Daily Development for Wednesday, September 4, 2002

By: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu

LANDLORD/TENANT; ASSIGNMENTS AND SUBLETS; CONSENT CLAUSE; REASONABLENESS OF CONSENT: Where lease requires that tenant, upon sublet, must share any renting profits with landlord, landlord's refusal to consent on basis that sublet is not at market rents in a rising market is "unreasonable."

National Union Fire Ins. Co. v. Rose, 760 N.E.2d 791 (Mass. App. Ct. 2002).

Lessor entered into an eleven-year lease of office space in downtown Boston (the "Prime-Lease"), with National. The lease contained a provision which required Lessor's consent to any sublease, but which also provided that such consent could not be unreasonably withheld. The lease also contained a provision requiring the tenant, upon any approved sublet, to pay the Lessor a percentage of the rent received from the subtenant that exceeded the amount of the original rent paid by tenant (allowing for certain costs associated with facilitating the subtenancy).

National decided to sublease to one of its major customers for the same per square foot rental as the original lease. In the time between the original lease and the proposed sublease, market rents had increased.

Lessor withheld consent to the sublease stating that the tenant had an obligation to sublease only at market rents, and if National did not do so, it would be denying Lessor its percentage of excess rent as per the Prime-Lease.

National filed a complaint charging that Lessor 1) unreasonably withheld consent, 2) interfered with the advantageous relationship between National and the proposed sublesee, and violated Mass. G.L. c. 93A (the Mass. consumer protection statute).

Lessor counterclaimed for breach of lease, breach of covenant of good faith and fair dealing, and violation of Mass. G.L. c. 93A. The trial court found for tenant National on all counts and the lessor appealed only on the contract claim. (There was no request for attorney's fees under the consumer claim.) The appeals court found that clear language of profit sharing in a sublease provision does not obligate a tenant to sublease at market rents in a rising market and that Lessor's withholding of consent on that basis was unreasonable.

Comment: To the editor, this was a "no brainer." Of course the tenant's position was correct. The parties were not in a partnership with respect to the sublet opportunities, the issue was only one of whether the tenant was the only party that could profit by subleasing into a rising market at a rent higher than the one it was paying. It didn't do that, and the landlord could not withhold consent on the basis that it had an unexpressed obligation to do so.

What led the landlord to waste so much time and money litigating this issue is the wild language of many "good faith and fair dealing" opinions that unjustifiably lead parties to believe that any time they fail to provide for contractual protection, they can run to the courts for protection from a bad deal.

As the editor has frequently commented, courts in real estate cases, and other commercial transaction cases, need to be attentive to the impact that the language in their decisions will have upon future transactions.

They need to follow the time honored (but lately ignored) tradition of narrowly tailoring their opinions to the questions raised, and not engage in polemics about the importance of goodness and justice in all things.

Perhaps even more to the point, they need to read carefully the opinion language that their clerks prepare, lest the Pollyannish thinking of foggy headed law professors like the editor seep into the precedent through the innocent pens of those young graduates.

Of course, this may be the wrong case to raise these issues, since the court got the issue right, and was very succinct in its holding. The editor is simply musing about how this waste of legal fees and judicial time came about. Nevertheless, it seems clear that the lessor believed enough in the "good faith and fair dealing" argument to spend money on this appeal. Somebody got something very wrong.

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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