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The problem with a reasonableness standard is that what seems reasonable to you may not seem reasonable to the next guy. When you are a landlord, for example, and your tenant asks for a consent, “such consent (according to your lease) not to be unreasonably withheld,” all sorts of factors may influence whether you want that sublease to occur or not, and you may feel that you ought to be able to consider all those factors, with the possible exceptions of simple malice or prejudice. The tenant, on the other hand, will want to limit the analysis to those factors that are clearly and closely tied to the tenant’s specific transaction alone, without regard to landlord’s “external” concerns. So where is this line to be drawn? The recent 3rd U.S. Circuit Court of Appeals case of Buck Consultants Inc. v. Glenpointe Associates provides a useful articulation of where New Jersey draws that line. Interestingly, the analysis might be very different in a Pennsylvania court. Buck Consultants is a direct commentary on the sorts of things a landlord may properly consider in determining whether to grant a consent to a sublease, when such consent cannot be unreasonably withheld. The upshot is, as our tenant above would hope, that the New Jersey landlord might consider only those factors that pertain to the specific operation of the property in question, and not how granting the requested consent might impact its overall economic well being. The result in Buck Consultants is consistent with prior New Jersey precedent and provides useful clarity and insight into application of this principal, which is, by its nature, always fact-specific. In 2002, Buck Consultants assumed a lease of 70,000 square feet with an expiration date of Feb. 28, 2009. The landlord was Glenpointe Associates. The lease provided that Buck could not assign the lease or sublet any portion without the landlord’s consent and that the landlord would not unreasonably withhold or delay any such requested consent. The lease provided a laundry list of factors that could properly be considered, including whether or not the landlord was already negotiating to provide space to the proposed subtenant, whether landlord has prior bad experiences with the proposed subtenant and whether the business of the proposed subtenant was inconsistent with the operation of a “first class building.” The list would be familiar to any practitioner as an articulation of a few of the most obvious and obviously legitimate concerns of the landlord. In 1996, Ensai Corp. of North America had entered into a lease with Glenpointe for approximately 50,000 square feet of space in the same building as the Buck leasehold. This lease had an expiration date of Feb. 28, 2007. In the years that followed, Ensai had expanded its space to approximately 91,000 square feet, by subleasing additional portions of the building from other tenants. Each sublease was approved by Glenpointe, and in each instance, the term of the underlying lease was extended to Feb. 28, 2007, so that all of Ensai’s leaseholds shared that common expiration date. In May 2002, Ensai contacted Glenpointe with a proposal to lease 160,000 square feet in another building owned by Glenpointe. Glenpointe was not interested, and so Ensai subsequently began to negotiate with Buck to sublease approximately 50,000 square feet of its space, which was, at the time, vacant. Glenpointe then began to express concerns to the parties about the “patchwork quilt” of Ensai leases, all set to expire in 2007, and proposed a new deal: a direct lease of 99,000 square feet and approval of the Buck sublease. However, as a condition to this, Glenpointe required that the lease terms for all Ensai space be extended by 15 years. Glenpointe pointedly informed Ensai that in the absence of a longer- term commitment, it would not consent to the Buck sublease because doing so would create a situation whereby nearly one half of the building could be expected to become vacant on a single day. Ensai was not interested in the Glenpointe proposal and agreed upon the terms of a sublease with Buck – 51,992 square feet, again to expire on Feb. 27, 2007. (Buck, of course, would still be on the hook for the subsequent two years.) In accordance with the terms of the Buck lease, the parties sent a request to Glenpointe its consent. Glenpointe countered with a revised proposal of its own and, when this was also rejected, sent a formal notice of its refusal to consent to the Buck sublease. Glenpointe initially (and throughout discussions) explained its refusal as based upon a provision in the original Ensai lease that prohibited that tenant from subleasing other space in the building, but this response was both untruthful and, even if true, disingenuous, since Glenpointe would have been able to waive any such provision. Glenpointe, however, soon conceded in writing that its actual reason for denying consent was concern about having so much space become vacant in 2007. Glenpointe asserted that it had a right to be concerned about its economic self-interest, and that such a vacancy would create a “dangerous circumstance” in finding new tenants and lenders. It also voiced concern that in 2007, it would find itself marketing space in competition with Buck. Buck, it argued, would be compelled to lower its rents to any level necessary to find subtenants, since its obligation to Glenpointe was a “sunk cost,” and would therefore be able to capture any potential tenants before Glenpointe. In light of the Glenpointe refusal, the Ensai/Buck negotiations fell apart and Ensai obtained other space elsewhere. Buck sued in federal district court and simultaneously began to withhold rent for the space it had proposed to sublease to Ensai, arguing that Glenpointe’s refusal to consent was unreasonable and a material breach of the lease. The district court found in Buck’s favor and an appeal ensued. Although not frequently litigated, the court of appeals found clear guidance in a few prior New Jersey cases. In the 1973 case of Krieger v. Helmsly-Spear Inc., the New Jersey Supreme Court had stated that a reasonable consent clause “is for the protection of the landlord in its ownership and operation of the particular property � not for its general protection.” The Kreiger case concerned a situation in which the tenant was required to obtain landlord consent to a sublease, which the landlord could not unreasonably withhold. Kreiger proposed to sublease space to a party who already had a lease with the landlord in another Helmsley building, which was about to expire. The landlord’s objection to the sublease was that it would thereby lose its tenant in that other building. The court ruled that this reason was insufficient as a matter of law, since then, it reasoned, a landlord could deny consent whenever it had vacancies anywhere in its buildings. The court of appeals also cited the 1977 New Jersey Superior Court case of Ringwood Associates, Ltd. v. Jack’s of Route 23 Inc. In Ringwood, like Kreiger, a tenant’s lease required landlord’s consent to any assignment and provided that such consent could not be unreasonably withheld. The proposed subtenant was a party clearly indisputably acceptable to the landlord. However, in light of changing market conditions, the landlord perceived an opportunity to better its position and refused to consent to the assignment, instead proposing that the “subtenant” enter into a direct lease with the landlord at a higher rent than that paid by the current tenant. The tenant argued that the landlord had (for better or worse) agreed to accept a certain rent over the lease term in return for the space, and the tenant was now entitled to reap the benefit of what ultimately turned out to be its “good deal.” The New Jersey court agreed and held that the landlord’s refusal to consent was unreasonable. The court agreed that, as a base matter, reasonableness requires that the landlord’s actions not be arbitrary, capricious or based upon whim. However, the court went further, holding that in such circumstances, the landlord cannot act in a manner designed solely to improve its economic condition, when there was no evidence that the proposed assignment would be detrimental to the landlord’s interests in the operation of its shopping center. In other words, reasonable refusal requires that the landlords decision be based upon factors pertaining to the existing landlord/tenant relationship and the space in question (e.g.; solvency of the proposed subtenant, suitability of the tenant in light of the shopping center mix, etc.), and not, as here, the simple fact that the landlord could gain an advantage by saying no. Relying on these cases, the 3rd Circuit held that Glenpointe’s arguments in support of its right to refuse consent amounted to nothing more than articulations of general economic motivations. The court noted that Glenpointe paired its refusal to consent with a series of overtures to enter into direct transaction with Ensai at higher rents and for longer terms. Glenpointe even retreated to an offer directly coupling an agreement to consent with a separate longer-term lease with Ensai. Quoting the district court, the court of appeals ruled, “It is unreasonable for a landlord to withhold consent to a sublease solely to extract an economic concession or to improve its economic position.” The court of appeals conceded that landlords have a right to consider the suitability of a given sublease in light of its effect upon the operation of a building. However, the court did not find that Glenpointe adequately showed that its operation of the building would be seriously endangered by the proposed transaction. In fact, Glenpointe’s willingness to enter into a different transaction with Ensai for even more space undermined Glenpointe’s contention that such a “mass vacation” would spell doom for the building. Instead, the court held, “the facts lend themselves to the . . . conclusion that Glenpointe withheld consent to position itself more fortuitously, i.e., the very type of general economic concern which is considered unreasonable under New Jersey law.” It is interesting to note that Pennsylvania case law is practically barren on this issue, but that fairly recent dicta in one case supports the possibility that Pennsylvania landlords have a greater degree of latitude on this issue. In the 2003 Common Pleas case of Willow Corp. v. Callowhill Center Associates, the court held that, in the absence of any written requirement that a landlord be reasonable, a landlord can be arbitrary and capricious in deciding where to grant such consent. Further, the court said, in dicta, that even were it to adopt the Restatement (Second) Property and impose upon a landlord an obligation to be reasonable, under that rule, “a reason for refusing consent, in order to be reasonable, must be objectively sensible and of some significance and not be based upon mere caprice or whim or personal prejudice.” In light of that standard, the court said, again in dicta, that a landlord could refuse to consent to an assignment simply because the landlord perceived an opportunity to terminate the original lease and enter into a direct, more profitable, lease with the proposed assignee. Taken to an extreme, such an analysis would seem to allow landlords to hold nearly any sublease hostage, when the intent of the parties is clearly contrary, and so it seems unlikely that a Pennsylvania court would ever go so far. Still, the lack of contrary authority leaves open the question of whose “reasonableness” we need to use. MARTIN DOYLE and DAVID FELDER are members of Saul Ewing’s real estate department in the firm’s Philadelphia office. Both have worked on a number of major real estate transactions and have been involved in all aspects of real estate development, sales, finance and leasing. Doyle received a law degree, cum laude, from the University of Pennsylvania Law School. Felder received his J.D. degree, cum laude, from Harvard Law School.

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