Does a Lease Guarantor Stay Liable After Assignment in Ontario?

Sellers who personally guaranteed a commercial lease often assume that once the lease is assigned to a buyer, their obligation ends along with their ownership of the business. That assumption is frequently wrong, and finding out otherwise months or years after closing can be an unpleasant surprise.

This article explains why a personal guarantee generally survives a lease assignment unless it's specifically dealt with, and what sellers and buyers should do about it before closing.

Why This Question Comes Up

In many small and mid-sized Ontario business sales involving leased premises, the outgoing owner personally guaranteed the lease, often because the landlord required it when the lease was first signed, especially for a newer or smaller corporate tenant. When the business sells and the lease is assigned to the buyer, the seller understandably wants to walk away from every obligation tied to the business, including that guarantee.

The landlord, however, sees things differently: the guarantee was a separate promise the seller personally made, and the landlord generally has no obligation to give that promise up just because the tenant's obligations have moved to someone else.

Assignment Transfers the Lease — Not Automatically the Guarantee

An assignment of a lease transfers the tenant's rights and obligations under the lease to the new tenant, the buyer. As a matter of general contract principle, that's a different thing from releasing a guarantor from a separate guarantee agreement. Unless the guarantee itself, or a separate release document, says the guarantor is discharged upon assignment, the guarantee typically continues to bind the guarantor for the obligations it covers — potentially including obligations arising after the assignment, depending on how the guarantee is worded.

In practical terms, this means a seller who guaranteed the lease can remain on the hook to the landlord for the buyer's future rent defaults, unless one of the following happens:

• The landlord agrees, as a condition of consenting to the assignment, to release the seller from the guarantee.
• A new guarantee is put in place, often from the buyer or a principal of the buyer, and the landlord expressly releases the old one in exchange.
• The original guarantee document itself contains a built-in release mechanism tied to an approved assignment.

None of these happens automatically — each requires the landlord's active agreement.

Why Guarantees Work This Way

A personal guarantee is a contract between the guarantor and the landlord, separate from the lease itself. The landlord bargained for the comfort of having a specific person's personal assets or credit behind the lease obligations. From the landlord's perspective, an assignment changing who the tenant is doesn't automatically change who they can look to if rent goes unpaid — that would undercut the entire point of having required a guarantee in the first place.

This is why landlords, when asked to consent to an assignment, will often use that moment as leverage, agreeing to release the outgoing guarantor only if the incoming buyer, or a principal of the buyer, provides a satisfactory replacement guarantee.

How Sellers Can Get Released

1. Raise it early. Don't wait until the assignment is otherwise agreed to ask about a guarantor release — build it into the negotiation with the landlord from the start.
2. Make release a condition of your consent to closing. A seller can make the sale itself conditional on obtaining a landlord release from the guarantee, just as a buyer might condition closing on landlord consent to the assignment.
3. Offer a replacement guarantee. Landlords are generally more willing to release an outgoing guarantor if a comparable new guarantee is offered in its place.
4. Get the release in writing. A verbal assurance from the landlord isn't enough — the release needs to be a written document, ideally reviewed by the seller's own lawyer before closing.
5. Confirm the scope of any release. Some releases only cover obligations arising after a specific date — make sure it doesn't leave the seller exposed to problems that predate closing but surface later.

What Buyers Should Know Too

Buyers aren't off the hook from thinking about this either:

• If the landlord won't release the seller's guarantee, the landlord may instead ask the buyer, or a principal of the buyer, to provide an additional guarantee, meaning both the seller and buyer could be on the hook to the landlord at the same time.
• A buyer should confirm what guarantee, if any, they're being asked to personally provide, and understand that obligation is separate from the purchase price and the purchase agreement itself.
• If a buyer is relying on the seller staying involved, such as through a transition period, it's worth clarifying who bears responsibility for lease obligations during that overlap period.

Frequently asked questions