Are You Justified in Withholding Consent to Reduced Rent Sublease?

July 6, 2017
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Occasionally, a tenant will want or need to leave its space that it rents in your shopping center or office building. But that can create a financial burden for you. Even if it’s the tenant’s responsibility under the lease to mitigate the damage caused by breaking its lease, it could still be a hassle for you. But don’t give in to a proposed deal from the tenant that’s less than you’re owed! You don’t have to take a worse deal than the current tenant’s deal. A recent Illinois case demonstrated this.

In that scenario, two guarantors promised to carry out the lease obligations of a restaurant tenant in the event that the tenant defaulted. The lease’s assignment and subletting clause required the tenant to get the owner’s consent to an assignment or sublet.

After the tenant made partial rent payments several months in a row, the owner terminated the lease and sued the tenant for the back rent of more than $54,000. The tenant claimed that it had, in fact, produced a subtenant for the space, but the owner unreasonably withheld its consent to that arrangement.”

The trial court ruled in favor of the tenant, pointing out that the tenant had produced at least one suitable replacement and the owner had a duty to mitigate its damages from the breach. The owner appealed.

An Illinois appeals court reversed. The appeals court noted that the tenant’s suggested replacement for the sublease wouldn’t pay the tenant’s full rent amount. Instead, it proposed a lower rent and also wanted to sign a new lease with the owner, not a sublease—a deal that didn’t comport with the specifications in the assignment and subletting clause. Therefore, the owner wasn’t required to accept the subtenant. It wasn’t unreasonable to withhold its consent for a worse deal than it had with the breaching tenant [Gladstone Grp. I, Inc. v. Hussain, September 2016].