Assignment and Change of Control Clauses: Can You Transfer an Ontario Business Contract?

Selling a business, bringing on new investors, or restructuring your corporate group all raise the same practical question: do your existing contracts survive the change, or do they need every counterparty's blessing first? The answer usually lives in two clauses that business owners rarely think about until it's urgent — the assignment clause and the change of control clause.

Getting this wrong can stall a transaction, trigger an unexpected termination right for the other side, or leave a buyer without the contracts they thought they were acquiring.

What Is an Assignment Clause?

An assignment clause governs whether, and how, a party can transfer its rights and obligations under a contract to someone else — typically a buyer, an affiliate, or a successor entity. Assignment clauses generally fall into one of three patterns:

• Silent — the contract says nothing about assignment at all.
• Consent required — assignment is permitted only with the other party's prior written consent, often with a promise that consent "will not be unreasonably withheld."
• Prohibited — assignment is barred outright, sometimes with narrow exceptions carved out (such as assignment to an affiliate or in connection with a sale of substantially all of the assigning party's business).

The Default Rule When a Contract Is Silent

Ontario law generally allows a party to assign the benefit of a contract (the right to receive payment or performance) without the other side's consent, unless the contract itself prohibits it. Assigning the burden — the actual obligation to perform — is different: a party generally cannot unilaterally hand off its own duties to someone else and walk away, because the other side bargained for performance from a specific counterparty. In practice, this means a clean, complete transfer of "the contract" almost always needs either an assignment clause that permits it or the other party's consent.

What Is a Change of Control Clause?

A change of control clause is different from — though often confused with — an assignment clause. It doesn't address transferring the contract itself; it gives the other party a right (often to terminate, renegotiate, or require consent) if there is a change in who owns or controls the contracting party, even though the contracting entity itself stays exactly the same.

This distinction matters enormously in a share sale: if you buy the shares of a corporation, its contracts stay in that corporation's name — nothing is technically "assigned." But if one of those contracts has a change of control clause, the other party may still be able to terminate or demand new terms purely because ownership changed hands, even without any assignment happening at all.

Common Structures Compared

Why This Matters in a Business Sale or Investment

Whether a deal is structured as an asset purchase or a share purchase changes which of these clauses actually gets triggered:

• In an asset purchase, contracts are typically assigned individually to the buyer — every contract with an assignment restriction needs the counterparty's consent before closing, which can slow a transaction considerably if key suppliers or landlords are involved.
• In a share purchase, contracts generally stay in place automatically because the corporate party doesn't change — but any contract with a change of control clause can still be disrupted even though nothing was technically assigned.

This is one reason contract review is a standard part of due diligence before any business sale or significant investment — an otherwise clean deal can be complicated by a single key contract's restrictive language.

Practical Considerations for Business Owners

1. Review your major contracts now, not during a deal. Leases, key supplier agreements, financing agreements, and licences are the ones most likely to carry restrictive assignment or change of control language.
2. Understand "unreasonably withheld" language. A consent requirement paired with a "not unreasonably withheld" standard is far more workable than an absolute prohibition, but disputes over what counts as reasonable can still arise.
3. Watch for change of control clauses in financing and lease agreements especially — lenders and landlords are among the parties most likely to want a say if ownership changes.
4. Factor consent timelines into deal planning. Chasing down third-party consents can take real time and should be built into any transaction schedule, not treated as an afterthought near closing.

Frequently asked questions