In this week's Alabama Law Weekly Update, we review a decision from the Alabama Court of Civil Appeals, which addresses the reasonableness standard associated with a landlord withholding consent to a proposed sublease or assignment.
Steve Evans v. W.G. Waldrop, No. 2150342 (Ala. Civ. App. Aug. 12, 2016) (holding that a lessor did not act unreasonably in refusing to consent to a sublease based upon the objections of the lessor's other commercial tenants.)
In 1999, Steve Evans (“Evans”) entered into a commercial lease with W. G. Waldrop (“Waldrop”) for a piece of real property, which was part of a larger commercial shopping center. Approximately 14 months into the term of this lease, Evans stopped paying rent, thus resulting in Waldrop filing suit against Evans alleging breach of the lease agreement. In defense, Evans claimed that he should not be held liable for breaching the lease agreement because Waldrop unreasonably withheld consent to sublease the property to a new tenant, who had proposed to operate an electronic-bingo parlor on the premises. Under the terms of the lease agreement, Evans was prohibited from assigning the lease or subleasing the property without first obtaining Waldrop's written consent, which could not be “unreasonably withheld”.
With respect to the proposed sublease, Evans claimed that after he stopped paying rent and moved off of the property, he was contacted by Christine Miller, who was interested in subleasing the property to open an electronic-bingo parlor. Following discussions with Mrs. Miller, Evans contacted Waldrop regarding this proposal, and Waldrop was initially agreeable to the idea. In fact, Evans recorded a phone conversation wherein Waldrop initially agreed to the sublease. However, once Waldrop fully understood the scope of Mrs. Miller's intentions, Waldrop withdrew his consent to the proposed sublease on grounds that other tenants located on the property were unhappy with the idea of an electronic-bingo parlor being located at the commercial shopping center. The trial court determined that Waldrop's refusal to consent to the sublease was reasonable and awarded Waldrop damages for the unpaid rent and owed interest.
On appeal by Evans, the Alabama Court of Civil Appeals affirmed the trial court's decision. In its analysis, the court held that a landlord's failure to consent to a sublease is judged in accordance with a commercial-reasonableness standard and the factors to be considered in making such determination include the following: the financial responsibility of the proposed subtenant, whether the new tenant's use requires alteration of the premises, the legality of the proposed use, the nature of the occupancy and the compatibility of the tenant's use with the uses of the other tenants in the same shopping center. Under this analysis, the appeals court concluded that withholding consent to the sublease was reasonable.
In the case, Waldrop testified that he believed he had a duty to protect the interests of the other tenants in the shopping center. Waldrop believed (based upon his discussions with other tenants at the shopping center) that the other tenants would have been displeased with an electronic-bingo parlor being operated on the property. As the court noted in its analysis, Waldrop's concern related to the nature of the occupancy and the compatibility of the new tenant's proposed use with that of the other tenants, each of which was a legitimate concern. The appeals court also observed that Evans failed to demonstrate the proposed sub-tenant had any experience in operating such a business or that the proposed tenant was financially viable. Given such concerns, the appeals court determined that Waldrop was reasonable in refusing to consent to the sublease, and therefore, affirmed the trial court's decision.
The appeals court observed, and it is important to note here, that a landlord's personal taste, sensibility, or mere convenience are not sufficient reasons for withholding consent to an assignment or sublease. The appeals court also noted that a tenant has the burden of providing sufficient information about the proposed subtenant in order to enable the landlord to evaluate whether to consent to an assignment or sublease. In the absence of such information, the landlord is justified in withholding consent.