Law Times

Law Times • November 3, 2008 FOCUS PAGE 13 Reserve the right to be unreasonable in the lease Continued from page 9 said Robbins. "And, from a tenant's perspective, the less interference you can have from a landlord when you are looking to assign, or sub- lease, or do a change of control of your company, the more valuable your lease is going to be to you." Also, from a tenant's perspec- tive, transfer provisions are really an exit strategy because "it's not very often that tenants will be able to negotiate a right to terminate a lease. So, if they're looking to get out of their lease, the easiest way to minimize their liability is to do a transfer," she said. "But, during a downturn in the market, I think what we're seeing is people are dealing with these is- sues a lot more frequently. Tenants may be looking to downsize, to cease operations, or to take advan- tage of and maybe make a profit selling the business before things get worse," Robbins said. "They may be also looking to cut their losses before things get worse so they want to be able to get out of their lease or get out of their prem- ises. If you have favourable transfer provisions, this can help you mini- mize your liability and maximize on the value of your lease." Robbins noted there might also be tenants looking to grow during an economic downturn, thus this could be a "great time" to pick up a good location or lease, and "from a landlord's perspective you're going to be seeing more requests for these consents to a transfer." There are a number of rights and obligations for tenants to re- member. First is to find out if con- sent is even required, said Robbins. "If your lease doesn't have a restric- tion on assignment, subletting, or change of control then there are no restrictions at law on your ability to transfer," she noted. "They need to be set out in a lease if a landlord wants to have those restrictions." The tenant should look at the lease for what transactions are going to trigger the obligation to obtain consent. A conditional assignment or sublease does not breach the re- quirement not to assign or sublease without consent, she added. What are the consequences for failing to obtain consent when required? Robbins said there is no cure pretty significant for a tenant and can be very costly." As for the landlord's rights and obligations, Robbins said unless the lease says otherwise, a land- lord must act reasonably when a tenant requests its consent pursu- ant to a covenant in a lease not to assign or sublease without con- sent (s. 23(1) of the CTA). "If you want to be unreason- 2. given consent?' The question they're going to be asking is, 'Would a reasonable personal have withheld consent?' That's the burden for the tenant." In determining the reasonable- able, you need to reserve that right in your lease," said Robbins. But what is acting reason- ably? Robbins said in 2003 the Ontario Superior Court in On- tario Inc. v. Welbow Holdings Ltd. set out six principles that can be looked to determine the issue: The burden is on the tenant 1. to satisfy the court that con- sent was unreasonably with- held. Robbins said the "land- lord doesn't have to defend his business decision, the tenant is going to have to prove the landlord was unreasonable and when the court is looking at this they're not going to say, 'Well, would I have given consent or would a reasonable person have 3. ness of a refusal to give consent, it is the information available to and the reasons given by the landlord at the time of the re- fusal. Robbins explained that if the landlord "ends up in court a year later having to explain why he said no, it's not going to mat- ter that he came up with a lot of great reasons in that year as to why this was a bad thing for the landlord. The court is going to look at the reasons and infor- mation that was available to the landlord when he said no." The question must be consid- 4. 5. to the landlord," she said. "If you didn't have the right to demand a security deposit in your lease, now is not the time to be asking for it." Probability the assignee will de- fault in its obligations under the lease may be a reasonable ground for withholding consent. The financial position of the as- 6. signee may be a relevant consid- eration. Robbins said generally the cases have been pretty clear that landlords are entitled to sat- isfy themselves of the financial worthiness and the business his- tory of the proposed transferee. "The question of reasonable- consent is made, make sure it's con- sidered and make sure it's responded to. "The failure to respond is going to be considered acting unreason- ably," she said. "If you act honestly and in good faith you generally can't lose. That's always going to be seen favourably by a court. And the last thing you might consider is do- ing your own due diligence." As for tenants, if a landlord is ered in light of the provisions of the lease. Robbins said that under this heading is also the requirement that the landlord can't use this as an opportu- nity to better their deal. "You can't be seeking amendments to the lease that would make the lease more advantageous ness is essentially one of fact that must be determined on the circumstances of the particular cases including the commercial realities of the marketplace and the economic impact of an as- signment on the landlord. Deci- sions in other cases that consent was reasonably, or unreasonably, withheld are not precedents that will dictate the result in the case before the court," she said. Robbins said if a request for perceived as unreasonable, there is recourse. Robbins said an ap- plication may be brought to the court under s. 23(2) of the CTA to obtain an order that consent was unreasonably withheld. But, she warned it's often an unsatisfac- tory process for the tenant because it can take a long time and by the time consent is given, the business opportunity may be lost. Two remediees include for dam- ages and fundamental breach. Both could have harsh results and are "all the more reason to make sure that you [landlords] are acting reason- ably when you get these requests." Said Robbins: "Protect your interests and minimize your expo- sure to liability." LT for the breach. "If you've granted an assignment or you've granted a sublease, you can't take those things back. So, that would give the landlord the right to terminate or forfeit the lease. Ordinarily, if you're a tenant and you're not behaving yourself and you get ter- minated for a breach of lease you could go to the court and ask for a relief from forfeiture . . . But, you cannot get relief from forfeiture for a breach of a restriction on as- signment or subletting that's spe- cifically set out in the Commercial Tenancies Act," she said. Robbins said there may be At Stewart Title, it's how we work that sets us apart. We deal in title insurance and related products, undertaking no part of the transaction that has traditionally fallen to legal professionals. relief under the Courts of Jus- tice Act, but "we haven't seen a lot of cases yet that have re- ally talked about this and what you're going to have to do to convince the court to give you relief under this section, but I do think the threshold is going to be higher than relief under the Commercial Tenancies Act . . . The consequences of breach- ing the transfer provisions are Since our inception into the Canadian market, you will find that we have consistently combined comprehensive coverage with unparalleled support for legal professionals. We are dedicated to streamlining your practice and increasing your revenue through our programs and innovative technology solutions. At Stewart Title, we know it's our relationship with our customers that determines our success. That's why service is the foundation of our business and integrity, the keystone in all our dealings. Call us today or visit www.stewart.ca. Canadian Head Office (Toronto): (888) 667-5151 Atlantic Canada: (888) 757-0078 Western Canada: (866) 515-8401 Québec: (866) 235-9152 Untitled-3 1 www.lawtimesnews.com 10/27/08 10:17:34 AM

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• Focus On Real Estate Law