With retail as a vulnerable sector in the current economic meltdown and recession, one of the prime factors in consideration in selling a retailer as a going concern are the leases, says Michael MacNaughton, a partner with Borden Ladner Gervais LLP’s Toronto office who specializes in insolvency and restructuring law.

For the most part, most leases have a clause that prevents assignment of the lease absent of the landlord’s consent. But, a ruling by the Supreme Court of British Columbia in Backbay Retailing Corp. and Gray’s Apparel Co. Ltd. may undermine this concept.

The B.C. decision states that regardless of the landlord’s position, if it’s in the best interest of the parties involved, the court can make an order to assign the lease as part of the restructuring process. In the ruling, it was stated that because the stores would remain and operate under the new owners who would assume the leases, it was in the debtor company Mariposa’s best interests as well as the other creditors — a position supported by the monitor Deloitte & Touche.

'In Mariposa in Vancouver, the court in the CCAA assigned the leases over the vigorous objections of the landlord,' says MacNaughton. 'I think that may be a sign that things may be more flexible in dealing with leases.'