Kendall v. Ernest Pestana, Inc.

40 Cal. 3d 488, 220 Cal. Rptr. 818, 709 P.2d 837 (1985)

 

RULE:

Even if a contract states that assignments can be given only by consent, the consent can only be withheld if there is a commercially reasonable objection to the assignee or the proposed use.

FACTS:

Lessor, city of San Jose leased its property to Irving and Janice Perlitch, who in turn assigned their interest to respondent Ernest Pestana, Inc. Prior to the assignment, the Perlitches entered into a 25-year sublease with one Robert Bixler, who sold his business to appellants Jack Kendall, Grady O'Hara and Vicki O'Hara, who agreed to be bound by the lease.  The lease provided that written consent of the lessor was required before the lessee could assign his interest. Thus, sublessee requested consent from respondent, who refused. The proposed assignees, appellants, brought suit for injunctive relief and sought a declaration that the refusal to consent was unreasonable and an unlawful restraint on alienation. The trial court sustained a demurrer to the complaint and appeal followed. On appeal, the court reversed, finding that where the commercial lease provided for assignment only with the prior consent of the lessor, the consent could be withheld only where the lessor had a commercially reasonable objection to the assignee or the proposed use.

ISSUE:

In the absence of a provision that such consent will not be unreasonably withheld, can a lessor unreasonably and arbitrarily withhold his or her consent to an assignment?

ANSWER:

No.

CONCLUSION:

Consent could be withheld only where the lessor had a commercially reasonable objection to the assignee or the proposed use. Absent any compelling reason for the lessor to object to a conveyance, such objection cannot be sustained. A clause requiring prior consent of the lessor is for the protection of its ownership and operation of the particular property -- not for its general economic protection.

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