Transactions, whether share or asset purchase, may involve the transfer of real property interests. Some important considerations when drafting agreements for these transactions are:
- Are there any leases that are a part of the transferred assets?
- If so, is landlord consent required for assignment or change of control under these leases?
- Are the leases material, such that failure to maintain or transfer the lease on closing will materially adversely impact the deal?
Landlord consents are a crucial aspect of such deals and proper drafting of the agreement and interpretation of landlord consent provisions in leases can save time and undue stress. Careful attention must be paid to the wording of assignment and transfer clauses in subject lease agreements.
For example, in share purchase transactions, attention must be paid to change of control provisions, which may or not be considered a transfer or assignment under the terms of the lease. If the transaction falls under the definition of transfer / assignment, or change of control, landlord consent will likely be required. That being said, what if it is not clear on the face of the lease whether the transaction is such that landlord consent is required? Similarly, if it is not clear whether consent is required, should a landlord consent request be sent in any event?
The urge must be resisted to provide landlord consent requests where landlord consent is not required under the terms of the lease. Providing a landlord consent where one is not required under the terms of the lease may suggest to the landlord that their consent is required, and could end up providing the landlord with more rights than they were originally granted under the terms of the lease. Furthermore, the landlord may object to the terms of the consent or transaction, but having provided them with same, it may be difficult to take such agreement back without wasting client time and money on an issue that was not an issue to begin with.
Lastly, most consent provisions will state that the landlord will not unreasonably withhold or delay consent. This is a covenant of the landlord under the terms of the lease agreement, but it can leave ambiguity as to when and how to determine whether a landlord is unreasonably withholding their consent. While there is no bright line test for determining when a landlord is unreasonably withholding consent, the general rule is whether in the circumstances a reasonable person in the landlord’s position would be entitled to withhold consent. While some leases may outline when it is reasonable to withhold consent, but where no such provisions are included, withholding consent must be in good faith and can be based on whatever facts and arguments would lead a reasonable person in the same circumstances to conclude the same.
Parties should turn their attention to issues surrounding obtaining landlord consent early on in the transaction, to avoid undue delays in receiving same, and should always be mindful of requesting consent when no consent is required.
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