Assigning a commercial lease when you sell or buy a business in New Brunswick

In a New Brunswick business sale, the premises lease may have to be assigned to the buyer. The lease is a contract and its 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 New Brunswick, the Landlord and Tenant Act (chapter L-1) then adds rules on consent, fines, court orders, forfeiture, distress and holding over. The Residential Tenancies Act (chapter R-10.2) is a separate statute for residential premises. This page covers New Brunswick only. It describes what the Act says in its own terms so that a seller and a buyer know what to ask before closing. It does not say what your lease means or whether to proceed.

Two prohibitions in section 11(1)

Section 11(1) of New Brunswick’s Landlord and Tenant Act covers every lease with a covenant, condition or agreement against assigning, subletting, parting with the possession, or disposing of the land leased without licence or consent. Unless the lease contains an express provision to the contrary, that covenant is deemed subject to two provisos. The first is that the licence or consent shall not be unreasonably withheld. The second is that no fine or sum of money in the nature of a fine shall be payable for the licence or consent. That second proviso does not preclude requiring a reasonable sum for any legal or other expense incurred in relation to the licence or consent. A seller should ask what the landlord proposes to charge, and on what basis.

A court can decide whether a refusal is reasonable

Under section 11(2), where the landlord refuses or neglects to give a licence or consent to assign or sublet, a judge of the Court of King’s Bench of New Brunswick may, on the application of the tenant, assignee or subtenant, make an order determining whether the licence or consent is unreasonably withheld. Where it is, the judge may permit the assignment or sublease to be made. The order is equivalent to the landlord’s consent, and the assignment is not a breach. This is a court process, so legal advice on whether to use it is sensible. The national answer on landlord consent to a lease assignment sets out the general steps.

Forfeiture rules stop short of assignment covenants

Section 14 deals with forfeiture. Section 14(1) makes a right of re-entry or forfeiture for breach of a covenant or condition, other than a proviso about the payment of rent, unenforceable where the breach is capable of remedy or of being compensated by money payment, unless and until the landlord serves a notice specifying the breach and the tenant fails, within a reasonable time after service, to remedy it or make compensation in money to the landlord’s satisfaction. Section 14(9) then says the section does not extend to a covenant or condition against assigning, underletting, parting with the possession, or disposing of the land leased. A buyer should therefore treat the landlord’s consent as something to have in writing before closing, not something to repair afterwards.

Distress and the goods in the premises

Section 21 allows a person entitled as landlord to distrain for rent in arrear within six months next after the determination of the lease, during the continuance of the landlord’s interest and the tenant’s possession. Section 34(1.2) gives a landlord’s distress priority over a security interest in the tenant’s goods, other than a purchase money security interest in goods or proceeds that is perfected at the date of distress. Under section 36(1), a tenant who does not replevy within five days after written notice of the distress, posted as that section describes, faces the steps that follow. A buyer of equipment or stock should ask a lawyer how these provisions apply to goods held on the premises.

Holding over, and what the residential Act does not cover

Under section 19(2), a tenant who remains in possession after the lease ends, with the landlord’s express or implied consent, is deemed to hold subject to the terms of the lease so far as they are applicable. Under section 19(3), if the tenancy was neither weekly, monthly nor year to year, the overholding tenant is deemed to hold from year to year. Section 2 of the Residential Tenancies Act says that Act, except where it provides otherwise, applies to tenancies of residential premises, notwithstanding the Landlord and Tenant Act or any other Act, agreement or waiver to the contrary. This page therefore relies on the Landlord and Tenant Act and the lease itself for commercial premises. If a receiving order in bankruptcy or an authorized assignment is made against or by the tenant, section 43 of the Landlord and Tenant Act ends the landlord’s right to distrain from the date of the order or assignment, with a limited priority payment, and the federal Bankruptcy and Insolvency Act, in section 30(1)(k), lets a trustee, with the permission of the inspectors, elect to retain or assign a lease.

What to ask for before closing

• The lease and every amendment, with the assignment clause marked and a note of whether it expressly displaces the section 11(1) provisos.
• The landlord’s written consent, and a written statement of any legal or other expense charged for it.
• 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.

The national page on what happens to the commercial lease when you buy a business and the guide to buying a business in New Brunswick put these steps in a wider checklist.