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My lessee asked if I'm interested in buying his leasehold interest. He wants to sell his lease to the landlord, me. He's renting my detached house in Toronto until Jun 1 2024. He pays $9 000/month. I'm discombobulated!

  1. How does it make sense for a landlord to buy a lease from my own tenant?

  2. If he just wants to vacate now, why didn't he just ask me to authorise him to breach and end his lease with no penalty?

Tenant's reply on May 1 2020

I phoned my tenant and asked if he "just want out of the lease early and chose very odd wording" as Hart CO suggested below. But he said no. His lawyer mom drafted his email, on point with the English law case Hughes v Metropolitan Railway (1877). He didn't understand it either. He's just following mom's instructions.

My research

I'm not a lawyer and don't see how Hughes matters? I didn't serve notice on tenants about repairs, and when I inspected the condo in Dec 2019, it was in mint condition! I Googled and found these books discussing Hughes.

  • p. 115 in 2020 book O’Sullivan & Hilliard’s The Law of Contract 9th edn. By Janet O'Sullivan.

5.78 Denning J was here referring in particular to the case of Hughes v Metropolitan Railway (1877). There, a landlord served a notice on his tenants to carry out certain repairs to the leased property within six months. (The lease provided that the tenants were responsible for repairs to the property and that the landlord was entitled to terminate (‘forfeit’) the lease if the repairs were not performed in accordance with the notice.) The tenants replied saying that they would carry out the repairs, but wondered whether the landlord might be interested in buying out their leasehold interest and suggested that the repairs might be deferred pending any negotiations. The landlord entered into negotiations and, while these were going on, the tenants deferred the repairs. After negotiations broke down, the tenants began the repairs but they were not completed within the initial six-month period, whereupon the landlord attempted to forfeit the lease. The House of Lords held that he could not do so, but was obliged to allow six months from the breaking down of negotiations.

  • p. 92 in 2019 book Contract Law Directions 6th edn. By Richard Taylor, Damian Taylor.

However, in Hughes v Metropolitan Railway Company (1877), the House of Lords gave effect to conduct which amounted to a promise as to future conduct. The landowner Hughes served notice on the Railway Company to perform repairs on the property it leased from him within six months, on pain of forfeiture of the lease. The Railway Company said that it would carry out the repairs but, before it did this, it wished to hear from Hughes on its proposal for Hughes to buy the Railway Company’s leasehold interest in the property. The parties entered into negotiations but they did not arrive at an agreement and Hughes sought to eject the Railway Company from the property six months after it had served the notice of repair (the Railway Company performed the repairs two months later).

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    Did they give any indication what they were hoping for?
    – Hart CO
    Commented May 1, 2020 at 13:49
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    If the tenant is listening to their mother's "legal" advice, I would advise them to continue discussions with your lawyer, and stop communicating otherwise with them.
    – Canadian Luke
    Commented May 1, 2020 at 15:33
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    Mom's an idiot. This is the law that applies. sjto.gov.on.ca/ltb/legislation-and-regulation Application of Act 3 (1) This Act, except Part V.1, applies with respect to rental units in residential complexes, despite any other Act and despite any agreement or waiver to the contrary. 2013, c. 3, s. 22 (1).
    – brian
    Commented May 1, 2020 at 15:44
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    These cases refer to a railway company as tenant, and which would have had a 21- or even 99-year lease in the Victorian era. These are largely if not entirely obsolete, but they could be and were traded actively. Not to monthly rental agreements. The future value of a monthly lease is zero.
    – user207421
    Commented May 2, 2020 at 5:49
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    In English property law, a lease is typically a long term arrangement where someone buys the right to occupy a property for a long period (often 99 years), after which the property reverts to the freehold owner. In such circumstances, selling the lease back to the freehold owner before the term expires may make sense. It sounds like you’re dealing with what English law calls a “tenancy”, a short-term rental of the property. I wonder if Mum has misunderstood this distinction...
    – avid
    Commented May 2, 2020 at 8:18

5 Answers 5

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Ask your tenant what he wants to get out of this arrangement - NOT the legalese - but:

  1. What end result the tenant wants in plain English (it sounds like free money).
  2. Why does the tenant think he should/must get it? - Note: answering my mum said it was due is not your problem.
  3. Then decide what you should do.

Things not to do:

  1. Engage with his mother - you have no legal relationship with her and should not develop one. She is a lawyer and could tie you in knots with irrelevant legalese.
  2. Treat the result of some random google as any guide to the legalities of the situation.

Frankly unless there is any evidence that you are actually obliged to engage with tenant on this issue I would say you are not interested and if it continues serve them notice according to the terms of your contract.

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  • The question has been updated with details of the mother's legal theory.
    – chicks
    Commented May 6, 2020 at 3:24
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    @chicks unfortunately the Mothers update adds no clarity and appears irrelevant to the situation. If neither the Mother or Tenant can explain their proposition in clear plain everyday English they should be ignored. Also it makes the Mother a pretty terrible lawyer if she’s unable to explain her propositions to lay people. Good lawyers don’t quote legalese to non-lawyers.
    – Gordon Coale
    Commented May 7, 2020 at 6:41
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What does he mean exactly? How the heck does it make sense for a landlord to "buy" a "lease" from his own tenant?

It sounds like they're hoping you might pay them to vacate/end their lease. It could make sense if you were considering selling the property. It could also make sense if they were about to stop paying rent because they think they cannot be evicted.

They could just want out of the lease early and chose very odd wording. You'll just have to ask them what exactly they're hoping for, but buying out a tenant's lease is not unheard of.

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    It also makes sense if they want to vacate the property for SOME Reason but have some seriously non raisable low rent. I.e. some people in New York got hugh payouts for vacating their properties (paying like nothing compared to regular rent rates under non expiring contracts).
    – TomTom
    Commented May 1, 2020 at 1:56
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    @TamaraMilanovic Forget their examples, just ask the tenant what they are hoping to achieve. What is their motivation?
    – Hart CO
    Commented May 2, 2020 at 23:10
  • The question has been updated with details of the mother's legal theory.
    – chicks
    Commented May 6, 2020 at 3:24
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    @chicks I saw that, but it seems like the "why are you requesting this, what are you hoping to get out of this?" type of questions haven't been asked/answered yet. Pretty odd situation.
    – Hart CO
    Commented May 6, 2020 at 3:37
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Let's say that the lease has a year left to run at $100 per month, and he offers to vacate for $500.

Let's also say that you could lease it right now for a year at $200 per month if it were not obligated by the current lease.

In that case, it could make financial sense to take that offer.

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    Doesn't seem like sound advice. The landlord will incur costs/risks (time, agency fees, advertising, unoccupied weeks/months, etc.) trying to re-let. The tenant has no reasonable grounds for trying to extract some portion of the change in the market rental rate from the landlord, imo. They can stay and enjoy getting a $200 place for $100. Or seek permission to leave without paying the next 11 months' rent. Saying they'll leave if the landlord hands over ~50% of their hypothetical, unearned profits just seems...mildly delusional, at best.
    – aroth
    Commented May 1, 2020 at 12:02
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    Could you clarify plainly which party is paying $500 to which party for early termination of the lease contract? I guess the occupant pays to the landlord, who is then free to re-rent the property ?
    – Criggie
    Commented May 1, 2020 at 12:49
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    I think that the last sentence is confusing, and I'll edit it to more clearly reflect what I think the answer means - OP please correct if that's not what you mean. There's nothing explicitly wrong with this logic: while a $100 difference isn't significant enough, it is very much possible that a much larger difference, or over a much longer lease, could justify paying the tenant to leave.This is not signifciantly different from the condo developer paying tenants to vacate early so they can tear down the old apartment and replace with new condos.
    – Joe
    Commented May 1, 2020 at 15:46
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    @aroth i'm not sure why this sounds mildy delusional. it happens all the time, especially with commercial leases that are long (think 5 to 10 years). If the market rate of the apartment has gone up a lot, its in the financial interest of the landlord to get the current lesee out. Why wouldn't he be willing to pay some portion of his expected return to make that happen?
    – frankc
    Commented May 1, 2020 at 19:36
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    I've had landlords that would drop tenants at the drop of the hat if the rental market was hot. They didn't think the profits were hypothetical...
    – nomen
    Commented May 1, 2020 at 21:03
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There is a process in rental property colloquially called "cash for keys" where the landlord pays a tenant to terminate a lease.

Usually it comes up as a kind-of win-win for both sides where the tenant has lost their income or the landlord wants them out with less fuss, so instead of a drawn out eviction process with no guarantee of getting paid back rent, the landlord offers a payment to the tenant (who gets cash right now) to leave and to take back possession of the property. More recently it has come up to shorten the process of a foreclosure.

The tenant wants to negotiate a contract with consideration paid to them to quit the lease. I don't see anything discombobulating about a current customer opening negotiations for a contract amendment - you don't have to accept their proposed terms, but it's something that can come up naturally from time to time.

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A lease is generally a right to occupy some premises for a fixed period. If the current tenant wants to move out, then they can sell the lease on to someone else, who then has the right to occupy for the remainder of the lease.

Provided that the rental being paid under the lease is less than the price of simply renting the equivalent building, the lease is an asset that is worth money. On residential leases in England & Wales, the yearly ground rent under a lease is usually much smaller then the cost of renting the same property.

Hence:

  1. He wants to sell his lease. He could put it on the open market, but instead has asked if you would like to buy him out. If you accept the deal, then you can sell a new lease to somebody else, or rent the property out. If you don't buy the lease, then he will instead pass it on to somebody else.
  2. He isn't just going to forfeit the lease, because it's worth money.
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    I'd be surprised if residential leases could be sold on like that. At least in the UK this would be a lease 'assignment', and requires the landlord's consent unless expressly permitted in the original tenancy.
    – Rup
    Commented May 1, 2020 at 14:12
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    @Rup As a former leasehold tenant, I have sold on a residential long lease to someone else. It was done in the same way as selling a freehold property: through an estate agent. I did not need to ask permission of the freeholder. I assume this is standard with residential long leases in England & Wales.
    – Simon B
    Commented May 1, 2020 at 14:24
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    Right, sorry I should have realised that's what you meant from 'ground rent'. To me the question sounds like it's a short residential tenancy and not leasehold in that sense.
    – Rup
    Commented May 1, 2020 at 14:27
  • @SimonB no, its not standard - a residential tenant under a standard tenancy agreement in England and Wales does not have the right or entitlement to sell the right of occupancy on to another party without the express permission and involvement of the landlord. Theres nothing to “sell” in a standard tenancy, theres no inherent value in a residential tenancy agreement for a third party to acquire.
    – user45974
    Commented May 2, 2020 at 10:27
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    @TamaraMilanovic I have no idea why the mother is replying with apparently irrelevant case laws and examples.
    – Simon B
    Commented May 2, 2020 at 22:24