Assignment and sublease of a commercial lease: Basic concepts and the will of the parties
The parties involved in a commercial lease have a high level of contractual freedom compared to a residential lease. The rights and obligations between commercial lessors and lessees stem primarily from the lease and also from certain provisions of the Civil Code of Quebec (hereinafter referred to as the "C. C. Q.").
The parties to a commercial lease are subject to the obligations set out in the C.C.Q.1, unless they have expressly waived their application in the lease, i.e. the lease contains provisions excluding their application or sets out other conditions replacing them. This is a fundamental difference between a commercial lease and a residential lease, since the same C.C.Q. provisions are rules of public order from which the parties cannot derogate in residential matters. In such a context, the broker must fulfil his duty to verify, inform and advise in the same way, whether the transaction concerns the leasing, purchase, or sale of a property.
Lease assignment
The assignment of a lease discharges the lessee of all his responsibilities. The lease will continue to produce its effects between the lessor and the new lessee to whom the lease has been assigned. This change of lessee is permanent and only the new lessee will be able to assert the renewal rights included in the commercial lease, the rights arising from the lease having been assigned to him along with the responsibilities.
As mentioned above, the commercial lease may otherwise provide for the effect of its assignment. Therefore, it could be provided that the former lessee remains responsible for the obligations under the lease as a surety for instance.
Sublease
In the case of a sublease, a third party, the sublessee, will have certain rights under the commercial lease transferred to him, either temporarily or permanently, for all or part of the leased premises.
However, the sublease cannot grant more rights to the sublessee than the lessee himself has under the main lease. But the lease may set out in advance the rights and obligations that will apply specifically in the event of a sublease, and which may differ from those of the lessee.
Although the sublease contract is concluded with the lessee, the sublessee has a direct recourse against the lessor to force him to fulfil his obligations2, while the lessor may request the termination of the sublease contract if the sublessee causes serious harm to other lessees or to himself.3
For his part, the lessee will remain fully responsible to the lessor for all the obligations under the lease, including the renewal notice. If rent is not paid, the lessor may turn to the lessee or sublessee. However, the sublessee will only be responsible for the rent specified in the contract and will only be liable to the lessor for the obligations due under the sublease in the event of default by the lessee.4
Notice of assignment/sublease and lessor's reply
The right to assign or sublet a property cannot be done without certain formalities.
First, the lessee will have to give the lessor a notice, in writing or otherwise, of his intention to assign the lease or sublet the premises under the lease, as well as the name and address of the proposed new lessee.
The lessor may not refuse the assignment or sublease without a serious reason. If this is the case, he must provide a serious reason for his refusal within 15 days following receipt of the notice.5
Serious reasons for refusing an assignment or sublease include:
- Insolvency or financial problems of the new lessee
- Exclusivity clauses
- Payment defaults by the original lessee
In case of unjustified refusal, the lessee may petition the court to have the lease terminated.6 If the lessor does not fully respond to the notice within the specified period, he shall be deemed to have agreed.7
Once again, the specific terms of the commercial lease may change the formality of the lessee's notice and the lessor's refusal, for instance by requiring a specific communication method, by providing for a different response time, by stating the reasons for refusal or by requiring more information. Similarly, a clause allowing the lessor to terminate the lease rather than giving a reason for refusal could be included.
Finally, a lessor who consents to the sublease or assignment will only be able to claim the reimbursement of reasonable expenses related to the lease transfer8, unless otherwise agreed.
To conclude, although there are some basic rules for lease assignment and sublease to guide the parties, a lessee who wishes to use either of these options should inquire about the various options and their consequences, by consulting a professional who can specifically determine the rights of the parties based on the lease in force.
11851 to 1891 C.C.Q.
21876 C.C.Q.
31875 C.C.Q.
41874 C.C.Q.
5Ferme Guy Bonin enr. vs. Malouin, 2000 CanLII 6582 (QC CA)
6Succession Di Clementi vs. Sghaier, 2005 CanLII 40602 (QC CQ)
71871 C.C.Q.
81872 C.C.Q.
