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Reasonably Unreasonable: A Commercial Landlord’s Ability to Refuse a Lease Assignment

5 minute read

In Tabriz Persian Cuisine Inc. v. Highrise Property Group Inc.[1], the Ontario Court of Appeal was required to determine whether a commercial landlord’s refusal to consent to a tenant’s lease assignment was reasonable.

Background

On three separate occasions, the tenant appellant, Tabriz Persian Cuisine Inc., had requested to assign its lease. Each time it was refused by the respondent landlord, Highrise Property Group Inc.

While the reasons for the refusal somewhat differed each time, they all required that the appellant remove a patio that had been built on the property before the assignment would be considered.

The Trial Decision

The trial judge found that, while the respondent provided various reasons for its refusal to allow the assignment, the primary reason for the refusal was a patio that had been a significant point of contention between the parties, as it had been built without the respondent’s consent.[2]

The trial judge found that it was not unreasonable for the respondent to require the patio to be removed, as opposed to having the problem perpetuate with a new tenant. In essence, the respondent’s request was that the premises be restored to as it had been before the appellant left, which was a term of the lease.

The trial judge did find that the respondent’s requirement that a parallel lawsuit commenced by the appellant be discontinued unreasonable, but found that this was not the primary basis of the refusal and was collateral, thus did not negate the reasonableness of the primary purpose, the removal of the patio.[3]

The Court of Appeal Decision

In the unanimous decision delivered by Justice MacPherson, the Court of Appeal dismissed the appeal. The court found that because the basis of the refusal was not contemplated by the lease, it did not make the refusal itself unreasonable.

While the lease detailed what would not be unreasonable for the respondent to consider in refusing an assignment, the language in the lease did not create any exclusivity. Thus, a refusal not based on one of the considerations was permitted.[4]

Further, the court found that this argument did not follow prevailing case law, where “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.”

Contrary to the appellant’s submission, the basis for refusal did not need to be enumerated in the lease. The court was to consider the factual matrix that formed the basis for the respondent’s refusal.[5]

With respect to the issue regarding the primary purpose of the refusal (the patio) and the collateral purpose (the parallel lawsuit), the court found that the primary purpose was not “infected” by the collateral. The respondent’s primary requirement was a reasonable condition.[6] When two or more factors are at play in a refusal for an assignment, a court is required to analyze the origin and weights of the factors in determining whether the refusal is reasonable.

The court found that the trial judge had done this, and was correct in finding that the refusal was reasonable as the appellant had not properly restored the property to its original condition.[7]

Future Considerations

This decision affirms that a court’s analysis of whether a landlord’s refusal to allow the assignment of a lease was reasonable will be based on the context and facts specific to that case, and not wholly determined by the language of a lease.

The court will take a ‘liberal approach’ that considers the “surrounding circumstances, the commercial realities of the marketplace and the economic impact of an assignment on the landlord.”[8]

Of additional importance is the court’s analysis of when there are two competing reasons for the refusal, one of which is reasonable while the other is not. The focus will be on the primary basis of the refusal and whether that was reasonable.

A collateral basis for the refusal will not in and of itself vitiate the reasonableness of a primary practical purpose, even if it is found to be unreasonable.

When refusing a lease assignment, a landlord should ensure that its reasons for doing so are clearly articulated and based on factors that speak to the commercial reality and economic impact of the assignment to increase the likelihood that a court will find the refusal reasonable should it be challenged.

[1] 2022 ONCA 272

[2] paras 7-8

[3] para. 9

[4] paras 17-24

[5] 1455202 Ontario Inc. v. Welbow Holdings Ltd. (2003), 33 B.L.R. (3d) 163 (Ont. S.C.), at para. 9, further confirmed by the Court of Appeal in Tradedge Inc. (Shoeless Joe’s) v. Tri-Novo Group Inc., 2007 ONCA 562

[6] paras 26-28

[7] para 30

[8] Federal Business Development Bank v. Starr (1986), 28 D.L.R. (4th) 582

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