are a landlord being asked to consent to an assignment, the lawyers at Beresford Booth can help. We have extensive experience advising clients on real estate matters.
To learn more about commercial lease assignments, please contact Beresford Booth at email@example.com or by phone at (425) 776-4100.