Court File and Parties

CITATION: HBC v. OMERS, 2015 ONSC 4671 COURT FILE NO.: CV15-10947-00CL DATE: 2015-08-04

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: HUDSON'S BAY COMPANY and HBC CAN REAL PROPERTY LP, Applicants AND: OMERS REALTY CORPORATION, YORKDALE SHOPPING CENTRE HOLDINGS INC., OMERS REALTY HOLDINGS (YORKDALE) INC., ARI YKD GP INC., ARY YKD INVESTMENTS LP, SQUARE ONE PROPERTY CORPORATION, OMERS REALTY MANAGEMENT CORPORATION, 156 SQUARE ONE LIMITED, SCARBOROUGH TOWN CENTRE HOLDINGS INC., OMERS REALTY HOLDINGS (STC ONE) INC., ARI STC GP INC. and ARI STC INVESTMENTS LP, Respondents

BEFORE: Conway J.

COUNSEL: Jonathan C. Lisus, James Renihan and Larissa C. Moscu for the Applicants Patricia D.S. Jackson and Molly M. Reynolds, for the Respondents

HEARD: July 20, 2015

ENDORSEMENT

Introduction

[1] The Applicants, Hudson’s Bay Company (“HBC”) and HBC CAN Real Property LP (by its general partner HBC CAN Real Property Inc.) (“HBC CAN LP”), are anchor tenants in three shopping malls: (1) Yorkdale; (2) Square One; and (3) Scarborough Town Centre. The malls are owned and operated by the respondent landlords (the “Landlords”), represented on this application by Oxford Properties Group (“Oxford”).[^1]

[2] HBC and RioCan Real Estate Investment Trust (“RioCan”) are entering into a real estate joint venture (the “Joint Venture”). HBC proposes transferring various real estate properties, including its leases at the malls (the “Leases”), to the Joint Venture. HBC sought Oxford’s consent to assign and sublease the Leases pursuant to the terms of the Joint Venture. Oxford refused to grant its consent.

[3] The Applicants bring this application under s. 23(2) of the Commercial Tenancies Act, R.S.O. 1990, c. L.7 seeking a declaration that consent is not required for the assignment and sublease of the Leases pursuant to the terms of the Joint Venture or, alternatively, that Oxford is unreasonably withholding its consent.

[4] For the reasons that follow, I conclude that consent to the assignment and sublease is not required. Alternatively, if consent is required, (a) the Landlord was entitled to withhold its consent with respect to the Square One Lease; and (b) the Landlords have unreasonably withheld their consent with respect to the Yorkdale and Scarborough Leases.

Background

[5] HBC operates stores under a number of different retail banners, including Hudson’s Bay, Saks Fifth Avenue, Lord & Taylor and Home Outfitters. HBC is a publicly traded company on the Toronto Stock Exchange.

[6] HBC is the tenant under the Yorkdale Lease, dated September 26, 2002. HBC CAN LP, through its general partner HBC CAN Real Property Inc., is the tenant under the Square One Lease, dated October 3, 1973, and under the Scarborough Lease, dated July 17, 1972. Hudson’s Bay stores are operated at each of the three leased locations.

[7] Pursuant to the Joint Venture, HBC is contributing ten properties (five owned and five leased), including the Leases, to the Joint Venture. RioCan is contributing a 50% co-ownership interest in Georgian Mall and Oakville Place, as well as a significant cash contribution. The Joint Venture intends to acquire additional properties in the future. At some later date, the Joint Venture is expected to form the basis of a REIT, which may then be the subject of an IPO.

[8] In January 2015, HBC representatives met with Oxford to discuss the proposed Joint Venture. The structure of the Joint Venture had not yet been finalized. Originally, it was contemplated that all of the real estate assets would be transferred by HBC and RioCan to a limited partnership, the general partner of which would be jointly controlled by HBC and RioCan.

[9] After various meetings and exchanges of correspondence with Oxford, the structure was changed. According to HBC, the changes were made to address Oxford’s concerns with the degree of control that RioCan (a competitor of Oxford) would have over the Leases.

[10] The proposed Joint Venture structure is now as follows:

• HBC and RioCan will be the two limited partners in RioCan-HBC LP (the “First LP”). HBC will initially hold approximately 90% of the partnership units and RioCan the remaining 10%. The sole general partner of the First LP will be 2455034 Ontario Inc., a company jointly controlled by HBC and RioCan.

• All of the assets to be contributed by HBC and RioCan to the Joint Venture, other than the Leases, will be transferred to 2455034 Ontario Inc. as the general partner of the First LP.

• A second limited partnership, HBC YSS LP (the “Second LP”), will be formed to hold the Leases. HBC will be the general partner of the Second LP. The First LP will be the sole limited partner of the Second LP and will hold a 99.9999% interest in the Second LP.

• The Leases will be assigned by the Applicants to HBC in its capacity as general partner of the Second LP.

• The leased premises under each of the Leases will be sublet to HBC on a full pass through basis for the entire remaining terms of each Lease, including renewals.

[11] According to HBC, this restructuring addresses Oxford’s concerns, as the general partner to whom the Leases are being assigned will now be HBC (and not a new company jointly controlled by HBC and RioCan), and as the general partner, HBC will have control over the Leases. According to Oxford, however, the revised structure is superficial – it does not change the economics or commercial realities of the original Joint Venture deal, nor its concern that RioCan will have control over the Leases.

[12] HBC requested Oxford’s consent to the assignment and sublease of the Leases pursuant to the restructured Joint Venture (while not conceding that consent was required).[^2] Oxford had requested, and HBC provided, information about the proposed Joint Venture. Ultimately, Oxford was not satisfied with the proposed restructuring of the Joint Venture and refused to consent to the assignment and sublease of the Leases. Oxford provided HBC with detailed reasons for its refusal.

[13] The parties agreed that the matter would have to be determined by the courts and HBC brought this application in April 2015. Since then, the Joint Venture transaction has closed; however, the Leases were excluded from the transaction pending a decision of the issues in this application.

Issue #1 – Is Consent Required to Assign the Leases?

[14] While there are variations in the language, each of the Leases broadly restricts a transfer or assignment of the Lease; however, each of the Leases contains an exception for an assignment of the Lease to an affiliate of the existing tenant (the “Affiliate Exception”).

[15] HBC’s position is that consent is not required. Simply put, it submits that each Lease will be assigned to HBC as the general partner of the Second LP. HBC argues that as a matter of law, a limited partnership cannot hold property and any partnership property must be held by the general partner. Therefore, it argues, HBC will be the assignee of the Leases. Further, since HBC is either the same company or an affiliate of the existing tenant under each of the Leases, the Affiliate Exception applies and no consent is required.

[16] Oxford’s position is that the Affiliate Exception does not apply. It submits that while HBC will be taking legal title to the Leases as the general partner of the Second LP, this is a matter of legal personhood only – since a limited partnership cannot hold title to property – and HBC will be holding the Leases for the benefit of the Second LP. Oxford submits that the court must look beyond who will be holding legal title to the Leases (HBC, the general partner) and must look at who will become the beneficial owner of the Leases (the Second LP), and find that the Second LP will be the assignee of the Leases. Oxford submits that since the Second LP is not an affiliate of the existing tenant under the Leases, the Affiliate Exception does not apply and consent is required.

[17] I accept HBC’s position and agree that the assignee of the Leases will be the general partner, HBC, and not the Second LP. My conclusion is based on the unique legal nature of the limited partnership structure and the role played by the general partner.

[18] A limited partnership is not a legal entity. It is required by law to have a general partner through which it normally acts: see Kucor Construction & Developments & Associates v. Canada Life Assurance Co. (1998), 1998 CanLII 4236 (ON CA), 41 O.R. (3d) 577 (C.A.), at pp. 587-588. A limited partnership therefore cannot hold title to real property. The limited partnership can only hold title to real property through its general partner: Kucor, at p. 590.

[19] Justice Farley explained the unique features of a limited partnership and the way that property is held and business conducted, in the case of Re Lehndorff General Partner Ltd. (1993), 17 C.B.R. (3d) 24, at pp. 39-40 (my emphasis added):

A limited partnership is a creation of statute, consisting of one or more general partners and one or more limited partners. The limited partnership is an investment vehicle for passive investment by limited partners. It in essence combines the flow through concept of tax depreciation or credits available to “ordinary” partners under general partnership law with limited liability available to shareholders under corporate law…....A general partner has all the rights and powers and is subject to all the restrictions and liabilities of a partner in a partnership. In particular a general partner is fully liable to each creditor of the business of the limited partnership. The general partner has sole control over the property and business of the limited partnership...

The limited partners do not have any “independent” ownership rights in the property of the limited partnership. The entitlement of the limited partners is limited to their contribution plus any profits thereon, after satisfaction of claims of the creditors…

It appears to me that the operations of a limited partnership in the ordinary course are that the limited partners take a completely passive role (they must or they will otherwise lose their limited liability protection which would have been their sole reason for choosing a limited partnership vehicle as opposed to an "ordinary" partnership vehicle). . . . The limited partners leave the running of the business to the general partner and in that respect the care, custody and the maintenance of the property, assets and undertaking of the limited partnership in which the limited partners and the general partner hold an interest. The ownership of this limited partnership property, assets and undertaking is an undivided interest which cannot be segregated for purposes of legal process.

[20] Three things are clear from this description. First, any property in which the limited partnership (i.e. the partners) may have an interest can only be held by the general partner. In the case of a lease, there can be no assignment of the lease to the limited partnership – the assignment of the lease must be to the general partner.

[21] Second, it is not simply a matter of the general partner acquiring legal title to the property. The general partner has control over the property and is solely responsible for the operations of the limited partnership. The limited partner, as a passive investor, is restricted from taking part in the control or management of the business – indeed, to do otherwise would jeopardize its limited partner status.

[22] Third, from the perspective of the other contracting party, the general partner is solely liable for all payments under the contract and performance of all obligations thereunder. The limited partners have no such liability. In this case, once the Leases are assigned, the legal relationship under the Leases will continue to be between the Landlords and HBC. There will be no relationship between the Landlords and the limited partners. HBC alone will be liable for rent and all amounts owing under the Leases. HBC alone will be responsible for compliance with all obligations and covenants under the Leases. In other words, there will be no change in the legal relationship between HBC and the Landlords following the assignment.

[23] In my view, in determining who will be the assignee of the Leases, there is no reason to look beyond the fact that the Leases are being legally assigned to the general partner, or to focus on where any other interests may lie. Given that the Leases will be assigned to HBC as the general partner and that HBC will be solely responsible for the operations of the Second LP, I conclude that HBC, the general partner, will be the assignee of the Leases.

[24] I am also satisfied that since the assignee of the Leases will be HBC, the Affiliate Exception applies and consent is not required.

[25] In the Yorkdale Lease, Article 21.00 provides that the Tenant may assign or sublet the whole of the Leased Premises without consent, but with notice, to an Affiliated Corporation (with consent to be obtained or this Lease reassigned or sublease terminated if the affiliation ceases)…“Affiliated Corporation” is defined as a “holding corporation, subsidiary corporation or affiliate of Tenant, as each of those terms is defined in the Canada Business Corporations Act.” The current tenant under the Yorkdale Lease is HBC. HBC is assigning the lease to itself in its capacity as general partner of the Second LP.[^3] In my view, an assignment from a corporate tenant to the exact same corporate entity comes within the Affiliate Exception.[^4]

[26] Under the Square One Lease, Article 21.00 provides that the Tenant may, without consent, “assign this Bay Lease or sublet the Leased Premises to…the Hudson’s Bay Company.” The assignment to HBC (the Hudson’s Bay Company) is expressly permitted by Article 21.00.

[27] Under the Scarborough Lease, Section 4.1(iv)(a)(1) provides that the consent of the Landlord is not required for: “assignments of this Lease…made between any of Simpsons, Limited and other companies which are or are about to become AFFILIATES of Simpsons, Limited”. “Affiliates” is defined to include any “corporation which CONTROLS, is CONTROLLED by, or is under common CONTROL with, such corporation.” Control is defined to mean “ownership either directly or indirectly of shares having more than half the votes entitled to be cast for the election of the directors of a corporation.” The Lease is no longer held by Simpsons, Limited, but is held by HBC CAN Real Property Inc. as general partner of HBC CAN LP. HBC owns all the shares of HBC CAN Real Property Inc. and is therefore an affiliate of the existing tenant. Consent to a transfer of the Lease to HBC is not required.[^5]

[28] To summarize, the assignment of the Leases will be to HBC, the general partner of the Second LP, and not to the limited partnership. The assignment to HBC is permitted under the Affiliate Exception of each Lease, and Oxford’s consent is not required. Further, because the subsequent sublease will be to HBC, which is the same entity as the general partner (HBC), the sublease is also permitted under the Affiliate Exception and Oxford’s consent is not required.

[29] The Applicants also seek a declaration that the Landlords’ consent will not be required with respect to the future transfers of equity shares, units or interest of HBC, the First LP or the Second LP in connection with the conversion to a REIT or to any future IPO. No details have been provided and any such transactions are prospective ones. I decline to grant the declaration.

Issue #2 – Did Oxford Withhold its Consent Unreasonably?

[30] Since consent to the assignment and sublease is not required, I do not need to decide whether Oxford withheld its consent unreasonably. However, if I am incorrect and consent is required, I will address the parties’ alternative arguments.

[31] Section 23(2) of the Commercial Tenancies Act provides that, unless the lease explicitly provides otherwise, the landlord may not unreasonably withhold consent to an assignment or sublease. It further provides that where a landlord refuses to consent to an assignment or sublease of a lease, the tenant may apply to the court for an order permitting the assignment or sublease.

[32] The Square One Lease states that the Landlord’s consent to an assignment may be arbitrarily withheld. The parties have contracted out of the statutory presumption that consents may not be unreasonably withheld. The ability of a landlord to insert such lease provisions for its own protection has been recognized by the courts: see Tradedge Inc. v. Tri-Novo Group Inc., 84 R.P.R. (4th) 84 (Ont. S.C.), at para. 4. The Landlord is entitled to withhold its consent under the Square One Lease.[^6]

[33] The Yorkdale Lease (s. 21) provides the Landlord is deemed not to be unreasonable in withholding its consent to an assignment and may arbitrarily withhold such consent, if the proposed assignee has not agreed in writing to assume and perform the Tenant’s covenants, obligations and agreements under the Lease[^7] and if the requirements of s. 21 have not been satisfied. Those requirements are that the assignee is (1) creditworthy, (2) a suitable replacement tenant, and (3) sufficiently experienced and competent in operating a retail department store business.

[34] The Scarborough Lease (s. 4.1(iv)(b)) provides that consent to assignments and subleases shall not be unreasonably withheld if made to “an established operator of integrated retail department stores not unlike that then operated by the TENANT in the SIMPSONS BUILDING.” The Lease further provides that the Landlord’s consent is deemed not to be unreasonably withheld if: (1) the Landlord has not received full particulars relevant to the proposed assignment and the identity, reputation, experience and financial position of the proposed assignee; or (2) having received full particulars,[^8] the Landlord is not fully satisfied that the proposed assignee or lessee (i) is of a good reputation in the industry, (ii) has substantial and successful experience in the operation of integrated retail department stores; (iii) is in a financial position such that there are no reasonable grounds to foresee that all of the Tenant’s obligations will not be fully performed by the assignee; and (iv) will not be adverse in any significant respect to the foreseeable best interest of the shopping centre.

[35] The principles that apply in determining whether a landlord has reasonably withheld consent to an assignment were articulated by Lederman J. in Suncor Energy Products Inc. v. 2054889 Ontario Ltd., 2010 ONSC 6159, at para. 26 (citing Cullity J. in 1455202 Ontario Inc. v. Welbow Holdings Ltd., 2003 CanLII 10572 (ON SC), [2003] O.J. No. 1785 (S.C.), at para. 9):

(i) the burden is on the tenant to satisfy the court that the refusal to consent was unreasonable;

(ii) in determining the reasonableness of a refusal to consent, it is the information available to – and the reasons given by – the Landlord at the time of the refusal – and not any additional, or different, facts or reasons provided subsequently to the court – that is material;

(iii) the question must be considered in the light of the existing provisions of the lease that define and delimit the subject matter of the assignment as well as the right of the tenant to assign and that of the Landlord to withhold consent;

(iv) a probability that the proposed assignee will default in its obligations under the lease may, depending upon the circumstances, be reasonable grounds for withholding consent;

(v) the financial position of the assignee may be a relevant consideration;

(vi) the question of reasonableness is essentially one of fact that must be determined on the circumstances of the particular case, including the commercial realities of the market place and the economic impact of an assignment on the Landlord.

[36] Further, a landlord may not refuse consent for reasons which are collateral to the terms of the governing lease. Where a landlord refuses consent in order to achieve a collateral purpose or benefit, the refusal is unreasonable: Tradedge, supra at para. 39.

[37] In determining whether the tenant has discharged its burden, the question is not whether the court would have raised the same conclusion as the landlord or even whether a reasonable person might have given consent; it is whether a reasonable person could have withheld consent: Welbow, supra, at para. 9.

[38] HBC submits that as a practical matter, nothing will change for the Landlords under the Joint Venture structure. HBC will remain fully liable for all obligations under the Leases and will continue to operate the stores in accordance with the Leases. RioCan will not have any active involvement in the Leases or the stores, other than limited veto rights. HBC submits that the real reason that Oxford is refusing its consent is because it does not want its competitor RioCan to realize any indirect economic benefit from Oxford’s properties.

[39] Oxford refutes this submission. Oxford submits that the Joint Venture creates an entirely new legal entity that will operate under different legal control, divergent business interests, and with real estate-focused objectives rather than in a capacity as a retail department store. It submits that the Leases, which contain anchor tenant rights, will now be held by a real estate entity rather than a retail store operator and that this fundamentally alters the relationship between the Landlords and their existing tenant, HBC.

[40] I accept HBC’s submission. Based on the record before me, HBC has met its burden of proving that the Landlords are acting unreasonably in withholding their consent.

[41] I will address each of the Landlords’ primary reasons.[^9]

The Tenant will now be a Real Estate-Focused Entity, not a Retail Store Operator

[42] This is Oxford’s overarching submission. Mr. Aziz, Executive Vice-President and Chief Legal Counsel of Oxford, states that it is a “fundamental premise” of the Leases that the leasehold interest be held by a retail department store operator. He states that “the assignment of the Leases to [the Second LP] will be prejudicial to the Landlords because it will extend anchor tenant rights to an entity that primarily operates a competing real estate business rather than a retail department store.” Oxford argues that HBC will make decisions under the Leases based on the real estate interests of the limited partnership[^10] rather than on what is best for the retail store operations and the shopping malls.

[43] Oxford’s refusal to consent based on this concern is unreasonable. First, the stores will continue to be operated by HBC, a retail store operator and the existing operator of the stores. HBC will continue to be subject to all covenants and obligations in the Leases. Nothing changes.

[44] Second, Oxford’s reasons are speculative. For example, under the Leases HBC’s consent is required before a new tenant can be located within a certain proximity to its store. Mr. Aziz suggests that HBC might withhold its consent in the future so as to attract the new tenant to one of the Joint Venture’s properties instead of an Oxford property.[^11] That is entirely speculative, without any evidentiary foundation.

[45] Third, Mr. Aziz suggests that HBC’s interests as general partner of the Second LP will diverge from those of the Landlords and that HBC will no longer be motivated to do what is best for the stores and the shopping malls. For example, Oxford suggests that HBC might not agree to new development in “no build areas” at the malls, as HBC would have to consider the effect of that agreement on other properties in the Joint Venture portfolio. Again, this is entirely speculative and without evidentiary foundation. It is further contradicted by HBC’s evidence that it has every incentive to invest in, maintain and promote the stores, as the value of the Leases is tied directly to the success of the stores.

[46] Fourth, Oxford’s distinction between a real estate company and a retail store operator is undermined by the fact that HBC is both. HBC’s evidence is that it has significant real estate holdings and that it has always made decisions having regard to both its real estate and retail store businesses.[^12]

[47] Fifth, to the extent that HBC has consent or approval rights as an anchor tenant, it has a contractual right to exercise them as it sees fit, provided it does so in accordance with the terms of the Lease. Oxford has no right to require HBC to grant consent or amend the Leases in a particular way (or at all). Oxford’s refusal to grant consent on the basis that HBC may exercise its anchor tenant rights differently in the future than it has in the past is a collateral reason.[^13]

[48] Finally, there is no restriction on a change in control of HBC under the Leases.[^14] RioCan, or any other real estate company, could have purchased the shares of HBC and indirectly acquired an interest in the Leases. In effect, this is what is occurring here, through the vehicle of a limited partnership – RioCan is acquiring a 10% indirect interest in the Leases. In my view, Oxford is seeking to restrict a transaction that is already permitted.

Control over HBC as General Partner

[49] The First LP, as limited partner, has certain veto rights if HBC proposes to assign or sublet the Leases; obtain financing secured by the Leases; not extend or renew the Leases; or amend, terminate or surrender the Leases. Oxford argues that these veto rights enable the limited partner (and indirectly, RioCan) to exert control over the Leases.

[50] I disagree. As noted above, the limited partner is a passive investor. HBC, as the general partner, controls the operations of the Second LP’s business and, as such, is responsible for all decision making under the Leases. The veto rights do not give the limited partner the right to take or initiate action or to require the general partner to do so – the limited partner can only veto or block certain fundamental actions. In my view, Oxford overstates the operational involvement that the limited partner (and indirectly RioCan) can and will have by virtue of these veto rights.[^15]

[51] More important, the Leases themselves address assignments, renewals, financings and amendments. The veto rights, which are an internal matter within the limited partnership, will have no effect on the Landlords’ rights with respect to those matters.

Financial Prejudice

[52] Oxford submits that because HBC will be paying higher rents as a subtenant than it is currently paying under the Leases, HBC will be more likely to default under the Leases, thereby exposing the Landlords to higher financial risk.

[53] HBC’s evidence is that its annual free cash flow is approximately $612 million and that the net impact on its cash flow from the increased rents is $2.5 million a year.[^16] Oxford’s evidence (contested by HBC) is that the impact of the higher rents on HBC’s cash flow is $23 million per year. In either case, given the size of HBC’s free cash flow, I cannot accept that it is “probable” that HBC will default in its obligations or that Oxford is being reasonable in withholding consent on the basis of financial prejudice.[^17] [^18]

[54] Mr. Aziz’ evidence is that the higher sublease payments may also trigger higher property taxes at the malls. Again, this is speculative and unsupported by any independent evidence with respect to the likelihood of property tax reassessments as a result of the sublease payments. Oxford’s argument is further undermined by the fact that the Leases expressly contemplate subleases in certain situations but do not impose any form of a cap on subtenant rents.

Summary

[55] If consent was required, the Landlord was entitled to withhold its consent under the Square One Lease.

[56] With respect to the Yorkdale and Scarborough Leases, HBC has met its burden of proving that a reasonable person would not have withheld consent to the assignment and sublease of those Leases pursuant to the terms of the Joint Venture transaction. HBC will continue to be the operator of the stores. It will continue to be liable under the Leases. It will be in control of the Leases as the general partner of the Second LP. There is no reason to believe that its interests will diverge from those of Oxford going forward. There is no probability that HBC will default under the Leases. The Landlords’ refusal to consent to the assignment and sublease of those Leases is unreasonable.

Decision

[57] I grant a declaration that the Applicants do not require the consent of the Landlords to assign the Leases to HBC as general partner of the Second LP. I further grant a declaration that Landlords’ consent is not required for the sublease from HBC as general partner of the Second LP to HBC as subtenant.

[58] In the alternative, I grant: (i) an order permitting the Applicants to assign the Yorkdale and Scarborough Leases to HBC as general partner of the Second LP; and (ii) an order permitting HBC as general partner of the Second LP to sublease those Leases to HBC as subtenant. I dismiss the application for any order with respect to the Square One Lease.

[59] If the parties are unable to agree on costs of this application, written submissions not exceeding 3 pages (double spaced) may be made, by HBC within 15 days and by Oxford within 10 days thereafter.

Conway J.

Date: August 4, 2015

[^1]: Oxford is the real estate arm of OMERS and invests in and manages extensive real estate assets on behalf of OMERS, one of Canada’s largest pension plans.

[^2]: HBC’s evidence is that it made it clear to Oxford that it did not require consent but was requesting it out of respect for their ongoing relationship.

[^3]: With respect to the issue of HBC assigning to itself as general partner, s. 41 of the Conveyancing and Law of Property Act, R.S.O. 1990, chapter C. 34, provides that a person may convey property to itself. See also Kucor, in which property was conveyed by a corporation to itself as a general partner of a limited partnership.

[^4]: This also addresses the requirement in s. 21(1) of the Yorkdale Lease that the ownership of the store and the leasehold interest co-exist in the same entity – both will be held by HBC.

[^5]: Even if Simpsons, Limited is not read as being HBC CAN Real Property Inc., Simpsons, Limited (now called Snospmis Limited) is a subsidiary of HBC, as is HBC CAN Real Property Inc. Assignments are expressly permitted between any of Simpsons, Limited and other companies that are affiliates of Simpsons, Limited. Given the affiliate relationships, the assignment from HBC CAN Real Property Inc. to HBC is permitted.

[^6]: HBC appeared to concede this point in its factum. At the hearing, it submitted that this clause would be overridden by the organizing principle of good faith set out by the Supreme Court of Canada in Bhasin v. Hrynew, 2014 SCC 71. Given HBC’s concession I am not prepared to entertain this submission but in any event I am not persuaded that Bhasin disentitles Oxford from relying on an express term of a contract negotiated by sophisticated parties.

[^7]: The only reason a written agreement has not been signed is because the parties are pursuing this matter through the courts. Under the circumstances, that factor does not entitle the Landlord to withhold its consent.

[^8]: HBC provided full particulars to Oxford, except for details of the intermediate steps of the transfer to HBC as general partner of the Second LP. Oxford confirmed at the hearing that it has now received those details and has no issue with those steps.

[^9]: One of Oxford’s other reasons for refusing consent was that the form of consent was overly broad, as it referred to unknown “intermediate steps” and included Oxford’s consent to future transactions. As noted above, Oxford now has no issue with the intermediate steps to be taken. Also, as noted above, I agree that future transactions must be excluded from the form. In my view, the consents would not be overly broad if the reference to future transactions is taken out.

[^10]: Oxford argues that HBC will have fiduciary and contractual obligations to the limited partner that will require HBC to act in the best interests of the limited partnership.

[^11]: The example provided by Oxford is that HBC might exercise its consent rights to attempt to divert a new tenant from Square One (an Oxford mall) to Oakville Place (a mall in the Joint Venture portfolio).

[^12]: HBC points out that Oxford has already consented to the assignment of the Scarborough and Square One Leases to HBC CAN LP through its general partner HBC CAN Real Property Inc., which is not a retail store operator.

[^13]: I note that HBC is required in s. 2.9(g) and (h) of the Second LP limited partnership agreement to administer the Leases in the same manner and with the same standard of care as it did prior to the date of that agreement. HBC has indicated that it is willing to agree that any assignment would be contingent on those sections (as well as the limited partner’s veto rights) not being materially amended in the future.

[^14]: The Yorkdale Lease permits a change in control that occurs as the result of trading in shares listed upon a recognized stock exchange. The Scarborough Lease contains no change of control clause. Mr. Aziz acknowledged on cross-examination that there was nothing preventing RioCan from acquiring control over HBC and the Leases.

[^15]: For example, Mr. Aziz states that the limited partner (and indirectly RioCan) will be involved if the Landlord requests HBC to consent to certain actions (eg. building within “no build areas”) that require anchor tenant consent. However, the veto rights only apply to proposed amendments of the Leases, not to requests for consent. Further, Lease amendments cannot be imposed by either party on the other – any such amendments must be agreed to by both the Landlord and the tenant.

[^16]: HBC notes that, at least initially, it will recoup most of the increased rent costs through its 90% interest in the limited partnership.

[^17]: Oxford relies on a CIBC “Gross Rent to Occupancy Cost Ratio” (GROC) report in which the analyst states that the sublease rents are higher than is safe and reasonable. This is hearsay. In any event, it does not support the conclusion that it is “probable” that the assignee will default on lease obligations. In addition, HBC’s evidence is that the limited partnership structure will provide access to lower cost mortgage financing, reduce HBC’s debt levels and improve its credit metrics. Oxford also states that the Landlords’ position could be compromised in the event HBC becomes insolvent. Given that there is no evidentiary foundation to find that the transaction will increase the risk of HBC’s insolvency, this is not a reasonable basis to withhold consent. In any event, the Landlords will have all of their rights under the Leases against HBC in the event it becomes insolvent.

[^18]: Indeed, HBC shareholders did not appear to share Oxford’s concern about the effect of the deal on HBC’s financial position. HBC’s share price jumped 20% after the transaction was first announced.