A Primer on Consent-To-Assignment Clauses Under Louisiana Law

As the name suggests, a consent-to-assignment clause is one way of preventing an obligor from subsequently transferring its contractual rights and obligations to a third party assignee without the prior consent of the original obligee. The original intent behind including these clauses in contracts, such as leases, was to ensure that the assignee would be bound to the same terms and conditions as the original obligee or lessee. However, it has become more common for lessors to rely on such consent-to-assignment clauses as a mechanism to require lessees and/or their assigns to agree to more onerous terms and conditions than otherwise contemplated, such as requiring the lessee to remain liable to the lessor should the assignee default or requiring that the assignor compensate the lessor for consenting to the assignment. The express language of the consent-to-assignment clause, as well as the venue in which the issue is litigated, typically will determine the extent to which the lessor can lawfully condition its consent to a proposed assignment.

Consent-to-assignment clauses typically are categorized as either “qualified” or “unqualified.” Qualified consent-to-assignment clauses contain a caveat limiting the lessor’s right to withhold its consent, such as: “and such consent will not be unreasonably withheld.” The phrase “unreasonably withheld” has been interpreted to mean that “there are no sufficient grounds for a reasonably prudent business person to deny consent.”  Louisiana courts have found that “sufficient grounds” existed for the lessor to withhold its consent where the proposed sublessee or assignee is financially inferior compared to the present lessee; where the sublessee’s proposed use does not fall within the permitted uses in the lease or would inhibit the lessor’s ability to lease other spaces in the leased property; and where the sublease or assignment would cause the lessor to lose a lessee on the same property. However, a lessor’s refusal to consent to a sublease or assignment likely will be found unreasonable if the reasons for the refusal are pretextual, or if the proposed sublessee is identical to the lessee in financial status and proposed use of the property.

Alternatively, unqualified consent-to-assignment clauses (also referred to as “silent” consent-to-assignment clauses) do not expressly prohibit the lessor from withholding consent for unjustifiable reasons or for no reason at all. When litigating such silent consent-to-assignment clauses, lessees and potential sublessees have argued that courts should inject a reasonableness standard or that an implied standard of reasonableness exists based upon general contract principles. The majority of courts, including those in Texas, adhere to the traditional view that silent consent provisions allow a lessor arbitrarily to refuse to approve a proposed assignment or sublease, no matter how suitable the assignee or sublessee appears to be and no matter how unreasonable the lessor’s objection. These jurisdictions typically have found that there is no implied covenant of good faith requiring a lessor to be “reasonable” in refusing to consent. Other courts following the traditional view may simply refuse to rewrite what they consider to be unambiguous contractual language, especially in cases where there is evidence that the silent consent was included as a result of negotiation.

Louisiana, on the other hand, was the first jurisdiction in the nation to adopt the modern view of implying a standard of “reasonableness” when interpreting silent consent-to-assignment clauses. Louisiana courts historically implied an abuse of rights standard to restrain the lessor’s arbitrary refusal to consent to an assignment. In their view, allowing a lessor to arbitrarily refuse consent to an assignment or sublease virtually nullifies any right to assign or sublease. However, in 1987 the Louisiana Supreme Court limited the applicability of the abuse of rights doctrine, articulating that it applies only when one of the following conditions is met:

(1) if the predominant motive was to cause harm;

(2) if there was no serious or legitimate motive for refusing;

(3) if the exercise of the right to refuse is against moral rules, good faith, or elementary fairness;

(4) if the right to refuse is exercised for a purpose other than that for which it is granted.

See Truschinger v. Pak, 513 So.2d 1151, 1154 (La.1987).

In Truschinger, the lessor conditionally consented to a proposed sublease in exchange for a cash payment of $40,000.00. The court held that because the lessor’s predominate motive was economic, serious, and legitimate, and was not a wish to harm, the lessor’s refusal was not an abuse of rights. It is questionable whether the historical authority for implying a standard of reasonableness has survived in the wake of Truschinger, considering that the court appeared tacitly to approve of lessors withholding or conditioning consent based on purely economic motives.

Even so, it is important to note that Truschinger and the cases cited therein relied upon La. Civ. Code. art. 2725 (1870) and the French interpretations of its ancillary provision in Code Napoléon as support for construing silent consent-to-assignment clauses against lessees. However, in 2004 La. Civ. Code. art. 2725 (1870) was revised and renumbered as La. Civ. Code art. 2713 and now expressly provides that a “provision that prohibits subleasing, assigning, or encumbering is to be strictly construed against the lessor.” The 2004 Revision Comment explains:

[This] sentence restates the principle of the second paragraph of Civil Code Article 2725 (1870) properly understood. . . . In derogation of general principles of interpretation, some cases have erroneously construed such interdiction against the lessee. The third sentence of Civil Code Article 2713 (Rev. 2004) corrects this error.

Although Article 2713 has been in effect for more than twelve years, no court has applied this article in the context of interpreting a silent consent-to-assignment clause.  Consequently, while Louisiana courts traditionally have been less favorable toward lessors when interpreting such clauses, a lessor’s conditioned consent or refusal to consent may nonetheless be lawful, absent a showing that such refusal equates to an abuse of rights as set forth in Truschinger.

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