“Unreasonably Withheld” Consent Clauses In New Zealand Commercial Contracts

If you run a business, chances are you’ve signed (or been asked to sign) a contract that says you can’t do something without the other party’s consent - like assigning the agreement, subleasing a premises, changing control of your company, or bringing in a new key subcontractor.

Often, the clause will add a small but powerful phrase: consent “must not be unreasonably withheld” (or “unreasonably delayed”). These are commonly referred to as “unreasonably withheld” consent clauses.

On paper, it sounds reassuring: the other party can’t just say “no” for no reason. But in practice, it can still get messy - because what’s “reasonable” depends on the contract wording, the commercial context, and the actual reasons for refusing consent.

Below, we’ll walk through what these clauses generally mean in New Zealand, when they come up, what “unreasonable” can look like, and how to negotiate and manage them so you can keep your business moving (without accidentally breaching your contract).

Note: This article provides general information only and does not constitute legal advice. For advice about your specific situation, you should get legal advice tailored to your contract and circumstances.

What Is An “Unreasonably Withheld” Consent Clause?

An “unreasonably withheld” consent clause is a contractual promise that where one party needs the other party’s consent to do something, the decision-maker must act reasonably when deciding whether to give that consent.

You’ll usually see it written like one of these:

• “The Supplier may not assign this Agreement without the Customer’s prior written consent, which must not be unreasonably withheld.”
• “The Landlord’s consent is required for any assignment of the lease and must not be unreasonably withheld or delayed.”
• “The Investor’s consent is required for a change of control, not to be unreasonably withheld.”

From a small business perspective, these clauses matter because they sit right on the fault line between:

• your operational flexibility (e.g. restructuring, selling part of the business, bringing in partners, outsourcing, raising capital), and
• the other party’s risk management (e.g. who they’re contracting with, who occupies their property, who has access to IP or confidential information).

They’re common in contracts where one party cares a lot about who the counterparty is (not just the obligations on paper).

Where Do These Clauses Show Up In NZ Business Agreements?

In New Zealand, you’ll commonly run into “consent not to be unreasonably withheld” wording in a few high-impact areas.

Commercial Leases And Assignments

If you lease premises for your business, the lease often restricts:

• assigning the lease to a buyer if you sell your business
• subleasing part of the premises
• changing the “permitted use” of the space

These approvals often require landlord consent - and it’s very common for the lease to say that consent must not be unreasonably withheld (though the exact wording matters). If you’re negotiating or reviewing a lease, getting advice early can help you avoid being boxed in later - a Commercial Lease Review can be a practical way to sanity-check the consent and assignment clauses before you commit.

Assignment Of Contracts (Customers, Suppliers, And Service Agreements)

Many commercial contracts include a “no assignment without consent” clause. This becomes a big issue when you want to:

• sell the business (asset sale) and transfer customer/supplier contracts to the buyer
• move contracts into a new entity (e.g. restructure from sole trader to company)
• bring in a related company or special purpose vehicle

If the contract requires consent and you proceed anyway, you may be in breach - which can jeopardise the sale or give the other party termination rights. When you’re selling, the contract mechanics around transfer can be just as important as price, which is why many businesses use a tailored Business Sale Agreement (and align it with key third-party consent requirements).

Change Of Control / Ownership Changes

You might see consent clauses tied to “change of control” in:

• distribution agreements
• software/SaaS agreements
• franchise arrangements
• investor/financing documents

These clauses are designed to stop a situation where the other party signed up to work with you - and suddenly they’re dealing with a completely different owner or group structure.

If you’re planning any ownership change (new shareholders, share transfers, bringing in a buyer), it helps to have your internal governance tidy too, including your Company Constitution and any shareholders arrangements.

Subcontracting And Delegation

Some agreements restrict your ability to subcontract (or require consent before you can do so), especially in regulated or sensitive industries (health, finance, data-heavy services).

This often ties into confidentiality, data processing, and responsibility for performance.

What Does “Unreasonably Withheld” Actually Mean In Practice?

Here’s the tricky part: wording that consent must not be unreasonably withheld doesn’t mean the other party must say yes. It generally means they must make their decision based on reasonable grounds, connected to the purpose of the consent clause and the commercial risks the contract is trying to manage.

In plain terms, consent is more likely to be considered reasonably refused where the decision-maker can point to legitimate contract-related concerns, for example:

• Creditworthiness / ability to perform: the proposed assignee or incoming party clearly can’t meet payment obligations or service standards.
• Regulatory or compliance risk: the change would create compliance issues for the decision-maker (e.g. health and safety obligations under the Health and Safety at Work Act 2015, or privacy handling obligations under the Privacy Act 2020).
• Operational impact: the change would materially disrupt service delivery, site operations, or create security/access risks.
• Reputation/brand alignment (where relevant): in some commercial contexts (like franchising, co-branding, premium retail), the identity of the counterparty can be essential.

On the other hand, refusals may be more vulnerable to challenge as unreasonable where they appear arbitrary, capricious, made for an improper purpose, or based on reasons that aren’t genuinely connected to the contractual purpose.

Examples that can raise red flags include:

• refusing consent simply to gain leverage for unrelated renegotiations (e.g. “we’ll consent only if you accept a price increase”)
• refusing consent without explaining the basis for the decision (especially where, in the circumstances, it would be reasonable to expect the decision-maker to identify their concerns)
• applying criteria that were never part of the deal and aren’t commercially connected to the risk being managed
• delaying a decision for an excessive time with no clear justification (especially if the clause also says “not unreasonably delayed”)

What matters most is the why behind the decision, and whether a reasonable business person in that position would consider those reasons legitimate in the circumstances.

Why These Clauses Can Still Cause Disputes (And How To Reduce The Risk)

Even with “not unreasonably withheld” wording, disputes happen because the clause often leaves key points undefined, such as:

• What information you must provide when requesting consent
• How long the other party has to respond
• What conditions they can attach to their consent
• Whether reasons must be given in writing
• What “reasonable” means for your specific industry or deal

From a small business standpoint, that uncertainty is risky because it can stall:

• a business sale (where timing is everything)
• a lease assignment (where you may already be committed to vacating)
• a restructure (where you may be trying to reduce personal liability or bring in investors)

Two practical ways to reduce the risk are (1) drafting the clause more clearly upfront, and (2) using a clean consent process when the time comes.

Draft The Consent Process, Not Just The Consent Requirement

If you have any negotiating power, consider adding detail such as:

• Response timeframe: “within 10 business days” or another clear period.
• Information checklist: what you’ll provide (financials, references, insurance evidence, capability statements).
• Permitted conditions: what conditions are acceptable (e.g. a deed of assignment, guarantee, updated insurance certificates).
• Reason-giving: requiring written reasons if consent is refused.

This can turn a vague promise into something operational you can actually rely on.

Be Careful With “Consent May Be Withheld In The Other Party’s Absolute Discretion”

Some contracts try to have it both ways - they’ll say consent is required, then later say the other party can withhold consent in their “absolute discretion”.

As a business owner, it’s worth treating that as a warning sign. Depending on the drafting and how the clauses interact, it may reduce (or even remove) the protection you thought you had from a “not unreasonably withheld” qualifier. If you’re unsure how multiple clauses interact, it’s a good time to get the agreement reviewed before you rely on it (or before a transaction is on the line).

How To Request Consent (And Put Yourself In The Best Position)

When you need consent, it’s tempting to send a quick email and hope for the best. But if the situation turns into a dispute later, the paper trail matters.

Here’s a practical approach that usually helps NZ businesses get a faster “yes” - and creates evidence if the other party is being difficult.

1) Check The Contract: What Exactly Needs Consent?

Start by identifying:

• what action triggers the consent requirement (assignment, subcontracting, change of control, variations)
• any formalities (written consent, signed deed, specific notice address)
• any timing requirements (e.g. consent must be obtained before a transfer date)

If you’re dealing with a transfer, it can also be worth considering whether you need a formal deed to implement it. Depending on the structure, this might involve an assignment or a novation (they’re not the same thing), and it’s often worth having the documentation done properly rather than relying on email confirmations.

2) Provide The Information They Need To Say “Yes”

A refusal is more likely to be “reasonable” if you didn’t provide enough information for a proper decision.

So in your consent request, you’ll usually want to include (where relevant):

• who the new party is (company details, directors, ownership)
• why the change is happening (sale, restructure, operational change)
• evidence they can perform (financials, references, experience)
• what stays the same (services, key personnel, payment methods)
• any protections you’re offering (guarantees, transition support, training)

3) Ask For Written Consent By A Clear Date

If the contract doesn’t specify timing, propose it. For example: “Please confirm your written consent by Friday, , as settlement is scheduled for .”

This is especially important if you’re selling a business or exiting a lease - delays can have real financial consequences.

4) Keep The Conversation Commercial (Not Personal)

If you end up needing to argue that consent was unreasonably withheld, you’ll want the record to show you acted professionally and addressed legitimate concerns.

Try to keep communications:

• clear
• fact-based
• solution-focused

If the other party refuses, ask them to confirm their reasons in writing. In many situations, that can help clarify the real issues in dispute and move things forward.

How To Draft (Or Negotiate) These Clauses So They Protect Your Business

These clauses are one of those “small paragraph, big consequences” contract terms. If you’re signing an agreement that could shape your business for years (leases, distribution agreements, major supply contracts), it’s worth thinking about future scenarios now.

Here are some negotiation tips that tend to be realistic for NZ small businesses.

Make Sure The Clause Covers Delay As Well As Refusal

If your business depends on timing (and most do), consider wording like:

• “consent must not be unreasonably withheld or delayed.”

A party can effectively “withhold” consent by delaying until the deal is dead - so it’s worth addressing delay explicitly.

Build In Deemed Consent (Where Appropriate)

In some contexts, you may be able to negotiate:

• “If the other party does not respond within X business days, consent is deemed to have been given.”

This is more common where the risk is low and the business impact of delay is high. Not every counterparty will agree, but it’s worth raising if the consent relates to ordinary operational changes.

Limit The Reasons They Can Refuse

Another approach is to specify what counts as reasonable grounds, such as:

• financial standing
• technical capability
• compliance history
• insurance coverage

This reduces grey areas and makes outcomes more predictable.

Align The Clause With Your Growth Plans

If you’re planning to raise capital, bring on a partner, or potentially sell within a few years, consent clauses should be considered alongside your ownership and governance documents.

For example, your internal documents (like a Shareholders Agreement) may allow certain share transfers - but an external key contract might still require third-party consent due to a change-of-control clause. Lining these up early can save a lot of pain later.

Watch For Privacy And Data Handling If A New Party Is Coming In

If consent involves introducing a new service provider or transferring customer data, privacy risk often becomes the “reasonable” basis to refuse consent.

If your business collects personal information (customers, users, patients, even mailing lists), it’s smart to have your Privacy Policy and internal data practices in order, so you can confidently show how information will be handled during any transition.

Key Takeaways

• An “unreasonably withheld” consent clause generally means a party can’t refuse consent for arbitrary or irrelevant reasons - but they may still be able to refuse if they have legitimate, contract-related grounds.
• These clauses commonly appear in NZ commercial leases, assignment provisions, change-of-control clauses, and subcontracting restrictions.
• “Reasonableness” usually turns on the commercial purpose of the clause and whether the refusal is connected to genuine risk (like ability to pay, capability, compliance, or operational impact).
• Disputes often happen because contracts don’t clearly set out timeframes, required information, or what conditions can be imposed - clearer drafting upfront can save major headaches later.
• When requesting consent, give the other party what they need to assess the request, ask for a response by a clear date, and keep communications professional and well-documented.
• If your contract could affect a business sale, restructure, or lease exit, it’s worth getting legal advice early so you don’t discover consent problems when you’re already committed to a deal.

If you’d like help drafting, negotiating, or enforcing a consent clause (or you’re stuck in a situation where consent is being refused), you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.