Correctly Interpreting Long-Term Leases Pursuant to Modern Contract Law: Toward a Theory of Relational Leases

Traditionally, the courts have used property law rules to enforce clauses in leases that allow the lessor to withhold consent arbitrarily when the lessee seeks to assign or sublet property. Some recent cases, such as Kendall versus Ernest Pestana Inc. (1985), evidence a growing trend whereby courts are using contract principles to limit the lessor's right to restrict alienation arbitrarily. Short-term leases of 3 years or less and residential leases should be subject to implied terms, such as covenants of good faith and fair dealing, to correct inequities due to bargaining imperfections. Commercial and long-term leases, which are relational contracts and the result of individually negotiated contracts, should be enforced as the parties agreed. Otherwise, there will be a shift to more flexible, shorter term leases, and a death knell for long-term leases.