Key Takeaways

• Assignment transfers the whole lease to a new tenant; subletting hands part or all of the space to someone else while you stay on the original lease.
• Most commercial leases require the landlord’s consent to assign or sublet, and how much discretion the landlord has depends on the lease’s wording.
• Under California law, when a lease requires consent but does not specify a standard, the landlord cannot unreasonably withhold it, a rule rooted in the Kendall case.
• “Reasonable” means a legitimate commercial concern, not simply a desire to capture higher rent.
• Parties can negotiate a stricter or looser standard, so the assignment clause is worth getting right before you sign.

Assigning or Subletting a Commercial Lease in California

Business needs change. You outgrow a space, you downsize, you sell the business, or you simply want out before the term ends. In each case, the ability to hand the lease, or part of the space, to someone else can be enormously valuable, and whether you can do so is governed by the assignment and subletting provisions of your lease, backed by some important California law. Here is how assignment and subletting actually work for commercial tenants and landlords in California.

Assignment vs. subletting: the difference matters

The two terms are often used loosely, but they are not the same:

• Assignment transfers your entire interest in the lease to a new tenant (the assignee), who steps into your shoes for the rest of the term. Importantly, unless the landlord releases you, you may remain on the hook if the assignee defaults, assignment transfers your rights, but does not always erase your obligations.
• Subletting means you (the original tenant) lease out part or all of the space to a subtenant while remaining the tenant under the original (master) lease. You stay fully responsible to the landlord and become a kind of landlord yourself to the subtenant.

Which one fits depends on your goal. Selling the business or exiting entirely points toward assignment; temporarily offloading extra space points toward a sublet. Either way, the lease almost always has something to say about whether and how you can do it.

The consent requirement

Most commercial leases prohibit assignment or subletting without the landlord’s prior written consent. That is standard, and understandable: the landlord chose you as a tenant and has a legitimate interest in who occupies the space and stands behind the rent. The real question is how much discretion the landlord has when you ask for consent, and that turns on the lease’s wording and on California law.

Three common variations:

• Consent not to be unreasonably withheld. The lease requires consent but says the landlord cannot withhold it unreasonably. This is tenant-favorable and the most balanced position.
• Sole-discretion consent. The lease lets the landlord withhold consent for any reason or no reason. This is landlord-favorable and significantly limits the tenant’s flexibility.
• Silent on the standard. The lease requires consent but does not say whether the landlord must be reasonable. This is where California law fills the gap.

What California law says when the lease is silent

California has a specific rule for this situation. When a commercial lease requires the landlord’s consent to a transfer but does not spell out a standard, the law presumes the consent may not be unreasonably withheld. This principle traces back to a well-known California Supreme Court decision, Kendall v. Ernest Pestana, Inc., which held that a commercial landlord may not unreasonably refuse consent to an assignment even where the lease is silent on the point. California statutes on commercial lease transfers build on this framework.

What counts as “reasonable”? Courts apply an objective standard. A landlord’s refusal must rest on a legitimate commercial concern, the proposed new tenant’s financial weakness, an incompatible or riskier use, an inability to perform the lease, rather than on a desire to extract more rent or pressure the tenant into concessions. In other words, “I’ll only consent if you pay me more” is generally not, by itself, a reasonable basis for refusal under this standard. A landlord worried about a financially shaky assignee, by contrast, usually is on solid ground.

One important caveat: this reasonableness rule is the default that applies when the lease is silent. Parties are free to negotiate a different standard. A lease can grant the landlord sole-discretion consent, which courts will generally enforce, or it can spell out specific, agreed conditions for consent. So the protection the reasonableness rule provides can be negotiated away, which is exactly why the assignment clause deserves attention at signing rather than assuming the law will protect you later.

Making the consent process work

Even where the law backs a tenant’s right to a reasonable decision, the consent process goes more smoothly when the tenant approaches it well. A landlord asked to approve a transfer is, in effect, being asked to accept a new party’s financial responsibility, so the request lands better when it answers the questions a landlord will naturally have. A tenant who provides the proposed assignee or subtenant’s financial information, business background, and intended use up front gives the landlord what it needs to say yes, and makes an unreasonable refusal harder to justify if the standard applies. Vague requests invite delay; complete ones invite decisions.

For landlords, the mirror discipline is to respond within a reasonable time and to articulate the actual basis for any concern rather than going silent. Where the lease requires reasonableness, an unexplained delay or a refusal dressed up to disguise a simple wish for higher rent can itself become the dispute. A landlord who promptly identifies a genuine problem, an assignee who cannot demonstrate the financial wherewithal to carry the lease, say, is on far firmer ground than one who stalls. Many leases also set a timeline for the landlord to respond to a consent request; where yours does, both sides should calendar it. Handled well from both directions, most consent requests resolve without a fight, which is the outcome the law and the parties’ own interests both favor.

Why the clause matters to each side

For a tenant, the assignment and subletting clause is your exit and flexibility valve. A clause that lets you transfer the lease on reasonable terms preserves your ability to sell the business, relocate, or downsize. A sole-discretion clause can trap you in a lease you no longer need, with no practical way out short of negotiating a buyout. Tenants should push for “consent not to be unreasonably withheld,” and may also negotiate related points, like a right to recapture, profit-sharing on a profitable sublease, or a clear consent timeline.

For a landlord, the clause is about control and protection: ensuring a financially sound occupant, preserving the tenant mix, and capturing value where appropriate. Landlords legitimately want consent rights; the question is how much discretion is reasonable for the deal. A landlord who withholds consent should be prepared to articulate a genuine commercial reason, because an unreasonable refusal (where the standard applies) can expose the landlord to a dispute.

A word on unauthorized transfers

Assigning or subletting without the required consent is a serious step, not a shortcut. An unauthorized transfer is typically a material breach of the lease, and one that is often treated as incurable, meaning it can support termination and eviction without an opportunity to fix it. If you need to transfer and the landlord is resisting, the path is to work the consent process (and, if the standard applies, hold the landlord to reasonableness), not to transfer without permission and hope it goes unnoticed. Given the stakes, this is a situation where advice before acting is well worth it.

Bay Legal helps California tenants and landlords navigate assignment, subletting, and consent disputes. For guidance on your specific situation, call (650) 668-8000 or schedule a consultation at baylegal.com/contact.

The bottom line

Assignment transfers the whole lease; subletting passes along the space while you stay responsible. Most commercial leases require landlord consent, and when the lease is silent on the standard, California law, rooted in the Kendall decision, presumes consent cannot be unreasonably withheld, meaning the landlord needs a legitimate commercial reason, not just a wish for higher rent. But that default can be negotiated away, so the assignment clause is one of the more important terms to get right before signing. And never transfer without the required consent: an unauthorized transfer is usually a material, often incurable, breach.

Need to assign or sublet, or responding to a tenant’s request? For guidance on your specific situation, call (650) 668-8000 or schedule a consultation at baylegal.com/contact.

Frequently Asked Questions

What is the difference between assigning and subletting a commercial lease?

Assignment transfers your entire interest in the lease to a new tenant who takes over for the rest of the term, though you may remain liable if they default unless the landlord releases you. Subletting means you lease part or all of the space to a subtenant while staying responsible under the original lease. Assignment is for fully exiting; subletting is for offloading space while remaining the tenant.

Can a commercial landlord refuse to let me assign or sublet?

It depends on the lease. Most require the landlord’s consent. If the lease says consent cannot be unreasonably withheld, or is silent on the standard, California law generally requires the landlord to have a legitimate commercial reason to refuse. If the lease grants sole-discretion consent, the landlord has much broader power to say no.

What does the Kendall case mean for commercial assignments?

In Kendall v. Ernest Pestana, Inc., the California Supreme Court held that a commercial landlord may not unreasonably withhold consent to an assignment even when the lease is silent on the standard. Courts apply an objective test: the landlord’s refusal must rest on a legitimate commercial concern, not simply a desire to charge higher rent.

Is wanting higher rent a reasonable basis to refuse consent?

Generally not, by itself, where the reasonableness standard applies. A refusal aimed at extracting more rent or forcing concessions is typically not considered reasonable, while a refusal based on a genuine concern, like the proposed tenant’s financial weakness or an incompatible use, usually is. The lease’s wording controls whether the reasonableness standard applies at all.

What happens if I assign or sublet without consent?

An unauthorized transfer is typically a material breach of the lease and is often treated as incurable, meaning it can support termination and eviction without a chance to fix it. The safer path is to work through the consent process, and hold the landlord to a reasonableness standard if the lease requires one, rather than transferring without permission.