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Landlord and Tenant (Commercial) - Assignment or Sublet - Landlord's Consent. Rabin v. 2490918 Ontario Inc.
In Rabin v. 2490918 Ontario Inc. (Ont CA, 2023) the Court of Appeal considers the law of commercial landlord and tenant regarding assignment consent by the landlord [CTA 23(2)]:[32] Subsection 23(1) of the CTA stipulates that a landlord’s consent to an assignment is not to be unreasonably withheld, unless the lease expressly provides to the contrary. Subsection 23(2) enables a tenant to apply to the Superior Court of Justice for a remedy where a landlord has neglected or refused to provide consent and that consent is unreasonably withheld. For the purposes of this appeal, the relevant provisions of those subsections concerning consent to lease assignments read as follows:23 (1) In every lease made after the 1st day of September, 1911, containing a covenant, condition or agreement against assigning … the possession, or disposing of the land or property leased without … 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 … consent is not to be unreasonably withheld.
(2) Where the landlord refuses or neglects to … consent to an assignment …, a judge of the Superior Court of Justice, upon the application of the tenant …, made according to the rules of court, may make an order determining whether or not the … consent is unreasonably withheld and, where the judge is of opinion that the … consent is unreasonably withheld, permitting the assignment … to be made, and such order is the equivalent of the … consent of the landlord within the meaning of any covenant or condition requiring the same and such assignment … is not a breach thereof. [33] Article 11.1 of the parties’ lease does not trigger the exception in s. 23(1). To the contrary, article 11.1 provides that the respondent’s consent to any assignment by the appellant is required but that the respondent’s consent is not to be unreasonably withheld, subject only to article 11.1(a), which requires the tenant to provide written notice of the assignment to the landlord and certain additional information if required by the landlord, and which requires the landlord to advise the tenant if it would consent or not within 15 days.
[34] The CTA does not define what amounts to a refusal or neglect to consent, nor an unreasonable withholding of consent. These terms are therefore presumed to be given their ordinary meaning: Ruth Sullivan, Sullivan on the Construction of Statutes, 7th ed. (Toronto: LexisNexis Canada, 2022) at §3.01. As a result, what constitutes a refusal or neglect to consent, or an unreasonable withholding of consent, will depend on the facts of each case,
[35] The principles that apply in determining whether a landlord acted reasonably in withholding consent were helpfully summarized by Cullity J. in 1455202 Ontario Inc. v. Welbow Holdings Ltd. (2003), 2003 CanLII 10572 (ON SC), 33 B.L.R. (3d) 163 (Ont. S.C.), at para. 9:i. The burden is on the tenant to satisfy the court that the refusal to consent was unreasonable.
ii. 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 is material.
iii. The question must be considered in the light of the existing provisions of the lease that define and delimit the subject matter of the assignment as well as the right of the tenant to assign and that of the landlord to withhold consent.
iv. A probability that the proposed assignee will default in its obligations under the lease may, depending upon the circumstances, be reasonable ground for withholding consent.
v. The financial position of the assignee may be a relevant consideration.
vi. The question of reasonableness is essentially one of fact that must be determined on the circumstances of the particular case, including the commercial realities of the marketplace and the economic impact of an assignment on the landlord. See also 2197088 Ontario Limited v. Cadogan Corporation, 2018 ONSC 3070, 97 R.P.R. (5th) 95, at para. 20.
[36] These factors are considered within the context of the “reasonable person” standard, namely, whether a reasonable person could have withheld consent. In determining the reasonableness of a refusal to consent, the court will look at the information available to, and the reasons given by, the landlord at the time the landlord neglected or refused consent. Any additional or different facts or reasons proffered subsequently are immaterial to the analysis. See 6791971 Canada Inc. v. Eli Messica, 2020 ONSC 1642, at paras. 7-8; Zellers Inc. v. Brad-Jay Investments Ltd., [2002] O.J. No. 4100 (Ont. S.C.), at para. 26. . Tabriz Persian Cuisine Inc. v. Highrise Property Group Inc.
In Tabriz Persian Cuisine Inc. v. Highrise Property Group Inc. (Ont CA, 2022) the Court of Appeal considered a case of alleged unreasonability to consent to the assignment of a commercial lease. The case involved the landlord insisting on repairs being completed:[19] I disagree with the appellant’s submission for two reasons. First, the exclusivity of the above grounds is not supported by the language of the lease. The landlord’s obligation to withhold consent on reasonable grounds is unqualified: “which consent may not be unreasonably withheld or delayed.” The three provisions are included in a distinct sentence that states “it will not be considered unreasonable for the Landlord to take into account the following factors”. In my view, this language is expansive, not exclusive. It clarifies conditions that may be unreasonable without limiting the generality of the first clause: see Lehndorff Canadian Pension Properties Ltd. v. Davis Management Ltd. (1989), 1989 CanLII 2762 (BC CA), 59 D.L.R. (4th) 1 (B.C. C.A.), at p. 10.
[20] Second, the appellant’s argument goes against the tenor of the governing case law. In Welbow, Cullity J. described the relevant principles, at para. 9:1. The burden is on the tenant to satisfy the court that the refusal to consent was unreasonable. In deciding whether the burden has been discharged, the question is not whether the court would have reached the same conclusion as the landlord or even whether a reasonable person might have given consent; it is whether a reasonable person could have withheld consent.
2. 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 is material. Further, it is not necessary for the landlord to prove that the conclusions which led it to refuse consent were justified, if they were conclusions that might have been reached by a reasonable person in the circumstances.
3. The question must be considered in the light of the existing provisions of the lease that define and delimit the subject matter of the assignment as well as the right of the tenant to assign and that of the landlord to withhold consent. The landlord is not entitled to require amendments to the terms of lease that will provide it with more advantageous terms, but, as a general rule, it may reasonably withhold consent if the assignment will diminish the value of its rights under it, or of its reversion. A refusal will, however, be unreasonable if it was designed to achieve a collateral purpose, or benefit to the landlord, that was wholly unconnected with the bargain between the landlord and the tenant reflected in the terms of the lease.
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6. The question of reasonableness is essentially one of fact that must be determined on the circumstances of the particular case, including the commercial realities of the marketplace and the economic impact of an assignment on the Landlord. Decisions in other cases that consent was reasonably, or unreasonably, withheld are not precedents that will dictate the result in the case before the court. [Citations omitted.] This court confirmed this as the “applicable test” in Tradedge Inc. (Shoeless Joe’s) v. Tri-Novo Group Inc., 2007 ONCA 562, at para. 2.
[21] Cullity J.’s decision relies on the Ontario High Court’s decision in Federal Business Development Bank v. Starr (1986), 1986 CanLII 2534 (ON SC), 28 D.L.R. (4th) 582, where Donnelly J. said, at p. 590, that the assignment test is moving towards a “more liberal approach, close to the ‘reasonable man’ standard, [which] is to consider the surrounding circumstances, the commercial realities of the market place and the economic impact of an assignment on the landlord.” This court endorsed Donnelly J.’s approach: see (1988), 1988 CanLII 56 (SCC), 52 D.L.R. (4th) 767.
[22] The appellant attempts to distinguish this case from Starr on the basis that the tenant in Starr was required to be in compliance with the terms of the lease as a precondition to assignment. However, Donnelly J. considered the covenant to repair as one factor, not as the foundation of his analysis. He concluded, at p. 591, “the landlord suffers substantial economic loss if the property is not repaired. This detriment is legitimately recognized as a reasonable objection to the assignment”.
[23] In my view, the analysis in Starr is apposite. The appellant’s refusal to remove the patio has imposed economic loss on the respondent. The appellant acknowledged that the patio was contrary to the lease through its many unfulfilled promises to remove it. However, the appellant’s assurances that the third purchaser could use the patio shows that it never intended to rectify its breach. As the trial judge found, the respondent’s refusal was motivated by a desire to avoid “perpetuat[ing] the patio problem.”
[24] I agree. The respondent’s insistence that the appellant rectify its breach falls squarely within the wider field of reasonableness identified in Welbow and Starr. The respondent’s desire to compel the appellant to restore the integrity of the leased premises is entirely consistent with the parties’ bargain as expressed by the lease. In any event, reasonableness is a question of fact, dependent on the surrounding circumstances, the commercial realities of the marketplace, and the economic impact of the assignment on the respondent. I see no basis to disturb the trial judge’s analysis and conclusion on this issue.
(3) The Reasonable Purpose Versus the Collateral Purpose Issue
[25] The trial judge found that the respondent’s second basis for refusing to consent to the assignment was not reasonable. She held that, in requiring that the appellant discontinue its other lawsuit, the respondent was “trying to use its greater bargaining power to secure a dismissal of the action in which the plaintiff may be asserting legitimate rights.” Consequently, this condition was an unreasonable collateral purpose because it was “not connected to the request to assign the lease.” Nevertheless, the trial judge found that the respondent’s first basis to refuse assignment was sufficient to meet the reasonableness test: “Put another way, a reasonable basis to refuse consent saves a co-existing tainted purpose.”
[26] The appellant argues that the trial judge erred in her analysis because the collateral purpose was grounded in and synonymous with the reasonable condition. It relies on No. 1 West India Quay (Residential) Ltd. v. East Tower Apartments Ltd., [2018] EWCA Civ 250, to submit that the collateral purpose infects the reasonable condition because the overarching reason for refusal was a collateral benefit: the discontinuation of the parallel lawsuit. The respondent disagrees with this submission on the basis that the collateral purpose and the reasonable condition are independent of each other.
[27] I do not agree entirely with either party’s submission.
[28] I agree with the appellant that there is a linkage between the respondent’s reasonable condition (remove the patio) and the improper collateral purpose (discontinue the parallel lawsuit). However, I do not think that the collateral purpose “infects” the reasonable condition. The respondent’s principal focus throughout its dispute with the appellant was the removal of the improper patio. It said this every time the appellant found a proposed buyer and sought the respondent’s consent to assign its lease. The respondent had every right to seek the removal of the patio as a condition of agreeing to the assignment of the lease to a potential buyer. As the trial judge said:In this case, there is sufficient basis on which a reasonable person could have withheld consent – the failure to remove the patio. Moreover, this is not a case where the defendant refused consent based only on an improper consideration. The failure to remove the patio was, in fact, one of the reasons the defendant withheld consent. [29] However, in a passage relied on by the respondent, the trial judge went on to say, seemingly in a conclusory way: “Put another way, a reasonable basis to refuse consent saves a co-existing tainted purpose.”
[30] In my view, this is too broad a proposition. I think that when two or more refusal factors are in play, it is necessary to consider the origins and weights of the competing factors. In effect, the trial judge did this in her reasons, comprehensively and well. Accordingly, I would uphold her decision. Viewed in its entirety, a reasonable person could have withheld consent on the basis that the appellant had not properly restored the property to the condition required by the lease, as it had promised to do.
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