Get Right to Withhold Consent to Assignment/Sublet that Violates Other Leases, Documents

Your shopping center lease probably requires a tenant to get your consent, which you can't unreasonably withhold, to all proposed assignments and sublets. But suppose the tenant's proposed assignment or sublet would violate restrictions in other tenants' leases or the center's governing documents.

For example, an operating cotenancy clause in the leases of several tenants at the center permits the tenant to go dark if fewer than two department stores are open and operating at the center for a certain period of time. But one of two remaining department stores proposes to assign its lease to a store that's not a department store. You'll want to withhold your consent to that assignment or sublet. Otherwise, you could face potential lawsuits or severe tenant remedies.

But if your lease is like many we've seen, it may have this loophole: It doesn't say whether or not you can withhold your consent if the proposed assignment or sublet would violate restrictions in other leases or the center's governing documents. If you try to withhold your consent for that reason, a tenant might take you to court, claiming that your decision is unreasonable because the lease doesn't authorize you to withhold your consent for that reason. Whether you or the tenant would win that dispute is anybody's guess.

How to Plug Loophole

To plug this loophole and avoid that type of dispute, add language to the lease that gives you the right to withhold your consent to an assignment or sublet that may cause you to violate restrictions in other tenants' leases or your center's governing documents, say Denver attorneys Bonnie Larson-de Paz and Neil B. Oberfeld. Specifically, you'll want to withhold your consent to an assignment or a sublet that would violate any of the following:

Cotenancy restrictions. Withhold consent if the proposed assignee or subtenant doesn't qualify as a replacement tenant under another tenant's cotenancy clause, says Oberfeld. For instance, if the assignee is a sporting goods company, but another tenant's cotenancy clause says that the replacement tenant must be a similarly sized discount store, you can withhold consent because the proposed assignee doesn't qualify as a replacement tenant, he explains.

Exclusive use restrictions. Withhold consent if the proposed assignee or subtenant wants to use the space in a way that would violate another tenant's current or future exclusive, says Larson-de Paz. For instance, if a bakery tenant has an exclusive on selling doughnuts, you can withhold consent if another tenant's proposed assignee or subtenant is a doughnut shop.

Practical Pointer: Expect a savvy tenant to fight you on denying consent if you fear violating a future exclusive, because you could use that as a weapon to deny all assignments and consents, notes Larson-de Paz.

Prohibited use restrictions. Withhold consent if the proposed assignee or subtenant intends to use the space in a way that's prohibited under any anchor tenant leases and documents, other leases, laws, covenants, or restrictions that apply to the center, says Larson-de Paz. For example, if a proposed assignee is a nightclub, but the center's governing documents prohibit nightclubs at your center, you have the right to withhold consent to the assignment, says Larson-de Paz.

Add Lease Language

Add the following to your lease's assignment/subletting clause where it lists the situations in which it's reasonable for you to withhold your consent to an assignment or sublet, advise Larson-de Paz and Oberfeld: CLLI0109

Model Lease Language

It shall be reasonable for Landlord to withhold its consent to any assignment, sublease, or other transfer where:

(x) The proposed assignee, subtenant, or transferee does not qualify as a replacement tenant under any cotenancy of other similar provision in any other lease or agreement affecting Landlord or the Shopping Center;

(y) The proposed use of the proposed assignee, subtenant, or transferee conflicts with an exclusive use granted now or in the future to any tenant or owner of the Shopping Center; or

(z) The proposed use of the proposed assignee, subtenant, or transferee is prohibited under any laws, declarations, leases, covenants, restrictions, or other agreements then affecting the Shopping Center or would cause Landlord to violate or be in default of any of the foregoing agreements.

Practical Pointer: After you've listed in the assignment/subletting clause the situations in which it's reasonable for you to withhold your consent, make sure you add that the list isn't exhaustive and that you're authorized to withhold your consent to an assignment or sublet on any other reasonable grounds, advises Oberfeld.

CLLI Sources

Bonnie Larson-de Paz, Esq.: Shareholder, Isaacson Rosenbaum, PC, 633 17th St., Ste. 2200, Denver, CO 80202; (303) 292-5656; blarson@ir-law.com.

Neil B. Oberfeld, Esq.: Shareholder, Isaacson Rosenbaum, PC, 633 17th St., Ste. 2200, Denver, CO 80202; (303) 292-5656; noberfeld@ir-law.com.