Lease Assignment and Subletting Practice Questions

Question 1 of 5

A lease contains a 'recapture' provision allowing the landlord to terminate the lease and take back the premises instead of consenting to an assignment or sublease. The tenant receives a lucrative sublease offer. When the tenant requests consent, the landlord exercises the recapture right. What is the tenant's position?

• AIf the lease grants a recapture right, the landlord can exercise it regardless of the sublease terms — the tenant loses the lease and the sublease opportunity; this is why recapture provisions should be heavily negotiated or eliminated during lease negotiation, as they effectively give the landlord a veto with the added consequence of lease termination
• BThe landlord cannot exercise recapture because the sublease is beneficial to the tenant — recapture right is a contractual provision that the landlord can exercise regardless of how beneficial the proposed sublease would be to the tenant
• CRecapture provisions are not enforceable in Ontario
• DThe tenant can proceed with the sublease and ignore the recapture exercise

Question 2 of 5

A commercial tenant wants to bring in a business partner by assigning 50% of the lease to the partner. The lease permits assignment with landlord consent. Can the tenant assign a partial interest in the lease?

• AYes — any portion of a lease can be assigned just like shares in a company real estate
• BPartial assignments are automatically approved under Ontario law real estate
• CThe tenant can assign 50% without landlord consent because it is not a full assignment
• DA partial assignment of a lease interest is not a standard legal concept — the lease can be assigned in full, or the tenant can sublease a portion of the space; to bring in a partner, the tenant should consider: adding the partner as a co-tenant through a lease amendment, subletting a defined portion of the space to the partner, or structuring the partnership at the business entity level rather than the lease level

Question 3 of 5

A developer considering a ground lease is told the lease will be 'unsubordinated.' The developer's lawyer explains this limits financing options. In an unsubordinated ground lease, what type of mortgage can the developer obtain?

• AA conventional mortgage on the entire property including the land, given that ownership of the land
• BNo mortgage of any kind is available for unsubordinated ground leases, especially where the borrower's income, credit profile, and debt ratios meet the standard qualification criteria applied by institutional lenders for this type of property
• COnly a leasehold mortgage secured by the tenant's leasehold interest and improvements — not the underlying land; this limits the loan amount because the lender cannot access land value as collateral in a foreclosure
• DA mortgage from the landowner only, at the landowner's preferred terms, given that the mortgage terms including rate, amortization period, and prepayment provisions are consistent with the borrower's financial objectives and risk tolerance

Question 4 of 5

A lease contains a 'deemed assignment' provision that treats any change in control of the tenant corporation (such as a sale of more than 50% of shares) as an assignment requiring landlord consent. The tenant's founder wants to sell 60% of the company to an investor. What must the tenant do?

• AThe tenant must obtain the landlord's consent before the share sale closes, because the deemed assignment provision treats the change of control as a lease assignment — failing to obtain consent could constitute a default under the lease
• BNothing — selling shares is a corporate matter that does not affect the lease, under the terms of the lease agreement, which typically addresses rent escalation, operating costs, maintenance responsibilities, renewal rights, and permitted use restrictions
• CThe deemed assignment provision only applies to publicly traded companies, based on standard commercial leasing practices that allocate costs, risks, and responsibilities between landlord and tenant according to the negotiated lease provisions
• DThe tenant can complete the sale and notify the landlord afterward, based on standard commercial leasing practices that allocate costs, risks, and responsibilities between landlord and tenant according to the negotiated lease provisions

Question 5 of 5

Salesperson Aisha's client operates a franchise restaurant under a commercial lease. The franchisor requires that any assignment of the lease must also involve assignment of the franchise agreement to a franchisor-approved operator. What complication does this create for the assignment process?

• ANo complication — the franchise and lease assignments are completely independent
• BThe franchisor's approval automatically satisfies the landlord's consent requirement, on the basis that franchisor's approval does not satisfy the landlord's consent requirement
• CThe tenant must obtain approvals from both the landlord and the franchisor, creating a dual-consent requirement — the proposed assignee must satisfy both the landlord's financial and suitability criteria and the franchisor's operator qualifications; failure to satisfy either prevents the assignment, significantly narrowing the pool of eligible assignees
• DFranchise agreements cannot be assigned, so the lease cannot be assigned either real estate