Dentists are often surprised to learn that their dental office lease can significantly impact their ability to sell their practice. A landlord can actually block your practice sale if they don’t consent to a lease assignment. But, a recent appeal case confirms what landlords can’t do when trying to refuse a request to assign a lease to a new dentist.
Background
In a previous blog post, we discussed the basics of a lease assignment and what happens when a landlord refuses to allow one with the Rabin v. 2490918 Ontario Inc. case. The case was a clear example of how a landlord-tenant relationship can quickly become downright hostile and toxic, with both parties suffering in the end. Since then, Rabin took the case to the Ontario Court of Appeal, and this time, he was successful!
For all the details of the original case, please check out our previous post. But the basics of the case are that Dr. Rabin wanted to sell his practice, but the landlord wanted to demolish and redevelop it. Dr. Rabin’s lease expired on December 31, 2025, and it had a 5-year option to renew. The lease also specified that the dentist tenant could not assign the lease without the prior consent of the landlord, which shall not be unreasonably withheld, subject to the dentist tenant giving the landlord certain information about the incoming tenant (e.g. their name, credit, financial, business info, etc.).
What followed was:
- The landlord tried to slip in a demo clause during the renewal term (which was refused by the dentist tenant).
- A standard credit application was forwarded, completed and returned to the landlord. The landlord would later deny this, claiming they were unsatisfied with the credit application.
- A signed purchase and sale agreement was sent to the landlord’s real estate lawyer.
- After the landlord refused to give consent, Dr. Rabin started a lawsuit, which was dismissed in the landlord’s favour.
The Appeal
- The burden is on the tenant to satisfy the Court that the refusal to consent was unreasonable.
- It is the information available to the landlord – and the reasons they gave – at the time of the refusal – and not any additional, or different, facts or reasons provided subsequently to the Court – that is material.
- The question must be considered in light of the existing provisions of the lease that define and delimit the subject matter of the assignment as well as the right of the tenant to assign and that of the landlord to withhold consent.
- A probability that the proposed assignee will default in its obligations under the lease may, depending upon the circumstances, be a reasonable ground for withholding consent.
- The financial position of the assignee may be a relevant consideration.
- The question of reasonableness is essentially one that must be determined by the circumstances of the particular case, including the commercial realities of the marketplace and the economic impact of an assignment on the landlord.
The Court considered the information available to, and reasons given by, the landlord at the time the landlord neglected or refused consent. Any additional or different facts or reasons are immaterial to the analysis.
The Decision
- The landlord failed to meet the 15-day deadline, which amounted to neglect and unreasonable withholding of consent.
- The landlord gave no reasonable excuse for its delay and did not initially require any information from the dentist tenant (e.g. they did not initially request any financial info respecting the new dentists).
- The landlord had unreasonably withheld its consent.
- The landlord made last-minute (and beyond the 15-day deadline) requests for financial information about the incoming dentist tenant, which was also unreasonable.
- The landlord seemed only to focus on inserting a demolition clause.
While each case turns on its own facts, it is significant that a landlord’s attempt to obtain an amendment to the lease for its respective benefit in exchange for providing consent has consistently been characterized as an unreasonable withholding of consent2. The landlord was NOT entitled to require a demolition clause as a precondition to consent. That would have amounted to
Given the above, the Ontario Court of Appeal declared that the landlord unreasonably withheld its consent to the lease assignment and declared the order to be the equivalent of the consent within the meaning of the parties’ lease. The Court also awarded the dentist tenant $10k in costs for the appeal (inclusive of taxes and disbursements).
Bottom Line
While requesting a landlord’s consent to an assignment of a lease is a routine part of a dental practice sale, this case illustrates how it must be handled carefully. There’s no obligation on the landlord to approve assignments, but they can’t just say no and not give the tenant any guidance on how to fix the problem. And if your consent appears to be conditional, it’s not really consent.
Contact us if you are thinking about selling or entering a new lease. We negotiate commercial leases for dentists daily and are happy to help protect you and your business. Send DMC an email or call me directly at 647.680.9530. Whether you are entering a new agreement or renewing an existing lease, we have you covered.
Footnotes:
1: Taken from 1455202 Ontario Inc. v. Welbow Holdings Ltd., 2003 CanLII 10572 (ON SC) and 2197088 Ontario Limited v. Cadogan Corporation, 2018ONSC 3070.
2: See, for example, Jo-Emma Restaurants Ltd. v. A. Merkur and Sons Ltd. (1989), 7 RPR (2d) 298 (ON SC); Tradedge Inc. (Shoeless Joe’s) v. Tri-Novo Group Inc., 2009 CanLII 22578 (ON SC), at para 39; Quickie Convenience Stores Corp. v. Parkland Fuel Corporation, 2020 ONCA 453.
