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.

 

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.