By Kirk Cherry and Julia Conlon
One court case stands out in commercial leasing as guidance for landlords navigating the complexities of consenting to lease assignments. Enter Rabin v 2490918 Ontario Inc. 2023 ONCA 49, a decision that highlights essential considerations for landlords in handling assignment requests. Here are the key takeaways for leasing professionals:
Timeliness and Reasonableness: The Cornerstones of Consent
In the fast-paced world of commercial leasing, time is of the essence. The Rabin case emphasizes the significance of responding promptly to assignment requests. Failure to do so may lead to accusations of unreasonable withholding of consent. Landlords should exercise due diligence and prioritize timely responses, fostering transparency and professionalism in tenant dealings.
Waivers Revisited: Unveiling Tenant Rights
The case highlights the importance of distinguishing between negotiation efforts and the waiver of rights. Engaging in negotiations does not automatically constitute an unequivocal intention to abandon tenant rights. Landlords must be cautious not to interpret negotiations as waiving the tenant’s right to a response from the landlord on the request for an assignment. Respecting tenant rights to a response within the specified period is essential.
Reasonable Refusals: Justification is Key
Subject to the terms of a particular lease, landlords are generally granted the authority to refuse consent to lease assignments; however, the reasons provided must meet the “reasonable” standard. Most leases provide that a landlord may not unreasonably withhold consent to an assignment. In Rabin, the court scrutinized the landlord’s reasoning for refusal and found it inadequate. To ensure compliance with the court’s guidance, landlords should base their decisions on objective and valid grounds, avoiding arbitrary refusals that could potentially lead to legal repercussions. Legal counsel can assist in evaluating whether a landlord refusal to an assignment will be considered reasonable by the courts.
Striking a Balance: Economic Impact and Commercial Realities
When faced with an assignment request from a tenant, landlords are required to consider both the economic realities of the marketplace, including the likelihood of success of the assignee’s business, and the financial impact of the assignment to the landlord. The court’s guidance in Rabin underscored the importance of evaluating the proposed assignee’s financial position and assessing the probability of default on lease obligations. In making informed decisions, landlords must weigh these factors against the tenant’s right to assign as provided in the lease.
Court Guidance for Reasonableness:
In the enthralling saga of Rabin, the Court laid down essential factors to determine whether a landlord acted reasonably in withholding consent:
- The burden rests on the tenant to demonstrate that the refusal to consent was unreasonable.
- The court will consider the information available to the landlord and the reasons provided by the landlord at the time of refusal for an assignment. Any subsequent facts or reasons provided are not material to the court’s decision.
- The court will examine the relevant provisions of the lease that define the assignment and the rights of both tenant and landlord in relation to consent.
- Depending on the circumstances, the high risk that the proposed assignee will default on its lease obligations may be considered reasonable grounds for withholding consent.
- The financial position of the assignee may be relevant in the court’s assessment.
- The question of reasonableness is essentially one of fact and must be determined based on the specific circumstances of the case, including the commercial realities of the marketplace and the potential economic impact of an assignment on the landlord.
Rabin offers valuable insights and court-provided guidance for landlords in assessing tenant requests for assignments. Subject to the specific terms in a lease agreement, landlords are cautioned to exercise timeliness and reasonableness in responding to assignment requests. Respecting tenant rights, justifying refusals with valid grounds, and striking a balance between economic interests and the commercial landscape, will ensure landlords reduce the risk of costly litigation following a refusal to an assignment request.
For more information on this article, or for assistance with any commercial real estate matter, please contact one of the authors or another member of W Law’s experienced Real Estate group.