Opinion ID: 1897531
Heading Depth: 1
Heading Rank: 2

Heading: Reasonableness of Withholding Consent.

Text: A. Standard of Review. The parties disagree on the standard of review. Superior Staffing filed the case as a declaratory judgment action. The court's review of a declaratory judgment action depends upon how the action was tried to the district court. Passehl Estate v. Passehl, 712 N.W.2d 408, 414 (Iowa 2006). To determine the proper standard of review, we consider the `pleadings, relief sought, and nature of the case [to] determine whether a declaratory judgment action is legal or equitable.' Id. (quoting Nelson v. Agro Globe Eng'g, Inc., 578 N.W.2d 659, 661 (Iowa 1998)). Where there is uncertainty, a litmus test we have applied is whether evidentiary objections were ruled on by trial court. Citizens Sav. Bank v. Sac City State Bank, 315 N.W.2d 20, 24 (Iowa 1982); accord Passehl, 712 N.W.2d at 414. If so, the action is one in law. Passehl, 712 N.W.2d at 414 n. 6; Stanley v. Fitzgerald, 580 N.W.2d 742, 744 (Iowa 1998). Another indication that the action is a legal one is the parties' filing of motions normally made in legal actions. See Citizens Sav. Bank, 315 N.W.2d at 24. Further, a trial court generally issues a decree in an equitable action and a judgment in a legal action. See id. It is not significant that the action was brought as a declaratory judgment action. See Passehl, 712 N.W.2d at 414. The relief requested by Superior Staffing was a court declaration that its obligations under the lease agreement with Agans Brothers were discharged by Agans Brothers' breach. Agans Brothers brought a counterclaim for contract damages based on Superior Staffing's breach of the lease. Generally, an action on contract is treated as one at law. Atlantic Veneer Corp. v. Sears, 232 N.W.2d 499, 502 (Iowa 1975). Where the basic rights of the parties derive from the nonperformance of a contract, where the remedy is monetary, and where the damages are full and certain, remedies are usually provided by actions at law, and equity has no jurisdiction. Berry Seed Co. v. Hutchings, 247 Iowa 417, 422, 74 N.W.2d 233, 237 (1956). If ... both legal relief and equitable relief are demanded, the action is ordinarily classified according to what appears to be its primary purpose or its controlling issue. Mosebach v. Blythe, 282 N.W.2d 755, 758 (Iowa Ct.App.1979). The essential character of both Superior Staffing's petition and Agans Brothers' counterclaim involved breach of contract claims. The controlling issue below was which party breached the contract. At trial, the court ruled on objections. In addition, the court issued a ruling and judgment entry, not a decree. In view of these factors, we find that the case was tried at law, and the scope of review is for errors at law. Iowa R.App. P. 6.907 (2009); Johnson v. Kaster, 637 N.W.2d 174, 177 (Iowa 2001). Under this standard of review, the trial court's findings carry the force of a special verdict and are binding if supported by substantial evidence. Johnson, 637 N.W.2d at 177. We are not, however, bound by the trial court's legal conclusions. Am. Family Mut. Ins. Co. v. Petersen, 679 N.W.2d 571, 575 (Iowa 2004). B. Legal Standards. Because leases are contracts as well as conveyances of property, ordinary contract principles apply. Walsh v. Nelson, 622 N.W.2d 499, 503 (Iowa 2001). We first look to see what the lease provides. The lease provides that an assignment of the lease or sublet of the premises shall not be unreasonably withheld. Where, as here, the dispute centers on the meaning of certain lease terms, we engage in the process of interpretation, rather than construction.  Id. (citing Fausel v. JRJ Enters., 603 N.W.2d 612, 618 (Iowa 1999) (holding interpretation is a process of determining meaning of contract terms while construction is a process of determining legal effect of such terms)). Our goal in interpreting a lease is to ascertain the meaning and intention of the parties. Petty v. Faith Bible Christian Outreach Ctr., Inc., 584 N.W.2d 303, 306 (Iowa 1998). The clause shall not be unreasonably withheld is not ambiguous. If the court finds that no ambiguity exists, contract interpretation and its legal effect are questions of law for the court. Pillsbury Co. v. Wells Dairy, Inc., 752 N.W.2d 430, 439 (Iowa 2008). We have not previously addressed the issue of reasonableness in a lease provision. In assessing the reasonableness of Agans Brothers' refusal, the district court applied a reasonably prudent person standard, relying on List v. Dahnke, 638 P.2d 824, 825 (Colo.Ct.App. 1981), for the proposition that arbitrary consideration[s] of personal taste, convenience, or sensibility are not proper criteria for withholding consent under such a lease provision. We note many other jurisdictions, as well as several secondary treatises, have addressed the issue and reached a similar conclusion. E.g., Norville v. Carr-Gottstein Foods Co., 84 P.3d 996, 1001-02 (Alaska 2004); Kendall v. Ernest Pestana, Inc., 40 Cal.3d 488, 220 Cal.Rptr. 818, 709 P.2d 837, 843 (1985); Golf Mgmt. Co. v. Evening Tides Waterbeds, Inc., 213 Ill.App.3d 355, 157 Ill.Dec. 536, 572 N.E.2d 1000, 1003 (1991); 49 Am. Jur. 2d Landlord & Tenant § 991, at 905 (2006); Gary L. Hall, Annotation, Construction and Effect of Provision in Lease that Consent to Subletting or Assignment Will Not Be Arbitrarily or Unreasonably Withheld, 54 A.L.R.3d 679, 689-93 (2008). After reviewing these sources, we conclude the standard utilized by the district court is in accord with other jurisdictions that have addressed this issue, and we adopt it. See also Restatement (Second) of Property: Landlord & Tenant § 15.2 cmt. g, at 105 (1977) (declaring that in order for a reason for refusing consent to be reasonable it must be objectively sensible and of some significance and not be based on mere caprice or whim or personal prejudice.). In interpreting a similar reasonableness provision, the Montana Supreme Court adopted as a standard, conduct of a reasonably prudent person in the landlord's position exercising reasonable commercial responsibility. Brigham Young Univ. v. Seman, 206 Mont. 440, 672 P.2d 15, 18 (1983). Similarly, the Nebraska Supreme Court held that a lessor may withhold consent only when the lessor has a good faith and reasonable objection to assignment of the lease or subletting. Newman v. Hinky Dinky Omaha-Lincoln, Inc., 229 Neb. 382, 427 N.W.2d 50, 55 (1988) (citing Kendall, 220 Cal.Rptr. 818, 709 P.2d at 843). We agree with the foregoing and hold that a landlord may only withhold consent under a reasonableness clause where a prudent person in the landlord's position exercising reasonable commercial responsibility has a good faith and reasonable objection to assignment of the lease or subletting. C. The Factor Test. The question of whether a landlord's refusal is unreasonable is one of fact. 49 Am. Jur. 2d. Landlord & Tenant § 942, at 868 (2006). In making the determination that Agans Brothers did not unreasonably withhold consent, the district court considered various factors. These factors were: (1) the financial responsibility of the proposed assignees, (2) the original tenant's failure to comply with the lease conditions, (3) the original tenant's failure to indicate a willingness to remain obligated on the lease, (4) the legality of the proposed use and need for alteration of the premises, and (5) the nature of the existing use and the proposed use by the new tenant. Id. This list is not exhaustive. Because the reasonableness of a landlord's refusal is a fact question and case dependent, it would be impossible to list all the relevant factors that might be considered in assessing reasonableness. We focus, therefore, on whether the trial court used appropriate factors in this case. Given the facts of this case, we hold the district court appropriately considered five factors in determining whether Agans Brothers' refusal to consent to the sublease was reasonable. In its appeal, Superior Staffing claims the district court erred in its determination that Agans Brothers' refusal was reasonable in three respects: (1) the court did not consider the factors in the proper context, (2) it did not consider all the factors in making its determination, and (3) the court's findings of fact were not supported by substantial evidence. Superior Staffing makes two separate claims concerning the district court's consideration of the factors it used to determine the reasonableness of Agans Brothers' refusal. The first of these claims is that the court did not consider the factors in the proper context. Specifically, Superior Staffing claims that in its recitation of the five factors, the district court erred by eliminating a sentence which described the proper `focus' of the factors, as was originally set forth in the original source. [1] Superior Staffing declares that the proper focus should be on only those factors that relate to the landlord's interest in preserving the property's value. Id. Superior Staffing's second claim of error is that the district court only considered the last two factors and gave no consideration to whether Superior Staffing met the other three factors. Both of Superior Staffing's contentions can be dealt with by examining the nature of the test adopted by the district court. The five factors outlined by the district court represent a general balancing test, which the court employs to determine whether the landlord's refusal is `based upon a consideration of objective factors.' Kenney v. Eddygate Park Assocs., 19 A.D.3d 859, 797 N.Y.S.2d 581, 582 (2005) (quoting Astoria Bedding, Mr. Sleeper Bedding Ctr., Inc. v. Northside P'ship, 239 A.D.2d 775, 657 N.Y.S.2d 796, 797 (1997)). As the Nebraska Supreme Court noted: The foregoing factors are neither exhaustive nor components in an arithmetical formula for reasonableness. None of the factors is weighted so that more or less weight is attributable or assigned to any particular factor utilized in evaluating a lessor's good faith or reasonableness in withholding consent to a commercial lease assignment or subletting. Additional factors may be educed in future situations involving a lessor's withholding consent in cases similar to that now reviewed by this court. Newman, 427 N.W.2d at 54. Superior Staffing's assertion suggests that Sadhu's financial standing and Superior Staffing's guarantee of the rent are the only factors that should be considered. Although we acknowledge that the financial viability of the proposed new tenant and guarantee of Superior Staffing are factors to be considered, these factors, however, do not trump the factors that the district court found determinative, especially with regard to alterations to the property and uses of the property. A refusal to consent certainly may be based on financial responsibility of the subtenant. Kenney, 797 N.Y.S.2d at 582. It is, however, but one factor. See Kendall, 220 Cal.Rptr. 818, 709 P.2d at 842; Fernandez v. Vazquez, 397 So.2d 1171, 1174 (Fla.Dist.Ct.App.1981); Maxima Corp. v. Cystic Fibrosis Found., 81 Md.App. 602, 568 A.2d 1170, 1176 (Md.Ct. Spec.App.1990); Ernst Home Ctr., Inc. v. Sato, 80 Wash.App. 473, 910 P.2d 486, 493 (1996). The district court appropriately applied a general balancing test. In its application it was not required to treat each factor as a necessary component of the test, nor was it required to give certain factors more weight than others. The district court had the discretion to decide which factors to consider when determining whether Agans Brothers' refusal was based upon objective factors. The district court did not err in focusing its analysis on the last two factors, nor in its determination that financial concerns were not the only permissible reasons to refuse the sublease. D. Evidentiary Analysis. Superior Staffing also claims that the trial court's findings of fact were not supported by substantial evidence. The trial court found Agans Brothers' concerns [were] based upon objective factors and not personal taste, convenience or sensibility, and it had not unreasonably [withheld] its consent to the transfer proposed by Superior Staffing. These findings are binding on us if supported by substantial evidence. Johnson, 637 N.W.2d at 177. Superior Staffing's proposed subleasor, Madhuri Sadhu, wanted to run an Indian grocery store that prepared snacks. Ultimately, Agans Brothers rejected the tenancy for four reasons. First, the premises already had a Sudanese grocery store, and Agans Brothers was concerned that another ethnic grocery store on the premises would hurt its existing tenant's business. Second, Sadhu's plan to make snacks would require kitchen equipment and substantial alteration of the roof overhang in the rear of the building to accommodate external venting. Third, food odors might travel from the common ventilation shared by Agans Brothers' retail business, Clive Power and Equipment, Superior Staffing's office space, and the Sudanese grocery store. Finally, food deliveries to Sadhu's grocery store might interfere with deliveries to Agans Brothers' retail business. The district court found Agans Brothers' testimony regarding these concerns credible. On appeal in a law action we are bound by such factual findings on the credibility of witnesses. Plymouth Farmers Mut. Ins. Ass'n v. Armour, 584 N.W.2d 289, 292 (Iowa 1998). The record supports the district court's finding that Agans Brothers' reasons for withholding consent were genuine and objective. As the original trier of fact, the district court was in a markedly better position to judge the credibility of Agans Brothers' stated rationale. We find no reason to disturb the district court's judgment that Agans Brothers did not unreasonably withhold its consent to Superior Staffing's proposed sublease. The district court's findings are supported by substantial evidence, and we affirm its ruling and judgment.