- Financial and corporate due diligence tell you what the business has earned and how it's structured.
- If the deal is structured as an asset purchase and the buyer will take over the existing lease — rather than sign a fresh one — the lease's assignment clause is critical.
When the business you're buying operates from leased premises, the lease is one of the most important documents in the entire deal — arguably as important as the financial statements. A location with the wrong lease terms can turn a promising purchase into a headache within a year or two of closing.
This article sets out the specific things a buyer, and their lawyer, should check in a commercial lease before signing a purchase agreement, and why each item matters.
Why Lease Review Is Its Own Due Diligence Track
Financial and corporate due diligence tell you what the business has earned and how it's structured. Lease review tells you something different: whether the business can keep operating from the same location, on the same terms, after the sale closes. A strong business with a weak lease is still a risky purchase.
The Core Lease Terms to Review
| Lease Element | Why It Matters to a Buyer |
|---|---|
| Remaining term | Determines how long the current rent and terms are locked in before renegotiation |
| Renewal option(s) | Whether there's a contractual right to extend, on what terms, and the deadline to exercise it |
| Assignment / change-of-control clause | Whether landlord consent is needed to transfer the lease, or to change ownership of the tenant corporation |
| Rent escalations | Scheduled rent increases over the term, which affect future occupancy cost |
| Permitted use clause | Whether the lease restricts the type of business that can operate from the space |
| Exclusivity clause | Whether the tenant has protection against a competing business in the same plaza or building |
| Repair and maintenance obligations | Who is responsible for structural repairs, HVAC, and common areas |
| Default history | Whether the seller is currently, or has recently been, in default under the lease |
| Additional rent / operating costs | How property taxes, insurance, and common-area costs are allocated and calculated |
Assignment and Landlord Consent
If the deal is structured as an asset purchase and the buyer will take over the existing lease — rather than sign a fresh one — the lease's assignment clause is critical. Under Ontario's Commercial Tenancies Act, where a lease prohibits assignment or subletting without landlord consent, that consent is generally deemed not to be unreasonably withheld, unless the lease expressly provides otherwise. In practice, this means:
- The lease's own wording controls first; the statutory protection is a backstop, not a replacement for a lease that already deals with assignment clearly.
- The landlord can still impose reasonable conditions — updated financial information, a personal guarantee from the buyer, an administration fee — as part of granting consent.
- Consent should be obtained, or at least applied for, well before the closing date, not treated as a formality to sort out afterward.
Where the deal is instead structured as a share sale, the corporate tenant doesn't change, so a formal assignment isn't triggered in the same way — but many commercial leases define a change in ownership or control of the tenant corporation as requiring the same consent, so the lease still needs to be checked rather than assumed to be unaffected.
A Practical Review Checklist
- [ ] Obtain the full, current lease — including any amendments, extensions, or side letters — not just the original signed copy.
- [ ] Confirm the remaining term and whether any renewal option has already been exercised, lapsed, or is still open.
- [ ] Check the assignment/change-of-control clause and confirm what landlord consent will require.
- [ ] Map out the rent schedule, including any scheduled escalations, for the remainder of the term.
- [ ] Confirm the permitted use clause matches how the buyer intends to operate the business.
- [ ] Ask whether the seller has received any default notices, and check for current arrears.
- [ ] Review how additional rent — taxes, insurance, common-area costs — is calculated and whether it's reconciled annually.
- [ ] Confirm whether a personal or corporate guarantee currently backs the lease, and what happens to it after closing.
What Happens If the Lease Review Turns Up Problems
Not every issue found during lease review kills a deal. Common outcomes include:
- Price adjustment — reflecting a shorter remaining term, upcoming rent increases, or restrictive terms.
- Closing condition — making the deal conditional on landlord consent, a lease amendment, or a new lease being signed.
- Extended timeline — giving the parties more time to negotiate with the landlord before committing to a closing date.
- Walking away — if the lease terms make the location commercially unworkable for the buyer's plans.
Frequently asked questions
Who should review the lease — the buyer's lawyer or the buyer themselves?
Both have a role. The buyer should read it for business fit (rent, use, location terms), while the buyer's lawyer reviews the legal mechanics — assignment rights, default provisions, guarantees, and how the lease interacts with the purchase agreement.
Can a landlord refuse to consent to an assignment for any reason?
Not if the lease includes the standard restriction against assignment without consent — in that case, consent generally can't be unreasonably withheld. A landlord can still have legitimate reasons to refuse, such as concerns about the buyer's financial capacity.
Does a longer lease term always make a business worth more?
Generally, a longer secure term reduces one category of risk, but value still depends on the rent level relative to market, the location itself, and the business's performance — a long lease at above-market rent isn't automatically a benefit.
What if the lease is close to expiring and there's no renewal option?
This is a significant due diligence flag. It doesn't necessarily end the deal, but it usually needs to be addressed through negotiation with the landlord, a price adjustment, or a closing condition before the buyer commits.
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