40 Cal. 3d 488, 709 P.2d 837
In 1970, the Perlitches entered into a 25-year sublease with Robert Bixler for 14,400 square feet of hangar space at the San Jose Municipal Airport to conduct an airplane maintenance business.1 The sublease covered an original five-year term plus four five-year options to renew.2 The rental rate was to be increased every ten years in the same proportion as rents increased on the master lease from the City of San Jose.3
The premises were to be used by Bixler for the purpose of conducting an airplane maintenance business.4 The lease provided that written consent of the lessor was required before the lessee could assign his interest, and that failure to obtain such consent rendered the lease voidable at the option of the lessor.5
Subsequently, the Perlitches assigned their interest to Ernest Pestana, Inc.6
In 1981, Bixler agreed to sell the business, equipment, inventory, improvements, and the existing lease to Jack Kendall, Grady O'Hara, and Vicki O'Hara.7 The proposed assignees had a stronger financial statement and greater net worth than Bixler and were willing to be bound by the lease terms.8
Bixler requested consent from Ernest Pestana, Inc., but the lessor refused, claiming an absolute right to withhold consent arbitrarily and demanding increased rent and other more onerous terms as a condition of consent.9 The proposed assignees filed suit for declaratory and injunctive relief and damages, alleging that the refusal was unreasonable.10 The trial court sustained the demurrer without leave to amend.11 The Court of Appeal affirmed.12
Whether, in the absence of a provision that such consent will not be unreasonably withheld, a lessor may unreasonably and arbitrarily withhold consent to an assignment of a commercial lease?13
Where a commercial lease provides for assignment only with the prior consent of the lessor, such consent may be withheld only where the lessor has a commercially reasonable objection to the assignee or the proposed use.14
No. The complaint alleges that the proposed assignees met all reasonable commercial standards for a tenant and that the lessor's only reason for refusing consent was to extract an economic windfall in the form of increased rent.15 Denying consent solely to obtain higher rent is not commercially reasonable because it does not relate to the protection of the lessor's interest in the preservation of the property or the performance of the lease covenants.16 The facts establish that the proposed assignees had a stronger financial statement and greater net worth than the current lessee and were willing to assume all obligations of the lease.17
The lessor may not unreasonably and arbitrarily withhold consent to an assignment of a commercial lease in the absence of a provision allowing such arbitrary withholding.18
Related opinions on this issue
Joined by Mosk, J.
Justice Lucas dissents on the ground that the majority misapplied principles of contract interpretation by rewriting the lease provision.19 The lease clearly provides that it may not be assigned without the prior written consent of the lessor.20 There is no language in the lease which imposes a reasonableness requirement on the lessor's decision to withhold consent.21
The majority's imposition of an implied covenant of reasonableness is contrary to the express terms of the contract.22 Parties to a lease should be free to contract as they see fit, and the courts should enforce the contract as written.23 The common law rule, which allows a landlord to arbitrarily withhold consent to an assignment, is still the majority rule in this country.24
California should not depart from this well-established rule without legislative action.25 He would affirm the judgment of the Court of Appeal.26