Good Faith Standard for Commercial Landlords in Considering Lease Assignments

As with all California contracts, there is a standard of good faith required by all parties. This standard of good faith comes into play when commercial landlords are asked by their tenants to consider a lease assignments. Most form commercial lease contracts (such as the AIR form commercial leases) provide language regarding good faith in accepting or rejecting a potential assignee, starting with the notion that a landlord’s consent shall not be “unreasonably withheld.”

Landlords and tenants are free to further define what constitutes reasonable or unreasonable withholding of consent beyond the boilerplate language found in most form leases. Landlord and tenant may choose to include factors such as an assignee’s experience, character, reputation, credit history and net worth.

It is important to note for Landlords that the issue of whether consent was reasonably or unreasonably withheld will be a question of fact for a jury. Thus, in anticipation of litigation, a landlord should have fact based reasons for withholding consent and those fact based reasons should be carefully scrutinized.

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