Buying a Bankrupt Business in BC: Can the Lease Be Assigned?

You have found a business in British Columbia that has gone bankrupt, and the trustee is selling it. The location is a big part of its value, so you want to take over the lease. The question is whether the landlord can stand in your way.

Bankruptcy changes the answer in some ways and not in others. This article explains the one lease rule the Commercial Tenancy Act sets for trustees, what it does not cover, and how a trustee's sale affects employees.

This article covers the law of British Columbia.

The rule for a trustee's transfer of a lease

Many commercial leases say the tenant cannot assign the lease or sublet the premises without the landlord's leave or consent. In a trustee's sale, section 29(3) of the Commercial Tenancy Act, RSBC 1996, c. 57, deals with that kind of clause.

Under that section, a covenant not to assign or sublet without the landlord's consent does not apply to a transfer by a trustee in bankruptcy if the Supreme Court approves it. In practice, the landlord's consent is not the last word when the court approves the trustee's transfer.

There is a condition. The incoming party must give security of up to 3 months' rent. How that security would work in your deal depends on the facts, so it is worth confirming with a lawyer.

The only assignment rule in the Act

Section 29(3) is the only provision in the Commercial Tenancy Act dealing with a covenant against assigning or subletting. It covers a trustee in bankruptcy and nothing else.

The Act does not set a general rule on when a landlord may refuse consent. It does not contain a statutory reasonableness test, so you should not assume the landlord must act reasonably just because the Act is silent.

• Bankruptcy trustee's transfer with court approval: the consent covenant does not apply, subject to security of up to 3 months' rent.
• Any other assignment or sublet: the lease terms and case law govern, not a rule in the Act.

If you are buying outside a bankruptcy, see our separate article on landlord consent to a lease assignment in British Columbia.

What else is different in a trustee's sale

The lease is only one piece. Employees are treated differently depending on how the business is being sold.

In a bankruptcy, a trustee's sale can end the employees' rights under the Employment Standards Act, and the purchaser is not liable for wages owed before the bankruptcy. That is quite different from an ordinary sale of a business, where employment is deemed continuous and the purchaser takes on the employer role.

So a receivership should not be treated like a bankruptcy. If the seller is a receiver rather than a trustee, the employee protections continue.

Points to confirm before you commit

Whether a sale is a trustee's sale or a receivership sale affects both your lease position and your employee obligations, so confirm who is selling and under what authority. Court timelines and the steps for getting approval depend on the circumstances, and a lawyer can tell you what to expect.

If you plan to rehire staff, how their service and rights are treated depends on the facts of the sale, so it is worth confirming with a lawyer. In a receivership, by contrast, employment is deemed continuous. Your hiring terms are something to plan deliberately.

What to do next

• Confirm whether the seller is a trustee in bankruptcy or a receiver.
• Get a copy of the lease and read the assignment and subletting clause.
• Ask the trustee how and when court approval of the transfer would be sought.
• Plan for security of up to 3 months' rent if the transfer proceeds under section 29(3).
• Decide how you will handle staff, knowing a trustee's sale can end their rights under the Act.
• Have a lawyer review the lease and the sale terms before you sign.

Frequently asked questions