Assigning a commercial lease when you sell or buy a business in Manitoba

A business sale in Manitoba can turn on whether the premises come with it. The lease is a contract, and its own wording is the starting point. BDC’s guide to commercial lease terms says it is always best to have your lawyer, preferably one specializing in commercial real estate, review your agreement before you sign. In Manitoba, The Landlord and Tenant Act (C.C.S.M. c. L70) then adds several rules around assignment, refusal, forfeiture, distress and overholding. Registered leases also fall under The Real Property Act. This page covers Manitoba only. It explains what those statutes say in their own terms, so that a buyer and a seller know what to ask before closing. It does not tell you what your lease means or what to do.

Consent cannot be unreasonably withheld

Under section 22(1) of Manitoba’s Landlord and Tenant Act, a lease made after April 1, 1931 that contains a covenant, condition or agreement against assigning, under-letting or parting with possession without licence or consent is deemed subject to a proviso. The proviso is that the licence or consent shall not be unreasonably withheld. The deeming does not apply if the lease contains an expressed provision to the contrary. So the first job is to read the clause itself. A lease that expressly says otherwise displaces the statutory proviso. A lease made on or before that date is outside the wording of section 22(1).

If the landlord refuses or does not answer

Section 22(2) covers a landlord who refuses or neglects to give the licence or consent. A judge of the Court of King’s Bench may, on the application of the tenant or of the assignee or sub-tenant, made by originating notice, decide whether the consent is unreasonably withheld. If the judge finds that it is, the judge may permit the assignment or sub-lease to be made. The order is the equivalent of the landlord’s consent under the covenant, and the assignment or sub-lease is not a breach of it. This is a court process, so a seller and buyer who face a refusal would want legal advice on whether and how to use it. The answer on landlord consent to a lease assignment sets out the general steps.

Relief from forfeiture does not reach assignment covenants

Section 19 of the Act allows a tenant to apply to the court for relief when a landlord is enforcing a right of re-entry or forfeiture. Section 19(7)(a) says that section does not extend to a covenant or condition against assigning, under-letting, parting with the possession, or disposing of the land leased. For a seller, that is a reason not to hand over the premises first and sort out consent later. For a buyer, it is a reason to see the landlord’s written consent before closing rather than rely on the court relief that section 19 may give in other cases.

What happens to the goods in the premises

The Act also governs distress, which is a landlord’s seizure of goods for unpaid rent. Section 30 lets a person owed rent on a lease that has ended distrain after it ended, if the distress is made during the continuance of the landlord’s title or interest and the possession of the tenant from whom the arrears became due. Section 37 says a landlord shall not distrain on goods of anyone but the tenant or the person liable for the rent, although the goods are on the premises, with listed exceptions. Two of those exceptions turn on title derived by way of a security agreement, as defined in The Personal Property Security Act, other than a purchase money security interest for which a financing statement is filed in the Personal Property Registry at the time the landlord distrains. Under section 45, the tenant or owner has five days after the distress and notice to replevy before sale steps follow. A buyer who is financing equipment should ask a lawyer how these provisions apply to those goods.

Overholding and registered leases

Section 52 makes a tenant who wilfully holds over after the term, and after written notice to deliver possession, pay a penalty measured against the yearly value of the land detained, for as long as it is detained. Section 53 sets a higher rent for a tenant who gives notice to quit and does not leave, for as long as the tenant stays. Where a tenant whose lease has expired or been determined wrongfully refuses or neglects, on a written demand, to go out of possession, Part III lets the landlord apply to a Court of King’s Bench judge for an inquiry, and section 67(4) requires the application to be served at least five days before the day the judge appoints. Where the land is under what The Real Property Act calls the new system, section 91(1) of that Act lets the owner execute a lease in an approved form, setting out the mortgages, encumbrances and liens the land is subject to, and that lease may be registered. Under section 101(2), when a transfer of a lease is registered, the lessee’s interest as set out in the transfer passes to the transferee. Section 95 says a lease of mortgaged or encumbered land is not valid and binding against a mortgagee or encumbrancer unless that person consented before registration.

What to ask for before closing

• The full lease and every amendment, with the assignment clause marked and a note of whether the lease contains an express provision about consent.
• The landlord’s written consent to the assignment, or the order if a court route was used under section 22(2).
• A current title search, if the lease is registered, showing the lease and any mortgage or encumbrance, and whether the mortgagee consented to the lease.
• A Personal Property Registry search on the tenant, so that security interests in the goods on the premises are known.
• Written confirmation from the landlord about rent owing, so that arrears are known before closing.

Read together with the national page on what happens to the commercial lease when you buy a business and the wider guide to buying a business in Manitoba, these steps make the lease a documented item rather than an assumption.