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When is a commercial landlord’s withholding of consent against the law?

We recently represented a commercial tenant in a lease assignment dispute.

In 6791971 Canada Inc. v. Messica, 2020 ONSC 1642 the issue at hand was an Application pursuant to s. 23 of the Commercial Tenancies Act where we asked the Court to determine whether the Respondent landlord had unreasonably withheld his consent to an assignment of a lease.

Section 23 of the Commercial Tenancies Act states:

Licence to assign not to be unreasonably withheld

23. (1) In every lease made after the 1st day of September, 1911, containing a covenant, condition or agreement against assigning, underletting, or parting with the possession, or disposing of the land or property leased without licence or consent, such covenant, condition or agreement shall, unless the lease contains an express provision to the contrary, be deemed to be subject to a proviso to the effect that such licence or consent is not to be unreasonably withheld.

Application to court where consent to assignment or subletting withheld

(2) Where the landlord refuses or neglects to give a licence or consent to an assignment or sub-lease, a judge of the Superior Court of Justice, upon the application of the tenant or of the assignee or sub-tenant, made according to the rules of court, may make an order determining whether or not the licence or consent is unreasonably withheld and, where the judge is of opinion that the licence or consent is unreasonably withheld, permitting the assignment or sub-lease to be made, and such order is the equivalent of the licence or consent of the landlord within the meaning of any covenant or condition requiring the same and such assignment or sub-lease is not a breach thereof.

The long and the short of it is that unless a lease contains a provision requiring the consent of the landlord for an assignment of the lease to someone else, the landlord is not supposed to unreasonably withhold consent. Where a landlord withholds consent unreasonably, the tenant can make a request to the Court to dispense with the landlord’s consent and allow the assignment without the landlord’s consent.

In his reasons for decision, Justice Perell emphasized that “each case is a question of fact and the onus is on the tenant to show that the consent has been unreasonably withheld”1.

Justice Perell noted that it was important to frame the question as to whether a reasonable person could have withheld consent.

Justice Perell surveyed the Court’s historical approach on this issue and noted that by limiting the landlord to considering only the character of the proposed tenant or the subject-matter of the lease,

old case-law favoured tenants on this issue. However, contemporaneous case law did not “limit the landlord to any particular criteria and allows the landlord to consider the surrounding circumstances, the commercial realities of the marketplace, and the economic impact of an assignment or sublease”. Justice Perell observed that the financial position of the assignee may be a relevant consideration. Further, it was appropriate for the landlord to consider its own position and also the position and interests of other tenants in a shopping centre enterprise.

This particular case turned on two additional conclusions of the Court:

– it was the information available to – and the reasons given by – the Landlord at the time of the refusal – and not any additional, or different, facts or reasons provided subsequently to the court – that were material; and

– refusal to consent cannot be merely capricious or arbitrary in the sense of being without any reasonable ground.

On the facts of the immediate case, the Respondent landlord had stated, at the time of his refusal to consent, that was declining to consent because of his concerns about a rent re-negotiation by the successor tenant. During the course of the litigation, however, the landlord had advanced a number of after-the-fact grounds to rationalize his refusal to consent. The landlord alleged that the tenant was in default with respect to a variety of matters including: (a) the payment of realty taxes; (b) the payment of insurance premiums; (c) the completion of the work required by paragraph 7 of the Lease Renewal Agreement; (d) in particular, whether the diesel dispenser acquisition and installation had been completed; and (e) repairs to the gas station lot.

The Court found that the landlord’s after-the-fact explanations relating to his perceived concerns about the tenant’s non-compliance with provisions of the lease were not the genuine reasons for the refusal, and, further, in the circumstances of the immediate case, those reasons would not have been sufficient in themselves to justify the landlord’s refusal to consent to the assignment.

The Court noted that “in determining the reasonableness of a refusal to consent,

it is the information available to – and the reasons given by – the Landlord at the time of the refusal – and not any additional, or different, facts or reasons provided subsequently to the court – that are material.”

The decision is relevant to both landlords and tenants of commercial or residential premises. Landlords must act cautiously and document any reasons they rely on to decline request for consent.

If you have any questions about the decision and how it may affect you or your business, please contact Obaidul Hoque.

1 6791971 Canada Inc. v. Messica, 2020 ONSC 1642 at para. 7