Leasing contracts, for the most part, are drafted in a way that should be reasonable to the parties. Therefore, does a landlord have the right to deny a tenant to sublease or assign its rights within a lease?
Depending upon the tenant’s needs, the parties must determine whether a sublease is sufficient or if an assignment is necessary.
Assignment Of Rights Within A Lease
In an assignment, the tenant transfers all its rights, liabilities, and requirements within the lease. The former tenant is no longer liable for the payment of rent or other requirements under the lease. The payment of rent is now the obligation of the assignee to pay the rent directly to the landlord.
An assignment is usually recommended if the new tenant is financially stronger than the former tenant or in the sale of a business that needs the protection of a direct relationship with the landlord.
How A Subleasing Agreement Differs
In a sublease, the new tenant can occupy the space, but the former tenant is still responsible for the requirements dictated in the lease. Therefore, the new tenant pays his/her rent to the former tenant, and the former tenant pays the landlord. It is advisable to have the subtenant modify a sublease where he/she pays the rent directly to the landlord for the protection of the subtenant.
The former tenant is primarily responsible and liable for the acts of the subtenant during the lease.
Obtaining Landlord Consent
Getting the landlord’s permission is the first and most crucial step in setting up a sublease or assignment agreement. The agreement requires the landlord’s approval, which must be expressed in writing. The tenant puts themselves and their subtenant or assignee in peril if they do not obtain the landlord’s permission. In the event of a sublease, the landlord would have the option of evicting the tenant, if there is a breach of the lease, and in the event of an assignment, the assignee can be evicted for breaching the terms of the revised lease agreement.
Unless otherwise stated, when the lease prohibits tenants from subletting or assigning without their landlord’s consent, the landlord may attempt to refuse to permit a sublease or assignment according to their discretion. However, many agreements and jurisdictions now provide that the landlord cannot unjustly refuse consent for a sublease or assignment. Meaning if the tenant can find someone believed to be a good tenant, with no proof saying otherwise, the landlord should accept that person as a subtenant.
Landlord Consent To Sublease Or Assignment Of Rights Being Withheld From Tenant
In California, within the Business and Professions Code, Section 1995.260, the landlord cannot unreasonably withhold the consent of the tenant to assign or sublease the property.
Reasons For Withholding Consent Of A Sublease
- Nuisance to neighbors or adjacent tenants. The most common annoyances are odors, heavy use of parking, loading, and loud noises.
- Non-conforming uses of the zoning ordinances.
- If the new tenant may use corrosive or hazardous materials.
- If the existing tenant is in default under the lease provisions.
- Financial responsibility is not as strong as the former tenant. This issue should not be the reason for refusing a sublease. This financial condition could be mitigated by the new tenant placing a larger security deposit or a letter of credit from a bank.
- In rare cases, if the property is secured by a loan, the lender may have rights within its mortgage, that may prevent a sublease if the space represents a large portion of the property.
Reasons For Withholding Consent Of An Assignment
As mentioned previously, an assignment is a complete transfer of a lease to a third party. In the following circumstances, a landlord may withhold consent for an assignment for a few of the following reasons:
- The financial strength of the assignee. The new tenant substituted is less financially stable than the current tenant.
- In a multi-tenant center, there may be non-compete provisions contained within the lease if the assignee is competitive “directly” to an existing tenant within the property.
- If the master lease on the property has a provision for the sharing of the profit from the assignment, then the assignee must conform to the overage income to the owner or be denied consent.
Contact Segal Commercial For Your Real Estate Concerns
An owner of a property must be very careful in attempting to deny the rights of its tenants to sublease or assign their lease. The code provisions mentioned protect the parties from the landlord being unreasonable. Contact Lee Segal today if you are looking for an expert witness for your sublet or assignment dispute or need a consult in other real estate matters.