• CT Supreme Court Rules on Antiassignment Provisions
  • July 20, 2012 | Author: Noble F. Allen
  • Law Firm: Hinckley, Allen & Snyder LLP - Hartford Office
  • For over two decades now, the law in Connecticut with regards to antiassignment provisions in commercial leases has been that they will be found valid so long as the landlord’s discretion to withhold consent was carried out in good faith. This is also to say that an assignment by a tenant without the landlord’s consent will be found valid if the tenant can demonstrate that the landlord acted in bad faith in withholding its consent.

    Fast forward to May 2012, when the Connecticut Supreme Court further refined the concept of the effect of an antiassignment provision in a commercial lease. In the case David Caron Chrysler Motors, LLC v. Goodhall’s Inc., 304 Conn. 738 (Conn. 2012), the Court ruled that an unauthorized assignment of a lease which does not contain a clear and unmistakable antiassignment provision does not automatically void the assignment or terminate the underlying lease; rather, it merely renders the assignment “voidable” subject to a subsequent affirmative action on the part of the landlord to either void the assignment or terminate the lease outright. In the David Caron Chrysler Motors case, the language in the antiassignment provision at issue stated that no part of the lease “shall, by operation of law or otherwise, be assigned ... without the prior written consent of [the] landlord, which consent shall not be unreasonably withheld ...”

    Having already determined that the lease had been assigned without the landlord’s consent, the issue that the Court had to consider was whether a breach of the antiassignment provision in the lease rendered the resulting assignment void or merely voidable. A collateral issue in the case was whether the lease itself automatically terminated upon the unauthorized assignment by the tenant. Based on the specific language of the antiassignment provision in this particular lease, the Court ruled that the tenant’s failure to obtain the landlord’s consent before assigning the lease did not in fact render the assignment void, but rather simply made it voidable - requiring further enforcement action by the landlord to void the assignment or terminate the lease pursuant to its terms. In this instance, the Court also ruled that the unauthorized assignment did not have the effect of terminating the lease. The rationale behind this argument is that Connecticut follows a majority of jurisdictions that have determined that antiassignment provisions requiring the consent of the landlord are for the sole benefit of the landlord, not the tenant. The Court further opined that under Connecticut law, there is a clear distinction between limiting a tenant’s right to assign a lease and limiting the tenant’s power to assign the lease. In this case, the Court held that the antiassignment provision in the lease was deficient as to the latter: it merely purported to limit the tenant’s right to assign the lease, but did not contain the “clear and unmistakable contractual language which was necessary to limit the tenant’s power to assign the lease.”

    This decision was not lacking in specifics. The Court provided an example of a prophylactic antiassignment language that, had it been used in this instance, would have precluded not only the tenant’s right, but also its power to assign the lease: “[Any] assignment in breach of [this] provision will be deemed void, invalid or otherwise ineffective immediately.” Until further notice from this Court, it appears that such language in a commercial lease in Connecticut will have the effect of voiding an unauthorized assignment from a tenant to a third party that lacked the landlord’s consent -  assuming that the consent was not (or would not have been) determined to have been unreasonably withheld.

    Postscript: However, in instances where an unauthorized assignment does not provide the landlord with the automatic right to void the assignment or terminate the tenant’s lease, the landlord would nonetheless still have some available relief against the tenant under Connecticut law: The landlord would be allowed to sue the tenant for the breach of the lease (i.e assigning the lease without consent), and would be entitled to any resulting damages that the landlord can claim it suffered as a direct result of the tenant’s breach.