Change-of-Control Clauses: How They Can Derail an Ontario Share Purchase

When you're buying or selling shares in an Ontario business, it's easy to assume the corporation's existing contracts simply come along for the ride — after all, the company itself doesn't change, only who owns it. In most cases that's true. But a surprising number of commercial contracts, leases, and loan agreements contain a change-of-control clause that can be triggered the moment ownership shifts, even though the contract itself is never assigned or amended.

A change-of-control clause gives the other side to a contract certain rights — sometimes to terminate, sometimes to demand consent, sometimes to accelerate repayment — the moment a defined ownership threshold changes hands. If nobody catches one of these clauses until after the deal has closed, a clean share purchase can turn into a scramble to save a lease, a credit facility, or a key customer relationship.

This article explains what these clauses do, where they tend to hide, and how to find and manage them before they become a closing-day surprise.

What a Change-of-Control Clause Actually Does

A change-of-control clause treats a shift in who ultimately owns or controls a party to a contract as though something had happened to the contract itself. It doesn't require the corporation to sign anything new, and no assets need to move — the trigger is simply an ownership change above whatever threshold the clause defines, which varies from contract to contract.

Why a Share Purchase Doesn't Avoid This Problem

It's tempting to assume a share purchase sidesteps the consent headaches that come with an asset sale, since the corporation itself — its name, its contracts, its registrations — doesn't change. That's generally true for contracts that are silent on ownership changes. Under Ontario's corporate statute, a share purchase is a transaction in the shareholders' own shares and doesn't itself require the kind of corporate-level shareholder approval that a sale of substantially all of a company's assets does.

But a change-of-control clause specifically targets the one thing a share purchase does change: who stands behind the corporation. A landlord, lender, or franchisor who negotiated such a clause did so because they wanted a say in who they were really doing business with — not just which legal entity signs the cheques.

Where These Clauses Show Up Most Often

• Commercial leases, particularly for a location the buyer considers essential to the business
• Bank loan agreements, lines of credit, and other lending or security documents
• Franchise agreements
• Long-term or exclusive supplier and customer contracts
• Key insurance policies
• Licensing and distribution agreements

What Happens When One Is Triggered

The consequences depend entirely on the specific wording, but common outcomes include:

1. A consent requirement — the other party must approve the change, or at least be notified before it takes effect.
2. A termination right — the other party can walk away from the contract entirely.
3. A renegotiation trigger — pricing, terms, or security requirements can be revisited.
4. Acceleration — for loans in particular, the full outstanding balance can become due immediately.

Finding These Clauses Before Closing

• [ ] Pull every material contract, lease, and financing agreement into the due diligence review — not just the obviously significant ones
• [ ] Read each document specifically for change-of-control, assignment, and "successors and assigns" language, rather than skimming for termination clauses alone
• [ ] Confirm exactly what ownership threshold triggers the clause — some are set at any change at all, others only at a majority or a specific percentage
• [ ] Check notice periods and whether consent can be unreasonably withheld
• [ ] Flag anything ambiguous for your lawyer rather than assuming it doesn't apply

Managing a Clause You Can't Avoid

If due diligence turns up a change-of-control clause on a contract the business genuinely needs, the usual options are to seek the counterparty's consent before closing — sometimes built into the purchase agreement itself as a closing condition — to negotiate directly with the counterparty for an amended or waived clause, or to price the risk into the deal if the counterparty won't cooperate and the contract can't realistically be replaced.

Frequently asked questions