Legal Blog

Assignment Versus Sublet

V Hazelton Limited v. Perfect Smile Dental Inc. 2019 Ont CA

Tenant sublet the entire premises, with the landlord’s consent, to a subtenant. Tenant had a right to renew under the lease. The sublease specifically acknowledged the tenant’s right, but stated that the subtenant did not have that right. The sublease sublet the entire remaining term, rather than the term less one day. When it came time to renew the lease, landlord took the position that, in failing to reserve a portion of the term, tenant assigned the lease and therefore had no standing to renew it. Under common law, landlord was correct; however, under section 3 of the Commercial Tenancies Act, which has been around in one form or another since 1895 and mostly ignored, the landlord-tenant relationship does not depend on tenure and a reversion is not necessary to create that relationship. However, as the Court of Appeal pointed out, the section does not say what is necessary to create the relationship. The court interpreted section 3 to mean that there may be a landlord-tenant relationship without reserving any of the term, but only if sufficient evidence demonstrated that, objectively, the tenant and subtenant did not intend to create an assignment. In this case, the specific reference to the subtenant’s inability to exercise the tenant’s right of renewal comprised sufficient evidence in favour of a sublease only and tenant was allowed to renew the lease.

Written by Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.