Julian v. Christopher

• Decision Date: 29 June 1990
• Docket Number: No. 114,114
• Citation: Julian v. Christopher, 575 A.2d 735, 320 Md. 1 (Md. 1990)
• Parties: Douglas JULIAN, William J. Gilleland, III d/b/a The Open Hearth, Inc. v. Guy D. CHRISTOPHER. Sept. Term 1989.
• Court: Maryland Court of Appeals

Page 1

320 Md. 1

575 A.2d 735

Douglas JULIAN, William J. Gilleland, III d/b/a The Open Hearth, Inc. v. Guy D. CHRISTOPHER.

No. 114 Sept. Term 1989.

Court of Appeals of Maryland.

June 29, 1990.

Philip O. Foard (Jay D. Miller, White, Mindel, Clarke & Hill, on brief), Towson, for petitioners.

Charles E. Yankovich, Towson, for respondent.

Argued before MURPHY, C.J., and ELDRIDGE, COLE, RODOWSKY, McAULIFFE, ADKINS and CHASANOW, JJ.

CHASANOW, Judge.

In 1961, this Court decided the case of Jacobs v. Klawans, 225 Md. 147, 169 A.2d 677 (1961) and held that when a lease contained a "silent consent" clause prohibiting a tenant from subletting or assigning without the consent of the landlord, landlords had a right to withhold their consent to a subletting or assignment even though the withholding of consent was arbitrary and unreasonable.

In 1983, in The Citizens Bank & Tr. v. Barlow Corp., 295 Md. 472, 456 A.2d 1283 (1983), we noted that the issue was not preserved for appeal, but "[i]f the common law rule applied in Klawans is to be reconsidered, it will have to be done on a record which preserves the question for review." Id. at 486, 456 A.2d at 1290. We now have before us the issue of whether the common law rule applied in Klawans should be changed.

In the instant case, the tenants, Douglas Julian and William J. Gilleland, III, purchased a tavern and restaurant business, as well as rented the business premises from landlord, Guy D. Christopher. The lease stated in clause ten that the premises, consisting of both the tavern and an upstairs apartment, could not be assigned or sublet "without the prior written consent of the landlord." Sometime after taking occupancy, the tenants requested the landlord's written permission to sublease the upstairs apartment. The landlord made no inquiry about the proposed sublessee, but wrote to the tenants that he would not agree to a sublease unless the tenants paid additional rent in the amount of $150.00 per month. When the tenants permitted the sublessee to move in, the landlord filed an action in the District Court of Maryland in Baltimore City requesting repossession of the building because the tenants had sublet the premises without his permission.

At the district court trial, the tenants testified that they specifically inquired about clause ten, and were told by the landlord that the clause was merely included to prevent them from subletting or assigning to "someone who would tear the apartment up." The district court judge refused to consider this testimony. He stated in his oral opinion that he would "remain within the four corners of the lease, and construe the document strictly," at least as it pertained to clause ten. Both the District Court and, on appeal, the Circuit Court for Baltimore City found in favor of the landlord. The circuit judge noted: "If you don't have the words that consent will not be unreasonably withheld, then the landlord can withhold his consent for a good reason, a bad reason, or no reason at all in the context of a commercial lease, which is what we're dealing with." We granted certiorari to determine whether the Klawans holding should be modified in light of the changes that have occurred since that decision.

While we are concerned with the need for stability in the interpretation of leases, we recognize that since the Klawans case was decided in 1961, the foundations for that holding have been substantially eroded. The Klawans opinion cited Restatement of Property § 410 as authority for its holding. The current Restatement (Second) of Property § 15.2 rejects the Klawans doctrine and now takes the position that:

A restraint on alienation without the consent of the landlord of the tenant's interest in the leased property is valid, but the landlord's consent to an alienation by the tenant cannot be withheld unreasonably, unless a freely negotiated provision in the lease gives the landlord an absolute right to withhold consent.

Another authority cited in Klawans in support of its holding was 2 R. Powell, Powell on Real Property. The most recent edition of that text now states:

Thus, if a lease clause prohibited the tenant from transferring his or her interest without the landlord's consent, the landlord could withhold consent arbitrarily. This result was allowed because it was believed that the objectives served by allowing the restraints outweighed the social evils implicit in them, inasmuch as the restraints gave the landlord control over choosing the person who was to be entrusted with the landlord's property and was obligated to perform the lease covenants.

It is doubtful that this reasoning retains full validity today. Relationships between landlord and tenant have become more impersonal and housing space (and in many areas, commercial space as well) has become scarce. These changes have had an impact on courts and legislatures in varying degrees. Modern courts almost universally adopt the view that restrictions on the tenant's right to transfer are to be strictly construed. (Footnotes omitted.)

2 R. Powell, Powell on Real Property § 248 (1988).

Finally, in support of its decision in Klawans, this Court noted that, "although it, apparently, has not been passed upon in a great number of jurisdictions, the decisions of the courts that have determined the question are in very substantial accord." Klawans, 225 Md. at 151, 169 A.2d at 679. This is no longer true. Since Klawans, the trend has been in the opposite direction. ¹ "The modern trend is to impose a standard of reasonableness on the landlord in withholding consent to a sublease unless the lease expressly states otherwise." Campbell v. Westdahl, 148 Ariz. 432, 715 P.2d 288, 292 (Ariz.Ct.App.1985).

In his article, Correctly Interpreting Long-Term Leases Pursuant to Modern Contract Law: Toward a Theory of Relational Leases, 74 Va.L.Rev. 751 (1988), Alex M. Johnson, Jr., tracks the development of what he calls the "burgeoning minority position." Professor Johnson notes that:

In 1963 Louisiana became the first state to adopt the minority position on alienability by holding in Gamble v. New Orleans Housing Mart, Inc. [154 So.2d 625 (La.Ct.App.1963) ] that lessors must act reasonably in situations requiring the lessor's consent to a transfer.

Following Louisiana's lead, two common law jurisdictions, Ohio and Illinois, rejected the common law view and adopted the holding and rationale in Gamble. In 1977 the Alabama Supreme Court addressed the lessor's right to withhold consent unreasonably in a frequently cited opinion, Homa-Goff Interiors, Inc. v. Cowden [350 So.2d 1035 (Ala.1977) ] and concluded that the common law view was archaic in today's urban society. The Alabama court was the first to base its decision on the policy of alienability. The court balanced the right of the lessor to withhold consent unreasonably against society's interest in the alienability of commercial leaseholds, concluding that the "reasonable" alienation of commercial leasing space is paramount and predominates over any attempt by the lessor to restrict alienability arbitrarily.

Since Homa-Goff, fourteen states have reexamined their law on this issue. Six states have adopted or reaffirmed their adoption of the common law view, while eight states have rejected the common law view and restricted, either in whole or in part, the lessor's right to restrain alienability arbitrarily. The eight states that have adopted the minority position were influenced by the position taken recently by the American Law Institute (ALI).

The ALI endorses the minority position that a lessor must act reasonably when withholding consent to alienate the lease, absent express terms to the contrary. (Footnotes omitted.)

74 Va.L.Rev. at 761-63.

Traditional property rules favor the free and unrestricted right to alienate interests in property. Therefore, absent some specific restriction in the lease, a lessee has the right to freely alienate the leasehold interest by assignment or sublease without obtaining the permission of the lessor. ² R. Schoshinski, American Law of Landlord and Tenant § 5:6 (1980); 1 American Law of Property § 3.56 (1952).

Contractual restrictions on the alienability of leasehold interests are permitted. R. Cunningham, W. Stoebuck, and D. Whitman, The Law of Property § 12.40 (1984). Consequently, landlords often insert clauses that restrict the lessee's common law right to freely assign or sublease. Id. Probably the most often used clause is a "silent consent" clause similar to the provision in the instant case, which provides that the premises may not be assigned or sublet without the written consent of the lessor.

In a "silent consent" clause requiring a landlord's consent to assign or sublease, there is no standard governing the landlord's decision. Courts must insert a standard. The choice is usually between 1) requiring the landlord to act reasonably when withholding consent, or 2) permitting the landlord to act arbitrarily and capriciously in withholding consent.

Public policy requires that when a lease gives the landlord the right to withhold consent to a sublease or assignment, the landlord should act reasonably, and the courts ought not to imply a right to act arbitrarily or capriciously. If a landlord is allowed to arbitrarily refuse consent to an assignment or sublease, for what in effect is no reason at all, that would virtually nullify any right to assign or sublease.

Because most people act reasonably most of the time, tenants might expect that a landlord's consent to a sublease or assignment would be governed by standards of reasonableness. Most tenants probably would not understand that a clause stating "this lease may not be assigned or sublet without the landlord's written consent" means the same as a clause stating "the tenant shall have no right to assign or sublease." Some landlords may have chosen the former wording rather than the latter because it vaguely implies, but does...