Most commercial leases contain provisions that require tenants to obtain the consent of their landlord to a proposed assignment or sublease. Additionally, they also contain provisions that the landlord will not withhold that consent unreasonably. In the absence of such provisions, subsection 23(1) of the Commercial Tenancies Act provides that unless a lease contains an express provision to the contrary, it will be deemed to include a clause prohibiting the landlord’s consent to an assignment or a sublet from being unreasonably withheld.
From a landlord’s perspective, it is important to known when consent can be withheld and when it may be considered unreasonable to do so. Generally, if the assignment or sublet is expected to diminish the value of the landlord’s rights under the lease, the landlord may reasonably withhold its consent. Other relevant considerations in withholding consent include the proposed assignee or sublessee’s financial position and the landlord’s reasonable belief that the proposed assignee or sublessee would be unable to meet their obligations under the lease.
The question of reasonableness is dependent on the unique facts of each situation. Reasonableness would be determined on the circumstances of each particular case, including the commercial realities of the market place and the economic impact of an assignment on the landlord. Both landlords and tenants should note that if the question of the reasonableness of the landlord’s conduct vis-a-vis the assignment is brought before the courts, the burden would be on the tenant to satisfy the court that the landlord’s refusal was unreasonable. In making its determination, the reasons that will be material to the court’s decision will be the reasons given by the landlord at the time the refusal was made and not any additional or different reasons that are subsequently raised before the court.
Where a lease is silent as to the issue of assignment, the tenant may generally assign its interests without obtaining the landlord’s consent where the assignment would not increase the burden on the landlord or if the landlord did not enter into the lease based on the tenant’s unique skills or characteristics.
For further information on commercial tenancies, assignments or subleases, please visit our blog periodically for additional posts on these topics.