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clearly within the parties' reasonable expectations

5/20/2014

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In another case, a commercial lease provided that the landlord, within 30 days of receiving notice that the tenant intended to sublet or assign the lease, could terminate the rental agreement, enter into its own lease with the intended sublessee or assignee, and keep all the profits realized on account of the termination and reletting. (Carma Developers, 2 Cal. 4th at 351-352.) The landlord did exactly what the lease said it could, terminating the lease after receiving notice of the intent to sublease and then negotiating directly with the intended sublessee.The tenant argued that the implied covenant of good faith and fair dealing prevented the landlord from ending the lease unless its objection to the transfer was in good faith. The court of appeal agreed, concluding that as a matter of law the landlord's termination of the lease "solely to realize a profit" breached the implied covenant. But the California Supreme Court reversed, holding that the landlord's "termination of the lease in order to claim for itself appreciated rental value of the premises was expressly permitted by the lease and was clearly within the parties' reasonable expectations." (Carma Developers, 2 Cal. 4th at 376 (emphasis added).)
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