Can a Landlord Refuse to Assign the Lease When You Buy an Ontario Business?

When you buy the assets of a business, the location is often a big part of what you are paying for. Customers know the address, the fit-out is done, and moving would be costly. But the premises are almost always rented, and the lease belongs to the seller, not to you.

That raises a practical question: can the landlord simply say no to the lease being passed to you? In Ontario the answer is often "not without a good reason," but it depends on what the lease says and on the facts. This article explains the general rules so you know what to check and when to get advice.

Why the lease matters in an asset purchase

In an asset purchase, you buy selected items from the seller, such as equipment, inventory and goodwill. The lease belongs to the seller, so how it passes to you depends on the lease and on the deal you make. Many commercial leases contain a covenant against assigning, subletting or parting with possession without the landlord's consent, which is why the Commercial Tenancies Act matters here.

If the landlord will not cooperate, you could end up owning a business with nowhere to operate it. That is why the lease should be treated as a core part of the deal, not a detail to sort out after closing.

What the Commercial Tenancies Act says

Many leases contain a covenant against assigning, subletting or parting with possession without the landlord's consent. Under section 23(1) of the Commercial Tenancies Act, a lease with that kind of covenant is deemed to say that consent is not to be unreasonably withheld.

In plain words, the starting point is that the landlord cannot unreasonably withhold consent. Whether a particular refusal is reasonable depends on the facts, so it is worth confirming with a lawyer. The law does not say the landlord must always agree.

When the lease says otherwise

The protection in section 23(1) does not apply where the lease contains an express provision to the contrary. So a lease that clearly says the landlord may withhold consent in its sole discretion, or that otherwise spells out different terms, may not give you the benefit of the reasonableness rule.

This is why the assignment clause deserves close reading during due diligence. Wording that looks routine can change your options considerably. Look for:

• Whether the lease requires consent to assign, sublet or part with possession.
• Any wording that says consent may be refused in the landlord's discretion or that overrides the usual reasonableness rule.
• Conditions the landlord may attach, such as financial information, a guarantee or a fee.
• Whether the seller stays responsible under the lease after assigning it.
• How much of the lease term remains and whether there are renewal rights.

Whether a particular lease clause is clear enough to displace the statutory rule is a question a lawyer can assess once they have read the full lease.

If the landlord refuses or does not respond

If the landlord refuses or neglects to consent to an assignment or sublease, the tenant, the assignee or the subtenant can apply to a judge of the Superior Court of Justice. The judge decides whether consent was unreasonably withheld. The judge can order the assignment permitted, and that permission then counts as the landlord's consent.

Notice that this includes the assignee, which is you as the buyer. You are not always dependent on the seller to bring the application.

Whether a refusal, or a condition the landlord imposes, is "unreasonable" depends on the facts and on how courts have applied the rule. There is no simple checklist that guarantees a result. A court application also takes time and cost, which is hard to fit into a closing timeline. For that reason, most buyers try to settle consent before they are committed to close.

Practical steps before you sign

An ordinary business purchase agreement does not come with a general statutory cooling-off period, so the contract itself needs to protect you. Deposits, conditions and termination rights depend on what the agreement says. Building landlord consent into it is one of the most useful protections.

• Get the full lease, including all amendments, and read the assignment and subletting clauses before you make a firm offer.
• Ask the seller to request the landlord's position early, in writing.
• Make landlord consent to the assignment a condition of closing, on terms you find acceptable.
• Make sure the condition says what happens to your deposit if consent is not obtained.
• Confirm what the landlord will require from you, such as financial statements or a guarantee, and whether you can meet it.
• Ask whether the seller will be released from the lease or stay liable, since this affects negotiations with the landlord.
• Keep records of every request and response from the landlord, in case a court application becomes necessary.
• Have a lawyer review the lease and the purchase agreement together before you commit.

Frequently asked questions