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)