- Most leases require the landlord's consent before the tenant assigns or sublets, and Ontario law adds that consent is not to be unreasonably withheld unless the lease says otherwise.
- If the landlord refuses or does not respond, you can apply to a judge of the Superior Court of Justice.
- Whether the lease can move to you, and on what terms, depends on the lease wording, so read it before you commit.
For many businesses, the location is the business. If you are buying a restaurant, shop or office-based company, the lease may matter as much as the equipment or the customer list. Taking it over usually needs the landlord's cooperation.
This article explains how landlord consent works in Ontario, what to do if it is refused, and what terms landlords commonly raise. It is general information, and the lease itself will decide most of the details.
Why the landlord's consent matters
In an asset purchase, the lease does not move to you automatically. It is usually assigned from the seller to you, and most commercial leases include a covenant against assigning, subletting or parting with possession without the landlord's consent.
Under the Commercial Tenancies Act, if a lease has that kind of covenant, the lease is deemed to say that consent is not to be unreasonably withheld. That protection does not apply where the lease contains an express provision to the contrary. This is why you should have the whole lease reviewed, including amendments, before you commit to the purchase.
If the landlord refuses or does not answer
If the landlord refuses or neglects to consent, the tenant, the assignee or the subtenant can apply to a judge of the Superior Court of Justice. The judge decides whether consent was unreasonably withheld and can order the assignment permitted, which then counts as the landlord's consent.
Whether a refusal or a set of conditions is unreasonable depends on the facts. A court application takes time and cost, so most buyers try to settle consent before the deal closes.
Terms and guarantees you may be asked for
A landlord who is willing to consent often asks for something in return. What is requested varies by landlord and by lease, but buyers commonly see requests such as these:
- Financial information about you or your company, so the landlord can judge whether you can pay the rent.
- A personal guarantee from the owners of a buyer company.
- A security deposit or a larger deposit than the seller paid.
- A written agreement confirming that you take on the tenant's obligations under the lease.
- Changes to the rent, term or renewal rights as the price of consent.
- A fee to cover the landlord's legal costs.
Each of these is a negotiation point. A personal guarantee in particular can make you personally responsible for the lease, so ask your lawyer how far it reaches and for how long. Also ask whether the seller stays liable under the lease after the assignment, since that is a matter of the lease terms and the consent documents.
Share purchases and other structures
If you buy the shares of the company that holds the lease, the tenant stays the same company. Even so, some leases treat a change of control as an assignment, so the lease wording still matters. Do not assume that a share purchase avoids the need for consent.
If you buy a franchise location, the lease may also be tied to the franchise agreement, and the franchisor may have its own rights. Those additional terms are set by the contracts and are worth reviewing together.
What to do next
Treat the lease as a core part of your due diligence and build the landlord's consent into the purchase process, not as an afterthought.
- Get the full lease and every amendment from the seller before you sign anything binding.
- Check the clause on assignment, subletting and change of control, and look for wording that overrides the reasonableness protection.
- Ask the landlord, with the seller, what information and conditions it will require.
- Ask your lawyer how to deal with the landlord's consent in the purchase agreement, such as a closing condition, since what it does for you depends on how it is drafted and on the agreement's other terms.
- Ask your lawyer to review any guarantee before you sign it.
- Confirm in writing what happens to the seller's obligations after the assignment.
Whether you can back out of a purchase if consent is refused depends on the conditions written into your agreement. That is a good reason to speak with a lawyer early.
Frequently asked questions
Can a landlord refuse to let me take over the lease?
If the lease requires consent to an assignment, the lease is deemed to say that consent is not to be unreasonably withheld. That does not apply if the lease expressly says otherwise. Whether a refusal is reasonable depends on the facts.
What if the landlord will not respond?
The tenant, the assignee or the subtenant can apply to a judge of the Superior Court of Justice, who can decide whether consent was unreasonably withheld and can order the assignment permitted.
Will I have to give a personal guarantee?
Not necessarily, but landlords often ask for one, especially when the buyer is a new company. It is a negotiating point, and a lawyer can explain what a guarantee would commit you to before you sign.
Do I need consent if I buy shares instead of assets?
It depends on the lease. The tenant stays the same company, but some leases treat a change of control like an assignment. Check the wording with your lawyer.
Sources
- Commercial Tenancies Act, R.S.O. 1990, c. L.7 (e-Laws) — Ontario e-Laws
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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