Commercial Assignment, Nonconforming Use Expansion, and Holdover
Tenant signed a 10-year commercial lease for a retail store. The lease says: “Tenant shall not assign this lease or sublet the premises without Landlord’s prior written consent, which consent shall not be unreasonably withheld.” In year 4, Tenant transferred the entire remaining term to Assignee without asking Landlord. Landlord accepted rent from Assignee for six months, then learned of the assignment and objected. In year 5, the city down-zoned the parcel, making the store a nonconforming use. Assignee wants to add 500 square feet for a coffee bar. Landlord refuses consent, arguing that any expansion of a nonconforming use is prohibited. The lease also says that if Tenant holds over, “Landlord may elect to treat Tenant as a trespasser or as a month-to-month tenant.” In year 11, Assignee remains in possession after the lease term; Landlord accepts one month’s rent and then sues to evict. Assignee claims a year-to-year tenancy.
1. What is the effect of the assignment without consent, and did Landlord’s acceptance of rent waive the breach?
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The assignment without written consent breached the lease, but it is not automatically void unless the lease says a transfer is void. Landlord could have terminated or sued for damages. By accepting rent from Assignee for six months after the assignment, Landlord likely waived the right to object to that assignment, especially because the lease required consent not to be unreasonably withheld and Landlord knew or should have known who was paying. A court will ask whether Landlord had knowledge of the assignment and whether acceptance was inconsistent with the lease. The safer conclusion is that Landlord consented by conduct. Assignee is in privity of estate with Landlord and is liable for rent and covenants running with the land; Tenant remains liable on its original contract unless released.
2. Can Assignee expand the nonconforming use by adding 500 square feet for a coffee bar? What factors control?
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Probably not without zoning relief. A nonconforming use may generally continue, but it may not be enlarged, extended, or changed to a different use unless the ordinance allows it or the owner obtains a variance or special permit. Adding 500 square feet is an expansion of the physical footprint and may also intensify the use. Assignee must check the local ordinance for limits on incidental expansion, intensity, parking, and change of use. Landlord’s consent is a separate lease issue; even if Landlord consented, the zoning permit would still be required. Assignee should apply to the zoning board rather than rely on the lease.
3. After the lease term expires and Landlord accepts one month’s rent, is Assignee a trespasser, a month-to-month tenant, or a year-to-year tenant?
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Assignee is most likely a month-to-month tenant. A holdover tenant is initially a tenant at sufferance. The landlord may evict or may elect to treat the holdover as a periodic tenant. The lease expressly gives Landlord the choice between trespasser and month-to-month tenant. By accepting one month’s rent after expiration, Landlord elected the month-to-month tenancy. Assignee’s claim of a year-to-year tenancy is weak because the lease specifies month-to-month and the rent was accepted monthly. Landlord can terminate the month-to-month tenancy with proper statutory notice. The lease’s holdover clause controls over the common-law presumption that a year-to-year tenancy arises from acceptance of annual rent.