- When a commercial lease's fixed term ends and the tenant stays in possession with the landlord's knowledge — continuing to pay and accept rent — the tenancy typically continues on a…
- A buyer evaluating a leasehold-dependent business — a restaurant, a retail shop, a service business tied to a specific location — is really buying two things: the operating business, and…
- - [ ] Confirm directly with the landlord what the current tenancy status actually is — don't rely solely on the seller's characterization.
Not every business you might buy has a tidy, current lease with years left on the term. Some are operating in what's commonly called a holdover — the original lease term has expired, but the business has simply kept operating in the space, usually month-to-month, without a new lease being signed. If you're buying that business, you're not just buying its revenue and its assets; you're inheriting its uncertain footing with the landlord.
This article explains what a holdover tenancy generally means in Ontario, why it matters more than buyers often assume, and what steps can reduce the risk before you close.
What "Holdover" Actually Means
When a commercial lease's fixed term ends and the tenant stays in possession with the landlord's knowledge — continuing to pay and accept rent — the tenancy typically continues on a periodic basis (commonly month-to-month) rather than automatically renewing on the old term. The exact legal character of that ongoing tenancy depends on the lease's own wording and on what the landlord and tenant have done since the term expired, so it should never be assumed to work the same way in every case.
The key practical point is this: a holdover tenant generally has far less security than a tenant under a current, written lease with time left on it. Either side can typically end a month-to-month arrangement on comparatively short notice, and the tenant has none of the negotiated protections — renewal rights, rent caps, exclusivity clauses — that may have existed under the original lease.
Why This Matters More When You're Buying the Business
A buyer evaluating a leasehold-dependent business — a restaurant, a retail shop, a service business tied to a specific location — is really buying two things: the operating business, and its right to keep operating where it currently sits. A holdover tenancy weakens the second half of that package. Specific risks include:
| Risk | What it means for the buyer |
|---|---|
| Short notice to vacate | The landlord may be able to end the tenancy on far less notice than a fixed-term lease would require, disrupting the business you just bought. |
| No locked-in rent | Without a current lease, the landlord may be freer to propose a new rent as a condition of any new arrangement. |
| Loss of negotiated terms | Exclusivity, signage rights, or renewal options from the old lease may not automatically carry forward into a holdover. |
| Assignment uncertainty | It may be unclear whether — or how — a holdover tenancy can even be assigned to a buyer, since the formal lease document it depends on has already expired. |
| Landlord leverage | A landlord aware that a sale is happening may use the moment to negotiate a new lease on terms more favourable to itself. |
Steps to Take Before You Close
- [ ] Confirm directly with the landlord what the current tenancy status actually is — don't rely solely on the seller's characterization.
- [ ] Ask whether the landlord is willing to offer a new, formal lease (or a documented extension) to the buyer as a condition of the sale.
- [ ] Have your lawyer review exactly what the original lease said about what happens after its term expires, and whether that wording still governs.
- [ ] Treat "landlord agrees to a new lease on acceptable terms" as a closing condition, not an assumption, if continued occupancy of the space is central to the business's value.
- [ ] Factor the uncertainty into price negotiations — a holdover business carries more location risk than one with a secure, current lease.
Negotiating Around the Risk
Buyers generally have more leverage to address a holdover before closing than after. Common approaches include making the purchase conditional on the landlord agreeing to a new lease (or a written extension) before the deal closes, negotiating a price adjustment that reflects the added risk, or — where the location genuinely isn't essential to the business — planning for a possible relocation as part of the deal's overall economics. Which of these makes sense depends on how much of the business's value is tied to that specific location, and that's a conversation to have early with your lawyer.
Frequently asked questions
Is a holdover tenancy illegal or unusual?
No — it's a fairly common situation, especially where a landlord and tenant have an amicable relationship and simply haven't gotten around to signing a new lease. It's not inherently improper, but it is inherently less secure than a current written lease, and that's what a buyer needs to weigh.
Can the seller just tell us the landlord "is fine with it" and we rely on that?
Verbal assurances from the seller aren't a substitute for confirming the tenancy status directly with the landlord, ideally in writing. The seller's relationship with the landlord doesn't automatically transfer to you as the new owner.
Does a holdover tenancy affect how we structure the purchase agreement?
Yes — it's common to make landlord cooperation (whether that's a new lease, a formal extension, or written consent to the buyer occupying the space) an explicit condition of closing, rather than leaving it to be sorted out afterward.
If the landlord won't commit to anything before closing, should we walk away?
That depends on how central the location is to the business. For a leasehold-dependent business, proceeding without any landlord commitment is a meaningfully riskier deal, and that risk should be reflected in price, conditions, or both — not ignored.
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