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Can’t Reassign a Lease in Default
by Ron Davis

Did efforts to re-lease vacated space at a Washington shopping center have to comply with demands of the tenant that previously occupied those premises?

Washington’s courts have answered that question in a lawsuit involving a Seattle-area shopping center and a former tenant. The shopping center is Covington Square, and the tenant had leased space there to operate a business where customers use professional equipment to prepare meals.

Two years ago, the tenant ceased operations, then moved out. But just before the tenant abandoned the premises, an owner of a wedding-planning business contacted her to inquire about taking over that space through an assignment.

The tenant passed along that information to a Covington Square official. That official replied that a review must be made of any replacement tenant to ensure “a good fit for the tenant mix” at the shopping center. But Covington Square management apparently never followed up to negotiate with that potential tenant.

At a subsequent meeting with an attorney for the shopping center, the tenant was told that she had breached her lease and there was therefore nothing to assign to any replacement tenant. The attorney then informed the tenant that he was issuing a summons and complaint against her.

The tenant does not dispute that she breached the lease. She argues only that the shopping center’s owners did not take reasonable steps to mitigate, or reduce, the consequences of the breach. She explained that shopping center management refused to allow her to assign the lease and would not even consider leasing to the business that contacted her for a possible assignment.

In response, Covington Square officials noted that it used advertising, signs and the Internet to lure potential tenants for the vacated space. They said they also used shopping center networks to advertise, and they produced a brochure listing the property. Finally, a broker confirmed that he had discussed the vacated space with “no fewer than six prospects and was unable to get any of them to seriously consider the premises.”

A Washington court ruled in favor of the shopping center, explaining, “The tenant cannot show that the center’s owners were unreasonable in refusing to consider an assignment. The lease provides that consent to an assignment will not unreasonably be withheld, but explicitly states that a refusal to consent is not unreasonable when the tenant is already in default. The tenant in this case was already in default when she first proposed an assignment. The refusal to consider it cannot be considered unreasonable.” (Terramar Retail Centers, LLC v. Hall, 2009 WL 2595621 [Wash.App. Div. 1)

Decision: August 2009
Published: September 2009



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