What is a Reasonableness Standard?

Reasonableness standard, otherwise called standard of reasonableness, is a term that examines whether a decision is appropriate or legitimate, given certain circumstances. This term is often used in finance and is used differently depending on its applications. The reasonableness standard is applicable in the court of law, especially when evaluating how reasonable decisions made by individuals are. When used by the court, a standard process is factored in when reviewing the ultimate decisions individuals make and the thought process invested in making such decisions.

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How is the Reasonableness Standard Applied?

When applied in a lease agreement, a reasonableness standard reviews an early termination in the agreement as to whether it is legitimate or otherwise. The early termination of the lease agreement can be legitimate if the lessor terminates the contract after facing the risk of delinquency or default from the lessee. Perceived harm from the lessee can also lead to early termination. The reasonableness standard is also used by the court for cases relates to businesses. In a business judgment rule, the court must verify whether an ultimate decision in the business agreement was made legitimately or arbitrarily. For instance, if a decision was made to address an incidental risk, the decision can be termed legitimate. Also, if the decision does not affect the health and happiness of the other party, it can be deemed legitimate.