Landlord Consent as a Closing Condition in an Ontario Business Sale

If the business you're buying or selling operates out of leased premises, the lease usually can't just transfer automatically with the sale. Most commercial leases require the landlord's consent before they can be assigned to a new tenant — and if that consent doesn't come through, the buyer may end up purchasing a business with nowhere to operate it from. That's why landlord consent to assign the lease is one of the most common, and most consequential, closing conditions in an Ontario business sale.

This article explains why lease assignment needs landlord involvement, what the law says about how unreasonably a landlord can withhold consent, and how to structure this closing condition to protect both sides.

Why Landlord Consent Matters in a Business Sale

In an asset sale, the business's lease is typically one of the assets being transferred — but a lease is a contract between the landlord and the seller (the current tenant), and contracts generally can't be assigned to a new party without the other side's agreement, unless the lease itself says otherwise.

In a share sale, the corporation that holds the lease doesn't change — the buyer is acquiring the shares of the existing tenant, not becoming a new tenant. This is one reason lease continuity is sometimes cited as an advantage of share deals, though many commercial leases also include a "change of control" clause that requires landlord consent (or notice) even on a share sale, so this can't be assumed without reading the actual lease.

What the Law Says About Withholding Consent

Ontario's Commercial Tenancies Act addresses this directly. Where a lease contains a covenant, condition, or agreement against assigning or subletting without the landlord's consent, the Act deems that provision to include an implied proviso: the consent is not to be unreasonably withheld, unless the lease expressly provides otherwise.

This is a meaningful protection for tenants (and buyers), but it comes with important limits:

• The lease's own wording still controls first. If the lease expressly states that the landlord may withhold consent in its sole and absolute discretion, or sets out specific conditions for consent, that language generally overrides the implied "not unreasonably withheld" standard.
• "Unreasonable" is not defined by a fixed checklist. Whether a landlord's refusal is reasonable or unreasonable depends on the specific facts — the proposed new tenant's financial strength, business type, and how the refusal compares to standard leasing practice.
• The provision only applies to leases made after September 1, 1911 — effectively all commercial leases you'll encounter today, but worth knowing the statute has this carve-out.

Common Reasons Landlords Give (or Withhold) Consent

Landlords often condition consent on things like financial evidence that the buyer can meet the rent obligations, the buyer's business type being consistent with the property's use restrictions, a personal guarantee from the buyer's principals if the buyer is a newer or thinly capitalized company, or payment of the landlord's reasonable legal costs in reviewing and documenting the consent. Whether any particular condition is reasonable depends on the lease terms and circumstances — this is squarely the kind of question that needs a lawyer's review of the actual lease, not a general assumption either way.

Structuring Landlord Consent as a Closing Condition

Because landlord consent is often outside either party's direct control, purchase agreements typically address it carefully:

1. Make it an explicit condition precedent to closing — usually for the buyer's benefit, since a buyer generally doesn't want to complete a purchase without a secured location.
2. Set a deadline for pursuing consent, tied to or separate from the overall outside date for closing.
3. Assign responsibility for approaching the landlord — often the seller, since they hold the existing tenant relationship, though the buyer usually needs to be actively involved in providing financial information.
4. Address costs — many leases require the tenant (or new tenant) to cover the landlord's reasonable legal fees for reviewing and documenting the consent; deciding who bears this cost is a negotiation point.
5. Plan for a refusal or delay — what happens if the landlord takes an extended time to respond, imposes conditions the buyer won't accept, or refuses outright.

What Happens If the Landlord Refuses or Delays

Because a failed landlord consent condition can unravel an otherwise complete deal, it's worth engaging with the landlord early — ideally as soon as a deal looks likely, not after the purchase agreement is already signed with a tight outside date.

Practical Checklist

• [ ] Read the actual lease's assignment clause before assuming any general rule applies.
• [ ] Check for a change-of-control clause that could apply even in a share sale.
• [ ] Approach the landlord early, with the buyer's financial information ready.
• [ ] Build a realistic timeline and clear outside-date consequences into the purchase agreement.
• [ ] Clarify who pays the landlord's legal costs for reviewing the consent.
• [ ] Get legal advice before accepting new lease terms as a condition of the landlord's consent.

Frequently asked questions