Anti-Assignment Clauses in Supplier Contracts: A Hidden Risk in Ontario Business Sales

Supplier contracts rarely get the same attention as leases or major customer agreements during due diligence, but a single boilerplate clause buried in a supply agreement can complicate — or even derail — an otherwise straightforward asset purchase. An anti-assignment clause tells the buyer, in effect, that the supplier gets a say in whether the relationship survives the sale at all.

This article explains what these clauses typically look like, why suppliers use them, and what a buyer and seller should do when one turns up.

The Clause Buyers Often Miss

Supplier agreements are frequently treated as routine paperwork — the kind of contract nobody reads closely because the relationship "just works." That makes them an easy place for a restrictive assignment clause to go unnoticed until after closing, when the buyer discovers the supplier isn't actually obligated to keep supplying it at all.

What These Clauses Typically Say

Anti-assignment language in supplier agreements tends to fall into a few common patterns:

• An absolute prohibition on assignment without the supplier's written consent
• Consent required, but the supplier's consent "not to be unreasonably withheld"
• A clause treating a change of control of the buyer's or seller's corporation the same as an assignment
• Automatic termination rights if the contract is assigned without following the required process

Why Suppliers Build These In

A supplier negotiates an anti-assignment clause to protect its own interests — the ability to choose who it extends credit terms to, who it commits pricing or volume discounts to, and who it's willing to be contractually tied to going forward. From the supplier's perspective, the buyer is an unknown counterparty until proven otherwise, regardless of how smoothly the underlying business has been run.

What Can Go Wrong If the Clause Is Ignored

1. The contract may be void or voidable as against the supplier once it learns of an unauthorized assignment.
2. The supplier can use the clause as leverage to renegotiate pricing or terms with the buyer.
3. A critical input or component could suddenly become unavailable, disrupting the business right after closing.
4. The seller may face a claim from the buyer for breach of a representation or warranty about the contract's assignability.

Spotting the Risk During Due Diligence

• [ ] Review every material supplier contract individually — don't rely on a general assumption that "supplier deals are fine"
• [ ] Read the assignment and change-of-control language closely, including any defined terms that broaden what counts as an "assignment"
• [ ] Identify which suppliers are genuinely difficult to replace on short notice
• [ ] Note consent timelines and whether the supplier has a history of being slow or difficult to deal with
• [ ] Flag any supplier relationship the business can't easily operate without for priority attention

Options When a Clause Is a Real Problem

• Approach the supplier early and directly, ideally before the deal is widely known, to request consent
• Negotiate a fresh supply agreement directly between the buyer and supplier, rather than relying on an assignment of the old one
• Consider whether a different deal structure — for example, a share purchase, where the contracting corporation doesn't change — sidesteps the issue for that particular relationship
• Build a price adjustment or holdback into the purchase agreement if a key supplier relationship is genuinely at risk

A Note on Structure: Why Some Buyers Avoid the Problem Entirely

Because anti-assignment clauses are triggered by an asset-level transfer, some buyers structure the acquisition to avoid them altogether — either by negotiating a share purchase, where the seller's corporation (and its existing supplier contracts) simply continues as before, or by incorporating a dedicated new company to hold both the purchase and any renegotiated supply relationships. Neither approach is automatically better; a share purchase brings the corporation's full liability history with it, and a new-company structure still requires the supplier's cooperation if the underlying contract needs to move. The right answer depends on how central the affected supplier relationship is to the value of the business, and how willing the supplier actually is to work with a new counterparty.

It's also worth remembering that an anti-assignment clause discovered during due diligence isn't necessarily a deal-breaker on its own. Many purchase agreements simply build the consent process into the closing timeline, treat a handful of key consents as closing conditions, and leave the rest to be handled in the ordinary course after closing — provided the supplier relationship isn't one the business genuinely can't survive without.

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