Summary of Newman v. Hinky Dinky Omaha-Lincoln, S. Ct. Nebraska [1988]

Tenant’s Right to Assign or Sublease

Relevant Facts: Pl, Newman is the owner and entered into a written lease w/ ACS as tenant w/ fixed rent and additional rent based on gross receipts. ACS operated a chain of Hinky Dinky supermarkets.  A lease provision “T may not assign or transfer this lease or sublet the premises w/o written consent of LL first.”  ACS asked for consent to assign to Nash and a subsequent assignment to Hinky.  Newman did not consent.  ACS assigned the lease to Nash and then subleased to Hinky w/o consent. Pl found out and served Notice to Vacate & then N to Quit.

Legal Issue(s): Whether a lessor must have a commercially reasonable objection to the assignment or subletting, when the lease allows assign or sublet only w/ the lessor’s consent?

Court’s Holding: Yes

Procedure: Partial Summary for Pl on w/h consent; trial on waiver/payments ruling for PL.  Reversed and remanded.

Law or Rule(s): Where the lessor retains the discretionary power to approve or disapprove an assignee, this discretionary power should be exercised in accordance with commercially reasonable standards.  Where the lessee is entitled to sublet under C. L. but has agreed to limit that right by first acquiring consent of the LL, the lessee has a right to a expect that consent will not be unreasonably withheld.

Court Rationale: A commercial lease does not expressly permit a lessor to w/h consent to an assignment or subletting and contains an approval clause, such as a provision that there can be no assignment or subletting w/o the lessor’s prior consent, a lessor may w/h consent only when the lessor has a good faith and reasonable objection to the assignment or subletting, even in the absence of a lease provision that the lessor’s consent will not be unreasonably withheld. The lease here does not expressly permit or authorize Newman to w/h consent, the provisions of the lease require that the lessor act in good faith and reasonably in w/hing consent to an assignment or subletting. Whether Newman acted in good faith and reasonably in w/hing consent is a question of material fact.

Plaintiff’s Argument: The language of the lease specifies that a lessor has an absolute right to w/h consent to a lease assignment or subletting, however unreasonable or arbitrary the refusal.

Defendant’s Argument: The lessor cannot unreasonably or arbitrarily w/h consent, it must be based on good faith.

Factors to determine good faith and reasonably: Financial responsibility of proposed assignee/sublessee; the assignee’s or sublessee’s suitability for the property; legality of the proposed use; need for alteration of the premises; and the nature of the occupancy.