Assigning a commercial lease when you sell or buy a business in Newfoundland and Labrador

In Newfoundland and Labrador, the Conveyancing Act, RSNL1990 c. C-34, published by the House of Assembly, contains rules that bear on commercial leases. Section 22 sets out short-form covenants for leases, including one on assigning, and later sections deal with arrears and possession. A separate statute, the Leaseholds in St. John’s Act, gives some commercial lessees in the city options that apply despite what their lease says. The lease’s own terms still need reading, so the useful question for a buyer is what these two statutes add around the lease. This page covers Newfoundland and Labrador only. For the general picture, see what happens to the commercial lease when you buy a business.

The short-form covenant on assigning

Under section 22 of the Conveyancing Act, where a lease for a term at an annual rental says the lessee will “not assign or sublet”, those words have the effect of a longer covenant. The lessee shall not assign, transfer or sublet without the written consent of the lessor, which consent will not arbitrarily or unreasonably be withheld, or charged for, unless the landlord has actually incurred expense in respect of the grant of consent. The section gives effect to those short words when a lease uses them. Check whether the lease uses them or its own longer clause, and ask a lawyer what the lease’s wording does.

Re-entry, and the half-year of arrears

Where a lease uses the same section’s short form on re-entry, those words have the effect of letting the lessor re-enter if rent is unpaid for 10 days after it ought to have been paid, although no formal demand has been made, or on breach or non-performance of a covenant or agreement by the lessee. Section 25 then provides that where 1/2 year’s rent is in arrears and the landlord has the right to re-enter for non-payment, the landlord may, without a formal demand or re-entry, start a proceeding to recover the property. The judge may order possession where the landlord shows, by affidavit if no defence is filed or by proof at trial, that half a year’s rent was due before the proceeding started, that distress was not found on the premises sufficient to meet the arrears, and that the right to re-enter existed. Section 25(4) adds that this is in addition to the landlord’s other remedies. Section 23 provides that sections 25 to 30 do not apply to residential premises as defined under the Residential Tenancies Act, 2018.

Stopping a possession proceeding

Under section 26, if the tenant pays or tenders the arrears and costs before the trial, or pays them into court, all further proceedings stop. Section 27 is the harder edge. A tenant who lets an order be obtained and executed without paying the arrears and costs, and without proceeding for equitable relief within 6 months after execution, is barred from all relief, and the landlord holds the premises discharged from the lease. Section 27(2) keeps the right of a mortgagee of a lease who, within those 6 months, pays the arrears, damages and costs and performs the tenant’s covenants. If a lender will take the lease as security, ask it how it would use that right.

Notice of a possession proceeding

Section 24 requires a tenant who has received notification of a proceeding for recovery of possession of the property, or who has knowledge of one, to give immediate notice to the landlord, receiver, agent or bailiff. A tenant who fails to do so is subject to a penalty equivalent to 3 years’ rack rent on the property. Ask the seller to confirm in writing whether any such notice has been received, and whether the landlord has started or threatened any proceeding. A buyer taking over the lease should not discover one after closing.

Ancient leases in St. John’s

The Leaseholds in St. John’s Act defines an “ancient lease” as a lease of land within the city made before August 2, 1921, including an extension of an original lease. Under section 6, an ancient lease of land occupied for a commercial use is subject, notwithstanding a clause or condition to the contrary, to options the lessee may exercise during the currency of the lease: to purchase the freehold at fair market value as if the land were vacant, to obtain a 99-year extension at a fair annual rental, to be paid the unexhausted value of the building at the end of the term where the lessee does not want an extension and the lessor wants to repossess, or, where neither wants to renew and the lessor does not want to repossess, to have the land sold by auction. Section 8 gives the holder by assignment or otherwise of a subdivision the same rights for that subdivision, and section 9 treats certain sublessees as assignees. If the premises sit on such a lease, a lawyer should explain which options exist and who holds them.

What to ask the seller for

• The signed lease and amendments, to see whether the assignment clause uses the statutory short words or its own.
• The landlord’s written statement of rent paid, and whether any proceeding for possession has been started or threatened.
• The lease date, and any earlier lease it extends, if the premises are in St. John’s.
• Any lender’s requirements about taking security over the lease; the Personal Property Security Act of the province treats fixtures as goods, which matters for equipment attached to the premises.

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. For where this fits in a sale, see selling a business in Newfoundland and Labrador.