- The same principle that governs most liability questions in a business sale applies here: in a share purchase, the corporation's debts come with it; in an asset purchase, unassumed…
- Unpaid rent creates a landlord relationship problem that a buyer inherits functionally even in an asset deal, because you still need that lease (or a new one) to operate from the same…
- Unremitted HST and unpaid payroll source deductions are liabilities of the corporation that owes them.
A business that is a few months behind on rent, or carrying unremitted HST or payroll source deductions, is not automatically a business to avoid. Financial distress happens for all sorts of reasons, and a buyer with a clear plan can sometimes find real value in a business the current owner has let fall behind. But arrears change what due diligence needs to cover, and — depending on deal structure — they can change who is left holding the bill.
Why Arrears Are a Structure Question First
The same principle that governs most liability questions in a business sale applies here: in a share purchase, the corporation's debts come with it; in an asset purchase, unassumed liabilities generally stay behind with the seller.
| Share Purchase | Asset Purchase | |
|---|---|---|
| Unpaid rent owed to the landlord | Follows the corporation you now own | Generally stays with the seller's corporation, unless specifically assumed |
| Unremitted HST or payroll deductions | Follows the corporation you now own | Generally stays with the seller's corporation, unless specifically assumed |
| Effect on the lease | Landlord relationship continues without a formal assignment, since the tenant entity hasn't changed | Requires landlord consent to assign the lease — and a landlord may be reluctant to consent while rent is in arrears |
| Buyer's practical risk | Direct — you now own the debt | Indirect — mainly around whether the arrears disrupt the lease, the relationship, or the deal itself |
This is one reason buyers facing a target with meaningful arrears often lean toward an asset structure — not because it makes the arrears disappear, but because it keeps them, by default, as the seller's problem rather than the buyer's.
Rent Arrears and the Lease
Unpaid rent creates a landlord relationship problem that a buyer inherits functionally even in an asset deal, because you still need that lease (or a new one) to operate from the same location. Under the Commercial Tenancies Act, where a lease restricts assignment without landlord consent, that consent is deemed not to be unreasonably withheld — unless the lease itself says otherwise. But a landlord facing months of unpaid rent has a legitimate, practical reason to want the arrears cleared, or a plan for clearing them, before agreeing to accept a new tenant. If the lease itself is the more complicated part of your deal, our commercial real estate team can review it alongside the purchase agreement.
Practical steps:
- Get the actual arrears figure directly from the landlord, not just the seller's account of it.
- Decide, as a term of the deal, whether the seller clears the arrears before or at closing, or whether the purchase price is adjusted to account for it.
- Confirm in writing (an estoppel certificate from the landlord is the standard tool) what the lease's remaining term, options, and current standing actually are before you rely on the seller's description of it.
Tax Arrears: HST and Source Deductions
Unremitted HST and unpaid payroll source deductions are liabilities of the corporation that owes them. In an asset purchase, these do not automatically transfer to the buyer as part of the deal — but that does not mean they are irrelevant to you.
- Get a certificate of status for the target corporation from the Ontario Business Registry as a basic due-diligence step confirming its good standing and registered information.
- Search for registered liens. A Personal Property Security Act (PPSA) search can reveal registered security interests against the business's equipment, inventory, and other personal property — including security taken by a lender or other creditor as a result of the business's financial difficulty.
- Require specific representations and warranties in the purchase agreement about the corporation's tax filing and remittance status, backed by an indemnity.
- Consider a holdback tied to confirmation that outstanding tax and remittance obligations have been resolved, rather than relying solely on the seller's word.
Why "The Bulk Sales Act Used to Cover This" No Longer Applies
Ontario's Bulk Sales Act, which once gave some statutory protection to trade creditors on an asset sale, was repealed in 2017. There is no equivalent statutory notice regime today. That means the protections a buyer gets against a seller's undisclosed arrears and liabilities come entirely from contractual tools — due diligence, representations and warranties, indemnities, and holdbacks — not from a government-mandated process. Buyers who assume some leftover "bulk sales" protection still exists are working from outdated information.
Frequently asked questions
If I buy the assets, am I safe from the seller's unpaid taxes?
Generally, an asset purchase means you take on only the liabilities you specifically agree to assume, and unpaid tax obligations typically are not something a buyer would agree to assume. But confirm this is properly documented in the agreement, and don't assume it without review — the practical effects (a disrupted lease, a distressed transition) can still touch you even if the legal liability doesn't.
Should I just walk away from a business with arrears?
Not necessarily. Arrears are common in distressed but potentially fixable businesses. The question is whether the arrears are disclosed, quantifiable, and properly accounted for in price and structure — not whether they exist at all.
Can the landlord refuse to let me take over the lease because of the arrears?
A landlord can generally not unreasonably withhold consent to assignment where the lease requires it, but "unreasonable" is judged on the facts, and unresolved arrears give a landlord a legitimate practical concern to raise. Clearing or addressing arrears before assignment is often the most direct path forward.
How do I confirm arrears are what the seller says they are?
Independent confirmation — directly from the landlord for rent, and through corporate records and representations backed by indemnities for tax matters — rather than relying solely on the seller's own summary.
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