Does the Original Tenant Stay Liable After a BC Lease Assignment?

You sold your business and the buyer took over your commercial lease. The keys have changed hands, but your name may still be on the original lease. It is natural to ask whether the landlord can come back to you if the buyer stops paying rent or breaks the lease.

The answer in British Columbia depends heavily on the lease itself and on what the landlord agreed to when it approved the assignment. This article explains the questions to ask, the checks that can reduce your risk, and the time limits that matter if something goes wrong. A lawyer who has read your lease can tell you where you actually stand.

This article covers the law of British Columbia.

What an assignment does, in plain words

An assignment is when a tenant hands over its rights and duties under a lease to someone else, usually as part of selling a business. The buyer steps into your place. The landlord, however, was not necessarily a party to your sale agreement, and its rights come from the lease and from anything it signs later.

That is why the key question is not only whether the buyer took over the lease. If the landlord never released you, you may still be exposed. Whether you are depends on the wording of your lease and the landlord's consent, which is something a lawyer can confirm.

What decides whether you stay on the hook

Start with the documents. Several of them can affect your position, and each is worth reading before you assume you are free of the lease.

• The original lease, especially any clause about assignment, consent and what happens to the original tenant afterward.
• The landlord's consent to the assignment, and whether it says anything about releasing you.
• Any assignment agreement signed by you, the buyer and the landlord.
• Any guarantee you or someone else gave to the landlord, which may be a separate obligation.
• Your sale agreement with the buyer, including any promise by the buyer to cover lease costs.

Because a lease is a contract respecting land, the law about writing matters. Such a contract or disposition of land is not enforceable unless there is a signed writing, an act or acquiescence by the party to be held, or reasonable reliance that makes enforcement necessary to avoid unfairness. Paying or accepting a deposit or part payment counts as that kind of act. In practice, this means you should not rely on a verbal comfort from the landlord. If you want to be released, get it in a signed document.

Ways to limit your risk before and at closing

The best time to deal with this is before the assignment is finalized, when the landlord and buyer both want the deal to proceed. Consider raising these points with your lawyer.

• Ask the landlord for a written release of the original tenant as a condition of consenting.
• If the landlord will not release you, ask what limits it will accept, and have those written into the consent.
• Ask the buyer to promise in the sale agreement to pay the rent and perform the lease, and to cover you if the landlord claims against you.
• Consider asking for security from the buyer, such as a personal guarantee from the buyer's owners, if the buyer is a new company.
• Keep copies of every signed document from closing.

Whether a buyer's promise to cover you is worth much depends on the buyer's finances, which leads to the next point.

Check who you are leaving the lease with

If you may remain exposed, it makes sense to look at the buyer's background. A corporate search on a BC company produces a company summary and a Notice of Articles showing the current directors. That helps you see who is behind the buyer.

You can also check for insolvency history. The federal Bankruptcy and Insolvency Records Search, run by the Office of the Superintendent of Bankruptcy, covers bankruptcies and proposals registered in Canada since 1978 and receiverships registered since January 1993, with a minimum fee of $8 per search. These searches do not tell you how a buyer will perform in future, but they can show warning signs before you agree to stay connected to the lease.

If the buyer defaults: time limits and next steps

If the landlord demands rent from you, or you believe you have a claim against the buyer, time limits apply. A court proceeding must not be started more than 2 years after the day the claim is discovered. A claim is discovered when you knew or reasonably ought to have known of the loss, that the defendant's act caused it, and that a proceeding is appropriate.

The period can be extended if a person acknowledges liability in respect of the claim, and the acknowledgment generally must be in writing and signed. Do not assume an informal conversation resets the clock.

If a lease is at risk of ending or money is at risk of being forfeited, a BC court may relieve against all penalties and forfeitures, on terms it sees fit, including costs and compensation. Whether that applies to your situation depends on the facts, so get advice early.

What to do next

• Gather the lease, any guarantee, the landlord's consent and the assignment documents.
• Check whether anything in writing releases you from the lease.
• If not, ask a lawyer whether a release or limits can still be requested from the landlord.
• Run the corporate and bankruptcy checks on the buyer if you remain exposed.
• Note the dates of any default notice or demand, since time limits may be running.
• Keep any acknowledgment or payment arrangement in signed writing.

Because the outcome turns on the exact wording of your lease and the landlord's consent, speak with a lawyer before you respond to a landlord's demand.

Frequently asked questions