Friday, May 15, 2009


When a related party pays the rent on behalf of the tenant, does that related party tacitly become legally responsible in its own right as a tenant?
This issue was recently dealt with in the case of 162702 Canada Inc. vs. Blue Avenue Clothing Inc. and Forecasts Brands Inc., 2009 QCCQ 2695.
The results in any particular case will turn on the particular facts. In Blue Avenue Clothing, the Judge dismissed the action against the related party who made the rent taking into account the following circumstances:
Although Forecast had some stock on the premises, it did not have any employees or carry on any activities there.
There was no evidence of any express agreement in the nature of the sublease or assignment between the tenant and Forecast.
The tenant continued to occupy the premises at all relevant times and maintained a substantial inventory there.
Only the tenant is mentioned in the invoice.
The Civil Code of Quebec specifically provides for the possibility of payment being made by someone other than the debtor.
The factual elements are equally consistent with the tacit creation of a tenant’s obligation, as well as the advance of funds by Forecast to the tenant, who was facing liquidity problems. Since the burden of proof is on the landlord, Forecast prevailed.
The landlord argued that the relationship between the parties was one of assignment or sublease and that the acceptance of the rent by the landlord from Forecast was equivalent to the consent to the assignment or sublease. The Trial Judge held that the continued occupancy by the tenant and the ambiguity of the discussions regarding the nature of the relationship between the tenant and Forecast lessened the probability of the existence of a sublease or an assignment of the tenant’s interest in the lease to Forecast.
From the landlord’s perspective, the payment of rent by someone other than the tenant should constitute a red flag of impending future trouble.
In such circumstances, good credit management (and problem prevention) would mitigate in favor of the landlord investigating the financial viability of the tenant and, if found wanting, to obtain further security to guarantee the tenant’s obligations pursuant to the lease, including but not necessarily limiting to, formally adding the related party as a tenant or guarantor.