Kendall v. Ernest Pestana, Inc.
709 P.2d 837 (1985)
Perlitch leased a hangar at the San Jose Airport. Perlitch assigned his interest to Pestana. Pestana subleased the hangar
to Bixler for 25 years (Bixler was to pay Pestana) for his airplane repair
After 11 years, Bixler sold his business to Kendall. As part of the purchase agreement, Bixler was to assign the sublease
to Kendall. However, Pestana balked.
According to the original agreement, the written consent
of the lessor (Pestana) was required for Bixler to assign the
property to Kendall.
Kendall was in better financial shape than Bixler.
Pestana demanded increased rent as a condition of
consent. Kendall refused and sued, arguing that
Pestana's refusal was unreasonable and amounted to an unlawful restraint
on the freedom of alienation.
Alienation is the right to sell your property
interest without constraint.
The Trial Court found for Pestana. Kendall appealed.
The California Supreme Court reversed and remanded for
The California Supreme Court noted that the lease
had a clause requiring consent. They also recognized that a majority of
jurisdictions would find the clause bindings.
However, the Court changed the common law and found that for
reasons of Property law and Contract law, the clause was void if Pestana
In Property law, the Restatement of Property 15.2(2)
says that, "a restraint on alienation without the consent of
the landlord of a tenants interest in leased property is valid, but the
landlord's consent to an alienation by the tenant cannot be
In Contract law, "where a contract confers on one
party a discretionary power affecting the rights of the other, a duty is
imposed to exercise that discretion in good faith and in accordance with
Pestana unsuccessfully made four arguments that had been
used to deny consent:
The lessor made a personal choice of lessee. They
should not be forced to accept a new tenant.
The lessee could have bargained for a more liberal
sublease policy, but chose not to do so.
The issue had already been decided in numerous courts
and should not be changed, since many lessors relied on the original
If the value of a property increases, the lessor has a
right to raise rents to compensate.
The Court found that whether Pestana
was acting reasonably was a question for a jury to decide.
Denying consent solely on the basis of personal taste is
not commercially reasonable.
Denying consent because you want to squeeze a higher
rent out of the new tenant is not commercially reasonable.
The ruling in this case was eventually codified into
Statutory law by the California legislature.