Newman v. Hinky Dinky Omaha-Lincoln, Inc.

Brief Fact Summary.

The lease between Plaintiff and Defendant prohibited Defendant from assigning or subletting the lease without Plaintiffs consent. Defendant assigned and sublet the lease notwithstanding Plaintiff’s refusal of consent. Plaintiff filed a petition for restitution of the property. The trial court granted summary judgment for Plaintiff because it reasoned that a landlord could refuse consent for any reason. Defendant appealed, arguing that even though Plaintiff’s consent was required, Plaintiff was not entitled to withhold consent unreasonably.

Synopsis of Rule of Law.

If a commercial lease allows assignment or sublease only upon the landlord’s consent, a landlord may not arbitrarily withhold consent unless the lease expressly permits.

Facts.

Newman (Plaintiff) leased property to American Community Stores Corporation (ACS). The property was used to operate a Hinky Dinky Omaha-Lincoln (Defendant) supermarket. The lease prohibited ACS from assigning or subletting the lease without Plaintiff’s consent. ACS sought to assign the lease to a third party who would then sublease it back to Defendant. ACS entered negotiations with Plaintiff to obtain his approval, but those negotiations were unsuccessful. Nevertheless, ACS proceeded with the assignment and sublease. Plaintiff then filed a petition for restitution of the property. The trial court granted summary judgment for Plaintiff because it reasoned that a landlord could refuse consent for any reason. Defendant appealed, arguing that even though Plaintiff’s consent was required, Plaintiff was not entitled to withhold consent unreasonably.

Issue.

Whether a landlord may arbitrarily withhold consent if a commercial lease allows assignment or sublease only upon the landlord’s consent.

Held.

Whether a landlord may arbitrarily withhold consent if a commercial lease allows assignment or sublease only upon the landlord’s consent.

Discussion.

If the parties have agreed that assignment or sublease can only occur with the landlord’s consent, the landlord must act in good faith and have a commercially reasonable justification for withholding that consent. Factors in considering the reasonableness of the refusal include: the prospective sublessee’s or assignee’s financial strength and suitability for the property; the legality of the proposed use; and the nature of the occupancy. These factors are non-exhaustive and are weighed equally. Here, the lease between Plaintiff and ACS permitted sublease or assignment only with the landlord’s consent, but the lease did not say that consent could be withheld without reasonable justification. The trial court applied the incorrect legal standard and therefore summary judgment was improper.