21 Merchants Row Corp. v. Merchants Row, Inc.
587 N.E.2d 788, 412 Mass. 204, 1992 Mass. LEXIS 145 (1992)
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Rule of Law:
In a commercial lease that requires the landlord's consent for an assignment, but is silent as to the standard for granting or withholding that consent, the landlord may refuse consent for any reason, and a reasonableness requirement will not be implied.
Facts:
- In 1974, 21 Merchants Row Corporation entered into a commercial lease with the predecessor of Merchants Row, Inc.
- The lease included a clause stating that the tenant could not assign the lease without first receiving the landlord's express written consent.
- The clause did not contain any language requiring the landlord to be reasonable in withholding consent.
- In 1983, Merchants Row, Inc. acquired the property and became the landlord.
- In 1987, 21 Merchants Row Corporation entered into an agreement to sell its business, a sale which was contingent on the landlord's consent to assign the lease to the new buyer.
- After initial consent was granted for the buyer, the buyer and tenant requested a further assignment to the buyer's financing bank.
- This proposed assignment to the bank would have given the bank the absolute right to further assign the lease without the landlord's consent.
- Merchants Row, Inc. refused to consent to the assignment to the bank, objecting to the loss of control over its property.
Procedural Posture:
- 21 Merchants Row Corporation sued Merchants Row, Inc. in the Massachusetts trial court for breach of lease, among other claims.
- At trial, the defendant's motions for a directed verdict, arguing it had an absolute right to refuse consent, were denied by the trial court judge.
- A jury returned a verdict in favor of the plaintiff, 21 Merchants Row Corporation, and awarded significant damages.
- The trial court denied the defendant's subsequent motion for judgment notwithstanding the verdict.
- The defendant, Merchants Row, Inc., as appellant, appealed the judgment.
- The Supreme Judicial Court of Massachusetts granted the defendant's application for direct appellate review.
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Issue:
Does a clause in a commercial lease requiring the landlord's express written consent to an assignment, without specifying a standard for that consent, imply a duty for the landlord to act reasonably in withholding consent?
Opinions:
Majority - Lynch, J.
No, such a clause does not imply a duty for the landlord to act reasonably. A majority of jurisdictions permit a landlord to arbitrarily or unreasonably refuse consent under a lease provision requiring the landlord's consent to an assignment or sublease. The court affirmed its recent holding in Slavin v. Rent Control Bd. of Brookline, which established this rule for residential leases, and saw no sound reason to grant greater protection to commercial tenants. The court reasoned that commercial tenants typically have greater bargaining power than residential tenants, so if any distinction were to be made, it would be to provide more, not less, protection to residential tenants. Ultimately, the question is one of public policy that is best addressed by the Legislature, not the courts.
Analysis:
This decision solidifies the traditional common law rule in Massachusetts, confirming that landlords have absolute discretion in approving lease assignments unless a 'reasonableness' standard is explicitly negotiated into the commercial lease agreement. It aligns the rule for commercial leases with that of residential leases, creating a consistent standard across property types. The ruling places a clear burden on commercial tenants to proactively negotiate for clauses that prevent a landlord from unreasonably withholding consent, as courts will not imply such a term to protect them. This strengthens the landlord's position and emphasizes the principle of freedom of contract in commercial real estate.
