



COURT OF APPEAL FOR ONTARIO

CITATION: Hudson's Bay Company v. OMERS
    Realty Corporation, 2016 ONCA 113

DATE: 20160210

DOCKET: C60988

Gillese, MacFarland and van Rensburg JJ.A.

BETWEEN

Hudsons Bay Company and HBC CAN Real Property LP

Applicants (Respondents)

and

OMERS Realty Corporation, Yorkdale Shopping
    Centre Holdings Inc., OMERS Realty Holdings (Yorkdale) Inc., ARI YKD GP Inc.,
    ARI 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 (Appellants)

Sheila Block and Molly Reynolds, for the appellants

Jonathan Lisus and James Renihan, for the respondents

Heard: January 21, 2016

On appeal from the judgment of Justice Barbara A. Conway
    of the Superior Court of Justice, dated August 4, 2015, with reasons reported
    at 2015 ONSC 4671.

By the Court
:

BACKGROUND IN BRIEF

[1]

HBC CAN Real Property LP (HBC CAN LP) is a limited partnership whose
    sole limited partner is Hudsons Bay Company (HBC) and whose sole general
    partner is HBC CAN Real Property Inc. (HBC CAN Inc.). HBC CAN Inc. is wholly
    owned by HBC.

[2]

HBC and HBC CAN Inc. are anchor tenants in three shopping malls:
    Yorkdale, Square One, and Scarborough Town Centre. They operate Hudsons Bay stores
    at each of these three leased locations.

[3]

The malls are owned and operated by the appellant landlords (the
    Landlords), represented in this matter by Oxford Properties Group (Oxford).
    HBC is the tenant under the Yorkdale lease. HBC CAN Inc., as general partner of
    HBC CAN LP, is the tenant under the Square One and Scarborough Town Centre
    leases. HBC and HBC CAN LP are the respondents (Respondents) in this appeal.

[4]

HBC and RioCan Real Estate Investment Trust (RioCan) are entering into
    a real estate joint venture. HBC is to transfer ten real estate properties 
    five owned and five leased  to the joint venture. The five leases include its
    leases at Yorkdale, Square One, and Scarborough Town Centre (the Leases). RioCan
    is to contribute a 50% co-ownership interest in Georgian Mall and Oakville
    Place, as well as cash.  Originally, the plan was that all of the real estate
    assets of the joint venture would be transferred to a limited partnership, the
    general partner of which would be a corporation jointly controlled by HBC and
    RioCan.

[5]

HBC sought Oxfords consent to assign and sublease the Leases for the
    purposes of the joint venture (while not conceding that consent was required). Oxford
    expressed concern about the degree of control that RioCan  one of its main
    competitors  would have over the Leases.

[6]

After various meetings between the parties, a revised joint venture was
    proposed. According to the Respondents, the changes were made to address
    Oxfords concerns. The revised joint venture structure would consist of two
    limited partnerships, with the second being formed specifically to hold the
    Leases. The structure would be as follows:

·

Limited Partnership #1: RioCan-HBC LP

o

There
    would be two limited partners: HBC and RioCan. HBC would initially hold
    approximately 90% of the partnership units and RioCan would hold the remaining
    approximately 10%;

o

The
    sole general partner would be 2455034 Ontario Inc. (245), a company jointly
    controlled by HBC and RioCan;

o

All
    of the assets to be contributed to the joint venture, other than the Leases, would
    be transferred to 245 (as the general partner) and, thus, be jointly controlled
    by HBC and RioCan.

·

Limited Partnership #2: HBC YSS LP

o

There
    would be a sole limited partner, RioCan-HBC LP, which would hold approximately 99.9999%
    of the partnership units;
[1]

o

The
    sole general partner would be HBC;

o

The
    Respondents would assign the Leases to HBC in its capacity as the general
    partner of HBC YSS LP. The leased premises would then be sublet to HBC on a
    full pass through basis for the entire remaining terms of each lease,
    including renewals.
[2]

[7]

The Respondents hoped that the revised structure would address Oxfords
    concerns because the Leases would be assigned to HBC, in its capacity as
    general partner of HBC YSS LP, rather than to 245, a company jointly controlled
    by HBC and RioCan.

[8]

When Oxford refused to consent, the Respondents brought an application under
    s. 23(2) of the
Commercial Tenancies Act
, R.S.O. 1990, c. L.7, for a
    declaration that the Landlords consents were not required for assignment and
    sublease of the Leases or, alternatively, that the Landlords were unreasonably
    withholding their consent to such assignments and subleases.

[9]

The application judge found in favour of the Respondents. She noted that
    the Leases contain provisions that restrict their transfer or assignment. However,
    each of the Leases also contains an exception for an assignment to an affiliate
    of the existing tenant (the affiliate exception). She concluded that because
    the Leases will be assigned to HBC, as general partner of HBC YSS LP, the
    assignments fall within the affiliate exception. She also concluded that because
    the subsequent subleases will be to HBC, which is the same entity as the
    general partner (HBC), the subleases are permitted under the affiliate
    exception.   Therefore, the application judge found, no consent to the
    assignments and subleases is necessary.

[10]

The
    application judge then considered whether, if consent to the assignments were
    required, the Landlords had unreasonably withheld their consent. She found that
    the Landlords were entitled to withhold their consent under the Square One
    lease, which provides that consent to an assignment may be arbitrarily
    withheld. With respect to the Yorkdale and Scarborough Town Centre leases,
    however, the application judge found that HBC had met its burden of proving
    that the Landlords were acting unreasonably in withholding their consent. She
    explained that because HBC would continue to be the operator of the stores and
    liable under the Leases, there was no reason to believe HBCs interests would diverge
    from those of Oxford, going forward.

[11]

Oxford
    appeals.

THE ISSUES

[12]

Oxford
    submits that the application judge erred by:

1.

holding that the assignment to a limited partnership through its
    general partner is an assignment to an affiliated company or corporation and
    therefore exempt from the consent requirement;

2.

finding, in the alternative, that the Yorkdale and Scarborough Town Centre
    leases require the Landlords to exercise their consent rights reasonably; and

3.

ignoring uncontested evidence and applying the wrong legal test to the
    evidence regarding the Landlords reasons for withholding consent.

ANALYSIS

ISSUE #1: Assignment to an Affiliate

[13]

Oxfords
    major complaint in this appeal is that the application judge failed to
    appreciate that the assignments of the Leases would result in the limited
    partnership (HBC YSS LP) having beneficial and effective ownership of the
    Leases. As the sole limited partner is RioCan-HBC LP, and referring to the
    joint venture agreement, Oxford says that the assignments will result in RioCan
    (its competitor), having decision-making power over certain significant actions
    that might be taken in connection with the Leases.

[14]

We
    do not accept Oxfords characterization of the effect of the assignments.  This
    is not a case, as Oxford suggested, of HBC holding bare title or being a mere
    nominee for the true beneficial owner.  Furthermore, contrary to Oxfords
    formulation of the first issue, the application judge did not hold that an
    assignment to a limited partnership through its general partner was an
    assignment to an affiliate.  Rather, she concluded that the proposed
    assignments of the Leases would be to the general partner and not to the
    limited partnership.  As such, what Oxford characterizes as the beneficial or
    effective ownership of the Leases cannot direct the analysis.

[15]

In
    our view, the application judge correctly concluded that, based on the unique
    legal nature of the limited partnership structure and the role played by the
    general partner, the Leases will be assigned to HBC, as general partner.

[16]

The
    application judges reasoning, which we adopt, can be summarized as follows.

[17]

A
    limited partnership is not a legal entity. It is required by law to have a
    general partner through which it normally acts:
Kucor Construction &
    Developments & Associates v. Canada Life Assurance Co.
(1998)
, 41 O.R. (3d) 577,
1998 CanLII 4236
(C.A.). A limited partnership cannot hold
    title to real property. It can hold title to real property only through its
    general partner.

[18]

Based
    on the description of limited partnerships given in
Lehndorff General
    Partner Ltd., Re
(1993), 17 C.B.R. (3d) 24 (Ont. Gen. Div.), at paras. 17
    and 20, which this court quoted with approval in
Kucor
, the application
    judge drew three conclusions.

[19]

First,
    any property in which a limited partnership has an interest can be held only by
    the general partner. In the case of a lease, there can be no assignment of the
    lease to the limited partnership  it must be assigned to the general partner.

[20]

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. To do otherwise would jeopardise its limited
    partner status.

[21]

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 will continue to be
    between the Landlords and HBC. There will be no relationship between the Landlords
    and the limited partner. HBC alone will be liable for rents and all amounts
    owing under the Leases. HBC alone will be responsible for compliance with all
    obligations and covenants under the Leases. Thus, there will be no change in
    the legal relationship between HBC and the Landlords following the assignments.

[22]

For
    these reasons, the application judge stated, in determining who will be the
    assignee of the Leases, there is no reason to look beyond the fact that the Leases
    are being assigned to the general partner. HBC as the general partner is the
    assignee, the affiliate exception applies and consent is not required. Because
    the subsequent subleases are to HBC, which is the same entity as the general
    partner, the subleases are also permitted under the affiliate exception.

[23]

We
    see no basis for interfering with the application judges determination that,
    in light of the affiliate exception, the Respondents did not need consent to
    assign the Leases to HBC as general partner of the limited partnership. HBC is assigning
    the Leases to itself in its capacity as general partner of HBC YSS LP.

[24]

Accordingly,
    this ground of appeal is dismissed.

ISSUES #2 and #3: Withholding Consent and Reasons Therefore

[25]

In
    light of our conclusion on the first issue, it is unnecessary to address these
    grounds of appeal.

DISPOSITION

[26]

For
    these reasons, the appeal is dismissed. No order is made as to costs as the
    parties have resolved that matter between themselves.

Released: February 10, 2016 (E.E.G.)

E.E. Gillese
    J.A.

J. MacFarland J.A.

K. van Rensburg J.A.





[1]
This permits the economic benefits of the Leases to flow up to HBC and RioCan.



[2]
The sublease rents will be higher than the rents under the Leases, which
    generates the economic benefits to flow to RioCan-HBC LP as limited partner of
    HBC YSS LP.


