- A renewal option is a contractual right the landlord granted, and like any contractual right, the landlord can define exactly who is entitled to use it.
- When reviewing a lease as part of due diligence, pay close attention to how the renewal section is worded.
- If a lease's renewal option is personal to the seller and doesn't survive assignment, a buyer stepping into that lease could be taking over a business with less remaining security than…
A renewal option can be one of the most valuable things attached to a business's lease — the right to stay in a good location on pre-agreed terms once the current lease term ends. So it comes as an unwelcome surprise to a lot of buyers when they learn, sometimes only after closing, that the option they assumed came with the lease didn't survive the assignment at all.
Whether this happens depends entirely on how the specific lease is worded. This article explains the clause language to watch for, why it exists, and what to do about it before you close on a business that comes with a lease.
Why Some Renewal Options Don't Survive an Assignment
A renewal option is a contractual right the landlord granted, and like any contractual right, the landlord can define exactly who is entitled to use it. Many commercial leases draft the renewal option as personal to the original named tenant — meaning it belongs specifically to the business that signed the lease, not to "whoever happens to be the tenant at renewal time." When that kind of clause is present, assigning the lease to a buyer can mean the renewal option simply doesn't come along for the ride, even though every other part of the lease is assigned normally.
Landlords have a legitimate reason for drafting options this way: a renewal option is effectively a bet on a particular tenant's continued success and reliability, and a landlord may not want to extend that same bet automatically to a future, unknown assignee.
Clause Language to Look For
When reviewing a lease as part of due diligence, pay close attention to how the renewal section is worded. Broadly, renewal clauses tend to fall into a few categories:
- Silent or general wording — the option simply refers to "the Tenant" without further qualification, which more often (though not always) suggests it runs with the lease to a properly approved assignee.
- Expressly personal wording — the clause states the option is personal to the named tenant, exercisable only by that specific party, and does not survive an assignment.
- Conditionally transferable wording — the option survives an assignment only if certain conditions are met, such as the landlord's separate consent to extending the option to the new tenant.
There is no way to know which category a given lease falls into without reading its actual text — this is not a clause where a general assumption is safe to rely on either way.
What This Means for a Buyer
If a lease's renewal option is personal to the seller and doesn't survive assignment, a buyer stepping into that lease could be taking over a business with less remaining security than it first appeared to have — potentially just the balance of the current term, with no guaranteed right to stay beyond that. This is a material issue for any leasehold-dependent business, and it should factor into:
- Due diligence findings — flagged clearly for the buyer before the deal proceeds.
- Price negotiations — a lease with no surviving renewal right is worth less to a buyer than one with a secured extension.
- Deal structure — in some cases, buyers negotiate directly with the landlord to have a new option granted to them as a condition of consenting to the assignment.
Ways to Address the Issue Before Closing
- Confirm the clause's exact wording with your lawyer as part of lease review — don't rely on a summary or the seller's understanding of "how it's always worked."
- Raise it with the landlord directly, ideally as part of the same conversation about consenting to the assignment. Landlords who are otherwise cooperative about the assignment may be willing to grant the buyer a comparable renewal right as part of the same approval.
- Reflect it in the purchase price or conditions if the landlord won't extend the option — a shorter guaranteed occupancy period is a real risk that belongs in the negotiation, not something to discover after the fact.
- Get any new arrangement in writing — a landlord's verbal willingness to "work something out later" for the buyer's renewal rights is not a substitute for a documented amendment or new lease term.
Frequently asked questions
How do we know if our lease's renewal option is "personal" without a lawyer reading it?
You generally can't be confident either way from a plain read of the lease — the language distinguishing a personal option from a transferable one can be subtle, and this is precisely the kind of clause that benefits from a lawyer's review during due diligence.
If the option doesn't survive, can we ask the landlord for a brand-new option instead?
Yes, this is a common approach — buyers often negotiate for the landlord to grant a fresh renewal right (on new or similar terms) as part of consenting to the assignment, rather than relying on the original option.
Does this issue come up in a share sale too?
Generally no — in a share sale, the corporate tenant under the lease doesn't change, so there's no assignment and no question of whether a personal option survives one. This is one of several reasons a personal renewal option can push parties toward preferring a share structure where that's otherwise workable.
Should we assume the option is fine just because the landlord hasn't objected yet?
No — a landlord's silence about the renewal option isn't the same as confirming it survives assignment. The clause's own wording is what governs, and it should be reviewed directly rather than inferred from the landlord's conduct.
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