Assignment and Subletting in Ontario Commercial Leases: What Tenants Need to Know

Business changes fast. You may need to sell your business, downsize, pivot to a new location, or wind down operations — often well before your commercial lease expires. Assignment and subletting are the two mechanisms Ontario tenants use to pass a lease to another party, but they work differently and carry distinct risks. Understanding the distinction — and knowing what your lease actually permits — can be the difference between a clean exit and a protracted dispute with your landlord.

Assignment vs. Sublease: The Core Difference

Both mechanisms involve a third party moving into your space. The legal structure, however, is fundamentally different.

Assignment

An assignment transfers all of your rights and obligations under the lease to a new tenant (the "assignee") for the remainder of the term. You step out of the lease; the assignee steps in.

Critical caveat: In most Ontario commercial leases, the original tenant remains liable as a secondary obligor unless the landlord formally releases them. If the assignee defaults, the landlord can pursue the original tenant. Always negotiate a written release from the landlord as part of the assignment — do not assume that the assignment document alone eliminates your exposure.

Sublease

A sublease creates a new lease between you (the "sublandlord") and your subtenant for all or part of the space, for a period equal to or shorter than your remaining term. Your original lease with the landlord continues — you remain fully liable to the landlord for rent and all other obligations. You collect rent from the subtenant and pay the landlord directly.

A sublease cannot give the subtenant more rights than you have under the head lease. If your lease restricts hours of use, permitted business activities, or alterations, those restrictions flow through to the subtenant.

What Ontario's Commercial Tenancies Act Says

Ontario's Commercial Tenancies Act allows commercial tenants to assign or sublet with the landlord's consent. Landlords generally cannot unreasonably withhold consent, though this is subject to how the lease is drafted. Unlike the residential context, commercial lease terms can specifically override or expand the statutory baseline — so your lease controls.

Many leases require the landlord's written consent before any assignment or subletting. The lease will typically specify:

• A notice and information package the tenant must provide
• A time period within which the landlord must respond
• The grounds on which the landlord may reasonably refuse
• Whether the landlord has a right to recapture the space instead

The Recapture Right: A Critical Clause

Many commercial leases give the landlord a right of recapture (or "recapture clause"): when the tenant requests consent to assign or sublet, the landlord can instead terminate the lease and take the space back — typically to re-lease it at a higher market rate.

This right can make an assignment or sublease impossible if the landlord simply wants to reclaim the space. If you are counting on assignment as an exit strategy, negotiate to limit or remove the recapture right upfront, not when you are already trying to sell the business.

The Landlord's Consent: Process and Timing

When a tenant wants to assign or sublet, the typical process under a well-drafted lease involves:

1. Written request: Tenant sends the landlord written notice of the proposed assignment or sublease, accompanied by:

• The proposed assignee's/subtenant's business and financial information
• A description of the proposed business to be conducted
• The proposed effective date

1. Landlord's review period: Usually 10–30 days to respond. If the landlord does not respond within the specified period, the tenant may have the right to proceed — but only if the lease says so. Do not assume silence means consent.

1. Landlord's options: Consent (with or without conditions), refuse with stated reasons, or exercise the recapture right (if applicable).

1. Assignment agreement: If the landlord consents, the parties execute a written assignment agreement that the landlord also acknowledges.

Conditions Landlords Attach to Consent

Even when a landlord consents to an assignment or sublease, they often attach conditions:

• Credit and financial standing of the new tenant
• Nature of business — the lease may restrict the type of business permitted in the space (especially in plazas where exclusivity arrangements exist with other tenants)
• No upgrade of permitted use — the assignee cannot do something the original tenant was not permitted to do
• Tenant's personal guarantee continues — as discussed above, the original tenant may stay on the hook unless a release is obtained
• Payment of the landlord's legal costs for reviewing and documenting the consent

Profit on Assignment or Sublease

If you sublet at a rent higher than you are paying under the head lease, you pocket the difference — a profit sublease. Some leases require you to share that profit with the landlord (often 50%). Check this provision carefully if you are subleasing in a market where rents have risen since you signed.

Frequently asked questions