Assigning a commercial lease when you sell or buy a business in Nova Scotia

In Nova Scotia, one statute that deals with commercial landlords and tenants is the Tenancies and Distress for Rent Act, R.S.N.S. 1989, c. 464, published by the Office of the Legislative Counsel. Read on its own terms, it is mostly about distress: the landlord’s power to seize a tenant’s goods for unpaid rent. It does not say when a tenant may assign a lease to a buyer, so a buyer needs to read the lease on that question. What the Act adds are rules that touch a business sale: when a landlord can distrain, how that ranks against a lender, and what happens if rent is owing around closing. This page covers Nova Scotia only. For the general picture, see what happens to the commercial lease when you buy a business.

What the Act covers, and what it leaves to the lease

Under section 2 of the Nova Scotia Act, no distress for rent may be made unless there is an actual demise at a specific rent. A demise is a lease, so the landlord’s seizure right rests on a real lease with a stated rent. A buyer taking over occupation should ask to see the signed lease and confirm that the rent is stated in it. In the text read for this page, the only assignments the Act mentions are a tenant’s assignments of property for the benefit of creditors and authorized assignments under the federal bankruptcy statute, in section 20. It says nothing about a tenant selling the business and passing the lease to the buyer. Whether the lease can be assigned, and whether the landlord must consent, is something to check in the lease’s own wording, with a lawyer.

How distress ranks against a lender’s security

Section 8A deals with the priority of distress over security interests. Under section 8A(2), a distress for rent has priority over a security interest in the goods of the tenant, other than a purchase money security interest in those goods or their proceeds that is perfected at the date of the distress. Section 8A gives its own definition of “purchase money security interest”, and says “perfected” has the same meaning as in Nova Scotia’s Personal Property Security Act. Section 8A also gives distress priority over a judgment creditor’s interest under section 2B of the Creditors’ Relief Act. Section 8A(3) adds that subsection (2) does not affect or limit the priorities a distress for rent had immediately before the section came into force. If a lender is financing the purchase and will take equipment or inventory as security, ask the lender and a lawyer how its security ranks against the landlord’s distress, and whether the lender will want anything from the landlord before closing.

Goods the Act exempts from distress

Section 9(2)(f) exempts articles or goods in the tenant’s possession and held by the tenant under a duly filed agreement for hire, lease, contract or conditional sale, saving and excepting the tenant’s own interest in them. If the business runs on financed or leased equipment, ask the seller for each of those agreements and for proof that each was duly filed, because the exemption is worded around a duly filed agreement. Section 9 contains other exemptions as well. This page covers only this one, and a lawyer can say whether any exemption fits the goods in a particular business.

Rent owing at or after closing

Section 15 allows rent in arrear on a lease that has ended to be distrained for, as if the lease had not ended, if the distress is made within six months after the lease ended, during the continuance of the landlord’s title or interest and during the possession of the tenant from whom the rent is due. Section 13 deals with goods moved out. Where rent is in arrear and due and a lessee fraudulently or clandestinely conveys goods from the premises with intent to prevent the landlord distraining, the landlord may within twenty-one days seize them wherever found as a distress for that rent, unless they were sold in good faith and for valuable consideration before the seizure. Ask a lawyer before any inventory or equipment is moved around closing, and ask the landlord to confirm in writing what rent is paid.

If the tenant becomes insolvent

Subsections 20(3) to (5) of the Act address a tenant’s assignment for the benefit of creditors, a bankruptcy and, in section 20(4), a winding-up order. Under section 20(3), the landlord has no right to distrain or complete a distress except for rent that accrued due during the three months immediately preceding the assignment, authorized assignment or bankruptcy petition, subject to the proviso for dismissed or withdrawn petitions. Under section 20(4), despite any term of the lease, the assignee, liquidator or trustee may within three months, for the purposes of the trust estate, elect by written notice to the landlord to retain the premises, upon the terms of the lease and subject to payment of the rent it provides, or to surrender possession or disclaim the lease. Separately, and subject to the rights of secured creditors, the federal Bankruptcy and Insolvency Act lists the lessor’s claim for arrears of rent for the three months immediately preceding the bankruptcy among the claims paid in priority, within the limits that Act sets.

What to ask the seller for

The Act leaves the assignment itself to the lease, so the practical work is gathering what the Act’s rules turn on. Consider asking for:

• The signed lease and every amendment, so you can read the assignment clause and confirm the rent is stated.
• The landlord’s written confirmation of what rent is paid, and of any distress or demand already made.
• Every equipment lease, conditional sale or financing agreement, with proof of filing.
• Your lender’s view of how its security ranks against the landlord, and any search results from the Personal Property Security Act registry.
• A list of what inventory and equipment is on the premises and whether any of it has been moved.

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 the wider purchase, see buying a business in Nova Scotia.