Norville v. Carr-Gottstein Foods Co.
84 P.3d 996, 2004 WL 226160, 2004 Alas. LEXIS 18 (2004)
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Rule of Law:
A landlord's refusal to consent to a sublease is not unreasonable as a matter of law if the refusal is based on commercially reasonable grounds, such as protecting the tenant mix of a shopping center or preventing the impairment of percentage-based rent calculations.
Facts:
- In 1991, Allan Norville, a shopping center owner, leased space to Carr-Gottstein Foods Co. (Carrs) under a 25-year commercial lease.
- The lease required Norville's consent for any sublease but stipulated that consent could not be 'withheld unreasonably.'
- The lease also included a percentage rent clause, where Norville received a percentage of Carrs' gross sales above a certain threshold.
- In 1995, Norville consented to a sublease for a Bank of America branch within the Carrs store.
- In 1999, after Safeway acquired Carrs, Safeway requested Norville's consent for a new sublease in the same space to Alaska USA Federal Credit Union.
- Norville conditioned his consent on receiving 75% of the rent paid by Alaska USA.
- Norville stated his reasons were his desire to attract a full-service bank to a separate pad in the shopping center and concern that the credit union subtenant would both deter such a bank and diminish Carrs' gross sales, thereby lowering his percentage rent.
- Safeway accepted the condition under protest, paid Norville the demanded portion of the sublease rent, and allowed Alaska USA to begin operations.
Procedural Posture:
- In June 2001, Safeway (tenant's successor) sued Allan Norville (landlord) in the superior court (trial court), alleging that his withholding of consent for a sublease was unreasonable.
- Safeway moved for summary judgment, arguing that the landlord's reasons were unreasonable as a matter of law.
- The superior court granted summary judgment in favor of Safeway.
- A final judgment was entered against Norville, requiring him to refund the sublease payments he received from Safeway, plus interest, costs, and attorney's fees.
- Norville appealed the superior court's judgment to the Supreme Court of Alaska.
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Issue:
Is a landlord's refusal to consent to a sublease unreasonable as a matter of law when the refusal is based on concerns that the subtenant would compete with potential future tenants and negatively impact the landlord's percentage-based rent?
Opinions:
Majority - Matthews, Justice.
No. A landlord's refusal to consent to a sublease is not unreasonable as a matter of law if based on legitimate commercial concerns, and therefore summary judgment for the tenant was improper. The court reasoned that while a landlord cannot deny consent simply to extract a higher rent than originally contracted for, they can do so to protect their interests in the property's operation and the performance of lease covenants. The court identified two potentially reasonable grounds for Norville's refusal: 1) concern that the proposed subtenant would compete with other businesses in the center, potentially harming the landlord's ability to attract new tenants and maintain a desirable tenant mix, and 2) concern that the sublease would reduce the primary tenant's gross sales, thereby impairing the landlord's income from a percentage rent clause. The court also found a genuine dispute of material fact regarding whether the lease's 'Tenant's Use Clause' permitted a full-service bank at all, which required an analysis of conflicting extrinsic evidence, further demonstrating that the issue could not be resolved on summary judgment.
Analysis:
This decision reinforces the 'commercially reasonable' standard for a landlord's refusal to consent to a sublease, particularly in the context of complex commercial leases for properties like shopping centers. It clarifies that a landlord's interests extend beyond just the specific leased premises to the overall health and tenant mix of the entire property. By treating the landlord's concerns about competition and percentage rent as valid questions of fact for a jury, the ruling provides landlords with stronger grounds to object to subleases that might undermine their broader commercial strategy. This precedent makes it more difficult for tenants in such situations to win on summary judgment, requiring a full trial to determine the reasonableness of the landlord's specific objections.
