Landlord’s Refusal to Consent to Tenant’s Assignment

"A health-care provider leased space in a shopping center near a hospital campus. The lease restricted use of the premises for outpatient surgical procedures and general medical and physician's offices, including related uses and for other purposes reasonably acceptable to Landlord, and allowed the tenant to assign the lease with the landlord's consent, providing that such consent shall not be unreasonably withheld.
Two years later the hospital bought the shopping center, subject to the leases, as a strategic purchase with future hospital expansion in mind. Shortly, the tenant closed and sought to assign the lease to an entity planning to open an occupational medicine clinic, which was to provide medical services to employees of corporate clients, rather than to the general public. The hospital, as new landlord, refused to approve the assignment because the assignee would be competing with the hospital.
The district court held that the landlord acted reasonably, because the assignee's use would provide greater competition with the hospital than the original tenant's use. The court of appeals reversed, holding that the assignee's use was within the scope of the use clause's reference to general medical and physician's offices, including related uses. It considered the landlord's refusal of consent unreasonable for two reasons:
1) First, increased competition with the landlord's business is wholly personal to the landlord and does not relate in any way to an objective evaluation of the proposed assignee as a tenant.
2) Second, reasonableness must be evaluated based on the parties'
expectations as of the inception of the lease, at which time the original landlord was not a competitor in providing medical services. This is a significant decision because very few cases deal with a landlord's denial of consent for anticompetitive purposes or a successor landlord, whose interest diverges from that of the original landlord.
See Freidman on Leases § 7:3.4 (Patrick A. Randolph ed., 2004). Tenet HealthSystem Surgical, L.L.C. v. Jefferson Parish Hospital Service District No. 1, 426 F.3d 738 (5th Cir. 2005)."
for more information contact Ed at www.houstonrealtyadvisors.net
or at 713 782-0260