How to Address Unreasonable Withholding of Consent

These days I mostly get my inspiration from contracts and from caselaw, but books by others can also be a source of useful ideas.

Seeing as I’m in Australia, I just purchased on Kindle the third edition of Modern Legal Drafting: A Guide to Using Clearer Language, by Peter Butt, emeritus professor at the University of Sydney and the doyen of Australian commentators on legal drafting. (I’ve had the pleasure of meeting Peter.)

I’ve only just got to the good bits, but already the following caught my eye:

Traditional drafting often uses subsidiary or participle phrases to qualify obligations. This can lead to complex sentence structures. By modernising the style, the drafter may impose unintended obligations. For example, a lease may provide: ‘The tenant shall not assign the lease without the landlord’s consent, such consent not to be unreasonably withheld.’ By long-established case law, the italicized words do not constitute a covenant by the landlord not to withhold consent unreasonably; rather, they simply qualify the tenant’s right to assign. And so the landlord’s action in unreasonably withholding consent does not render the landlord liable in damages; rather, it merely absolves the tenant from the obligation to obtain consent. Now, a modern drafter, zealous to free legal language from the shackles of the past, may draft thus: ‘The tenant must not assign the lease without the landlord’s consent, and the landlord must not withhold consent unreasonably.’ But this changes both the style and substance, for it imposes a positive obligation on the landlord not to withhold consent unreasonably. In this way, it subjects the landlord to liability that was absent in the traditional wording.

An initial question I had was whether U.S. caselaw is comparable to Australian caselaw. Perhaps not, as here’s what 54 A.L.R.3d 679 has to say:

A threshhold [sic] problem presented by cases construing such a provision is whether the provision constitutes a covenant by the landlord, or is merely a qualification of the tenant’s covenant not to assign or sublet without the consent of the landlord. While there is some authority to the contrary, most courts have concluded that the provision amounts to a covenant by the landlord.

But from the perspective of the activist drafter, the caselaw is irrelevant—what matters is what you say in the contract. Do you prohibit the landlord from unreasonably withholding consent, or do you allow the tenant to assign if the landlord unreasonably withholds consent? Here are your choices for addressing unreasonable withholding of consent:

As Language of Prohibition:
  • The Tenant shall not assign this lease without the Landlord’s consent, which the Landlord shall not unreasonably withhold.
As a Carveout from Language of Prohibition:
  • The Tenant shall not assign this lease without the Landlord’s consent, unless the Landlord unreasonably withholds consent.
As Language of Discretion:
  • The Tenant shall not assign this lease without the Landlord’s consent, except that the Tenant may assign this lease if the Landlord unreasonably withholds consent.

As regards choosing between option two and option three, I’m leaning towards option three: it would perhaps not be immediately clear to readers than an exception to language of prohibition is language of discretion, so it might be best to make that explicit, as in option three.

As regards choosing between option one (on the one hand) and option two or three (on the other hand), from the tenant’s perspective I’d have thought option two or option three would be preferable. If withholding consent would be unreasonable but the landlord doesn’t want to consent, option two or option three would allow the tenant to assign the lease without having to bring an action to compel the recalcitrant landlord.

But from a practical perspective, I’m unfamiliar with the practical considerations involved in assigning a lease if the landlord doesn’t consent. I’m not a real-estate guy, so I’d appreciate your thoughts. (Of course, this issue arises in all sorts of contracts, not just leases.)

On a different topic (and at the risk of muddying the waters), referring to assignment of a lease is inconsistent with the way I and some others address separately transfer of rights and transfer of obligations. If in prohibiting assignment you refer simply to the contract, that might be understood as prohibiting just delegation of duties. That’s something I discuss in this November 2012 post and an earlier post I link to in that post.

 

Posted in Categories of Contract Language, Selected Provisions | 6 Comments

  • Jery Payne

    To my thinking, the problem with both the original sentences is that neither clearly expresses what happens when the landlord unreasonably withholds consent. From my experience, that’s at the root of most drafting problems.

  • http://www.lawnotes.com D. C. Toedt

    Ric Gruder, the language you quote is an illusory, sleeves-from-my-vest concession by the landlord: By the time a judgment has been entered and is no longer subject to further appeal, the prospective assignee will have long since walked away in search of other opportunities. The tenant might as well accept that with this language, as a practical matter the landlord has sole and unfettered discretion to grant or withhold consent.

    • Eddie Walker

      Maybe, maybe not. I can certainly see why litigating a “reasonability” issue is an uphill climb for an aggrieved consent-seeker, and I usually advise my clients that the value of reasonability isn’t that great (even though it appeals fundamentally to most clients’ sensibilities, which is always nice). On the other hand, it adds just enough ambiguity into a consent process that it makes a consent-giver think twice about flat, potentially arbitrary refusals to consent because of the possibility that some claim or litigation (and the consequent expenditure of time and money in defense) might ensue if the consent-seeker is feeling wronged. Maybe what DC is saying is right in a landlord/tenant context in hot real estate markets, but “not to be unreasonably withheld[, conditioned or delayed]” is widely used in many other contexts as well.

  • AWrightBurkeMPhil

    I agree with D.C. Toedt that “shall not be unreasonably withheld” is small comfort to the assigning tenant and her assignee.

    But years ago I represented an assignee of a very long lease on realty where the assignor failed to get the required consent from the lessor, and the lessor tried to take back the property for breach of lease (eviction action).

    The court held for the assignee because the lessor had shown no basis for refusing consent (had it been sought), and equity regards as done what ought to be done.

    I counted myself lucky.

    Here’s my pass at concise language that can be tweaked to make it

    “Any purported assignment of this lease by Tenant, without Landlord’s advance written consent, will be void and will constitute a breach of this lease.

    “The Landlord shall not unreasonably refuse such consent and if the Landlord unreasonably refuses, [the refusal will be deemed a consent] [the refusal will constitute a breach of this lease].”

    I note the Australian use of “must” where MSCD counsels the disciplined use of “shall.” Sad that Ken must go down under personally to set things straight. Nice, though, that he brought rain with him, at least to Melbourne.

    “Send ‘er down Huey, send ‘er down…
    “Don’t send it down to Brisbane, send it here….”

    • http://www.adamsdrafting.com/ Ken Adams

      Regarding your “The Landlord shall not” language, you’re using language of obligation even though in one scenario the logic of language of obligation doesn’t apply.

      And yes, in Australia I kicked some “must” ass and took names. Ahem. Perhaps not.

      • AWrightBurkeMPhil

        Good point. The first clause should be axed and the consequences of unreasonable refusal left to later choice of wording, like this: “If the Landlord unreasonably refuses such consent, [the refusal will be deemed a consent] [the refusal will constitute a breach of this lease].”