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Jury Awards $9 Million Punitive Damages Verdict Against San Jose Landlord

by Ron Rossi and Missy CornejoRsc-Photo-image

September 23, 2022

Landlords: Stop, Look, And Listen

We recently tried a case before a jury in Santa Clara County Superior Court where the jury sent landlords an emphatic message. The landlord in this case hindered, delayed, and stopped the tenant from subleasing commercial space in San Jose for use as an auto mall. The jury awarded the tenant $2.664 million in general damages and a whopping $9 million in punitive damages for the landlord’s wrongful conduct.

The facts are fairly straightforward. The tenant leased a three-acre parcel of land from the landlord to utilize for a wholesale retail car lot. After improving the property, the tenants then were in a position to enter into potential subleases with Auto Nation, Hertz, Avis, and Paul Blanco, all of which the landlord either delayed or blocked, causing the tenant substantial loss of profits, which justified the award of damages.

In almost every lease, there is a clause that the tenant is able to sublet or assign subject to the landlord’s consent. However, leases also contain a proviso that the consent cannot be “unreasonably withheld.” The question, then, is what is reasonable consent?

Factors that the landlord may consider that are “commercially reasonable” are the following:
1. The financial responsibility of the proposed assignee;
2. The suitability of the use for the particular property;
3. The legality of the proposed use;
4. The need for alteration of the premises; and
5. The nature of the occupancy.

Factors that are generally not considered commercially reasonable include the following:
1. Denying consent solely on the basis of personal taste, convenience, or sensibility;
2. Denying consent in order to obtain a higher rent than originally contracted for;
3. Denying consent in order to be able to end the tenancy or sell the property; and
4. Any other improper motive.

In this case, the landlord did not come up with a commercially reasonable excuse. The landlord contended that they did not want to split the parcel up into more than one subtenant, which, according to the experts who testified, is not a commercially reasonable reason for withholding consent. The experts concluded the contrary: that multiple subtenants would only benefit the landlord.

The landlord also tried to evict the tenant on three separate occasions because, unbeknownst to the tenant, an offer from a developer came in with an all-cash offer to purchase the property for $6 million. The jury saw through the landlord’s contentions and found their motive to be wrongful, malicious, oppressive, and fraudulent and, therefore, unanimously awarded the punitive damages after an almost three-week trial.

It’s very simple – when the tenant requests the landlord’s consent to an assignment or sublease, the landlord does have to be commercially reasonable.

The jury in this case awarded substantial punitive damages to send a message to all landlords in Santa Clara County. Following this verdict, it would be prudent for all landlords to stop, look, and listen when a tenant seeks consent to a sublease or assignment.