Withholding Consent to Unfavorable Sublease

Q: A tenant that wants to sublet its space has offered a replacement tenant, but the new tenant wouldn’t meet the requirements we had agreed on in the sublet and assignment provisions of our lease, so I have refused to consent to this arrangement. In fact, the new tenant wants to pay less base rent and is insisting that we sign a new lease. The deal is actually unfavorable to me, but now the tenant is claiming that I have a duty to mitigate my risk by accepting the tenant it has provided. Who is likely to prevail in a lawsuit?

A: You’ll likely prevail. That’s because the tenant is offering a solution that doesn’t comport with the sublet terms in the lease. An Illinois appeals court determined in a case similar to yours that an owner wasn’t required to take an unfavorable replacement tenant. There, a restaurant tenant’s 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].