How Contracts Transfer When You Buy Business Assets in Alberta

When you buy the assets of a business, you are not stepping into the seller's shoes automatically. You are buying a list of things, and contracts are some of the most valuable items on that list: the premises lease, key customer agreements and supplier arrangements.

This article explains in plain terms how those contracts are usually moved to you, why the other party's consent often matters, what you can do if consent is refused, and which checks and tax points to raise before closing.

This article covers the law of Alberta.

Why contracts need attention in an asset purchase

In an asset deal, the purchase agreement lists what you are buying. A contract between the seller and a landlord, customer or supplier is a relationship with a third party, so it does not simply travel with the business unless the paperwork moves it to you.

Whether a particular contract can be moved, and on what conditions, usually depends on what the contract itself says. Some say nothing. Some allow transfer only with written consent. Some prohibit it. A lawyer can read each one and tell you where you stand.

Leases, customer contracts and supplier agreements

Each type of contract raises slightly different concerns. The table below sets out the usual questions to ask.

In practice, the assignment is often a short written document signed by the seller, you and sometimes the other party, confirming that the contract now sits with you from a stated date.

What if consent is refused?

A refusal does not always end the deal. Common responses are set out below. Which one fits depends on how important the contract is and what the contract allows.

• Ask what the other party wants, such as updated terms, a guarantee or a deposit, and consider whether it is reasonable.
• Sign a fresh agreement directly with the other party instead of assigning the old one.
• Make closing conditional on getting consent to the contracts that matter most.
• Adjust the price or leave the contract out of the deal if it is not essential.
• Walk away if the contract is central to the value of the business and cannot be secured.

Raise the issue early. Waiting until the closing date leaves you with little leverage.

Tax and registry points that go with the contracts

Without an election, each property and service in a business sale is treated as a separate supply, so GST at 5% in Alberta can apply to the taxable parts, and Alberta has no provincial sales tax. The business-assets rule applies where the buyer gets all or substantially all of the property that can reasonably be regarded as necessary to carry on the business.

The seller and buyer can make a joint election in the prescribed form, and if it is valid, no tax is payable on the supplies under the agreement. The CRA form is GST44. The election is not available where the seller is a registrant and the buyer is not. Even with a valid election, tax is still payable on a taxable service the seller will render and on a taxable lease, licence or similar supply of property.

Before closing, a Personal Property Registry search can show registered interests against the seller, and a Corporate Registry search can confirm details of a company seller, such as owners, directors and legal addresses. Both are requested through a registry agent.

What to do next

• List every contract you expect to rely on after closing.
• Ask the seller for complete copies, including amendments.
• Have a lawyer check each one for assignment and consent terms.
• Approach landlords, key customers and suppliers early, with the seller's agreement.
• Make the purchase agreement conditional on key consents where possible.
• Ask your accountant whether a GST election applies to your deal.
• Order registry searches before you sign.

Frequently asked questions