commercial-lease-assignment-consent-framework

Statutory Framework (s.24)

Default Rule: Tenant May Assign/Sublet Freely

s.24(1): "A covenant in a lease that the lessee will not assign or sublet without leave shall, unless the lease contains an expressed provision to the contrary, be taken to be subject to a proviso that such leave is not to be unreasonably withheld."

Default: If lease silent on assignment, tenant may assign freely (no landlord consent required)

Implication: Commercial leases ALWAYS include assignment restrictions

Lease Can Restrict: "Consent Not to be Unreasonably Withheld"

Standard restriction: "Tenant shall not assign or sublet without landlord's prior written consent, such consent not to be unreasonably withheld."

Effect:

• Tenant cannot assign without consent (lease restriction)
• BUT landlord cannot refuse consent unreasonably (statutory limit per s.24)

Burden of proof: Landlord must prove consent refusal reasonable (tenant does NOT prove unreasonableness)

Absolute Prohibitions: Enforceable if Clearly Drafted

Absolute prohibition: "Tenant shall NOT assign or sublet under any circumstances."

Enforceability: Valid if clear and unambiguous

• No requirement to prove reasonableness (consent not required at all)
• Complete prohibition on assignment

Example:

• Lease states: "No assignment or subletting permitted"
• Tenant requests consent to assign → Landlord refuses
• Analysis: Absolute prohibition - landlord need not prove reasonableness, refusal valid

Rare in practice: Most commercial leases use "consent not unreasonably withheld" (attracts better tenants)

Silent Lease: No Restriction, Tenant Can Assign Freely

If lease contains no assignment clause: Tenant may assign without landlord consent (s.24 default rule)

Example:

• Lease silent on assignment
• Tenant assigns lease to third party, notifies landlord
• Landlord objects → No grounds - lease allows free assignment

Landlord's remedy: None (cannot void assignment) - should have included restriction in lease

Unreasonable Withholding of Consent

Defining "unreasonable" - when landlord MUST consent vs. when landlord MAY refuse.

Reasonable Grounds to Refuse

Landlord's refusal reasonable if based on legitimate business concerns.

1. Poor credit/financials of proposed assignee:

• Example: Proposed assignee is startup with no revenue, poor credit score, no guarantor
• Reasonable refusal: Assignee does not meet landlord's creditworthiness standards (would not lease to this tenant directly)

2. Incompatible use with building tenant mix:

• Example: Office building, proposed assignee wants to operate restaurant (odors, grease, incompatible)
• Reasonable refusal: Use conflicts with building operations, other tenants

3. Proposed use violates lease terms or bylaws:

• Example: Lease permits "professional office use only", assignee wants to operate gym
• Reasonable refusal: Violates use clause

4. Direct competition with landlord's other tenants (if exclusive use clause):

• Example: Landlord granted exclusive to existing tenant ("only pharmacy in building"), proposed assignee is pharmacy
• Reasonable refusal: Violates exclusive use obligation to existing tenant

Unreasonable Grounds

Refusal based on factors unrelated to legitimate landlord interests.

1. Wanting higher rent from new tenant:

• Example: Lease rent $20/sf, market rent $30/sf, proposed assignee willing to pay $30/sf to landlord (not assigning tenant)
• Unreasonable refusal: Landlord wants to capture rent increase, refuses assignment to re-lease at higher rate
• Rationale: Landlord has no right to tenant's profit on assignment (lease is property right)

2. Personal dislike of assignee:

• Example: Landlord dislikes assignee's politics, ethnicity, personality
• Unreasonable refusal: Subjective personal preference (not business reason)

3. Arbitrarily refusing well-qualified tenant:

• Example: Assignee has excellent credit, compatible use, meets all lease requirements, but landlord refuses "because I feel like it"
• Unreasonable refusal: No articulated business reason

4. Excessive delay in responding:

• Example: Tenant submits assignment request with full financial package, landlord waits 6 months to respond
• Unreasonable: Deemed consent by delay (landlord must respond within reasonable time)

Burden of Proof: Landlord Must Prove Reasonableness

Rule: Landlord bears burden to prove refusal reasonable

NOT: Tenant's burden to prove unreasonable

Implication: If landlord cannot articulate legitimate business reason → deemed unreasonable, consent required

Example:

• Tenant requests assignment, provides assignee financial info
• Landlord refuses, states "I don't want to consent"
• Burden: Landlord must prove reason (poor credit? incompatible use?)
• If landlord cannot prove: Refusal unreasonable, tenant may assign (court orders consent)

Landlord Recapture Rights

Landlord's option to terminate lease when tenant requests assignment - eliminates tenant's profit on assignment.

"Consent or Recapture" Clauses (Landlord Can Terminate Lease)

Clause: "If tenant requests assignment consent, landlord may (a) consent, or (b) terminate lease and recapture premises."

Effect: Landlord need not consent - can instead terminate lease, preventing assignment

Tenant's dilemma:

• Request assignment: Risk landlord terminates lease (lose leasehold profit)
• Don't request: Cannot assign without consent (lease violation if assigns anyway)

Example:

• Lease rent: $15/sf (below-market)
• Market rent: $25/sf
• Leasehold value: 5-year term, $10/sf × 10,000 sf × 5 years = $500,000 profit
• Tenant finds assignee willing to pay $450,000 for assignment
• Tenant requests consent: Landlord invokes recapture, terminates lease
• Result: Tenant loses $450,000 assignment profit, landlord re-leases at $25/sf (captures value)

Must Be Explicitly in Lease

Requirement: Recapture right must be express in lease

No implied recapture: If lease silent, landlord cannot recapture (only consent/refuse consent)

Example:

• Lease states: "No assignment without consent, not unreasonably withheld" (no recapture clause)
• Tenant requests assignment
• Landlord says: "I'll terminate lease instead of consenting"
• Result: No recapture right - landlord must consent or prove refusal reasonable

Valuation of Tenant's Loss (Profit on Assignment)

Compensation if landlord recaptures: Some leases require landlord to compensate tenant for profit on assignment

Calculation:

• Profit tenant would receive: Amount assignee willing to pay for assignment
• OR: NPV of rent differential (market rent - lease rent) × remaining term

Example:

• Lease rent: $20,000/month
• Market rent: $30,000/month
• Remaining term: 3 years (36 months)
• Profit calculation: ($30,000 - $20,000) × 36 months = $360,000
• Discount to present value: $360,000 ÷ (1 + 6%) ^1.5 years ≈ $330,000

Landlord payment: $330,000 to tenant (compensation for lost assignment profit)

Rare in practice: Most leases do NOT require compensation (landlord can recapture without payment)

Case Law on Assignment

Citibank Canada v. Confederation Life Insurance Co. - Reasonableness Test

Facts: Tenant (Citibank) requests assignment to ABC Corp, landlord refuses (concerns about ABC's creditworthiness)

Test: Refusal reasonable if based on factors that would influence reasonable landlord

Factors court considers:

• Credit strength: Proposed assignee's financials vs. original tenant
• Use compatibility: Proposed use vs. building tenant mix
• Lease compliance: Assignee's history, reputation

Holding: Landlord's refusal reasonable - ABC Corp weaker credit than Citibank, landlord entitled to maintain creditworthy tenant

Principle: Reasonableness assessed objectively (would reasonable landlord refuse?), not subjectively (this landlord's preference)

Lehndorff Canadian Pension Properties Ltd. v. Davis & Henderson Ltd. - Timing of Consent Response

Facts: Tenant requests consent, landlord delays response for 9 months

Holding: Excessive delay = deemed consent

Reasonable timeline:

• 30-60 days: Landlord should respond within this period
• Longer delays: May be deemed unreasonable (deemed consent by silence)

Landlord's duty: Respond promptly, request additional information if needed (don't delay indefinitely)

Example:

• Tenant submits assignment request March 1
• Landlord receives financials, credit check, business plan
• Landlord silent until December 1 (9 months)
• Result: Deemed consent (excessive delay = unreasonable)

Mendleson v. Penny Lane Shopping Centre Ltd. - Recapture Rights

Facts: Lease contains recapture clause, tenant requests assignment, landlord recaptures lease

Holding: Recapture clause enforceable - landlord need not consent if recapture option exists

Valuation: Court assesses tenant's loss (profit on assignment tenant would have received)

Compensation: Lease required landlord pay tenant 50% of profit on assignment as compensation for recapture

• Profit: $200,000 (assignee's offer)
• Landlord payment: $100,000 to tenant (50% per lease terms)

Principle: Recapture clauses valid if express in lease, but courts favor compensation to tenant (prevent unjust enrichment)

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