- A recapture clause (sometimes called a "termination on transfer," "cancellation," or "landlord’s option" clause) gives the landlord an alternative to simply granting or refusing consent…
- Ontario’s Commercial Tenancies Act generally protects tenants from unreasonable landlord refusals.
- A recapture clause is often overlooked when a lease is signed, because the tenant isn’t thinking about selling the business years later.
If you’re selling a business that operates out of leased commercial space, you probably assumed that assigning the lease to your buyer is a formality once the landlord agrees. In many Ontario leases, it isn’t that simple. A landlord recapture clause can let the landlord step in, cancel the lease, and take the space back the moment you ask for consent to assign — derailing a deal that otherwise looked done.
Recapture clauses rarely make headlines during lease negotiations, because most tenants sign a multi-year lease without expecting to sell the business partway through. By the time a sale is on the table, the clause is already locked in. Understanding how it works — and when it can be triggered — lets you plan around it instead of discovering it during your buyer’s due diligence.
This article explains what a recapture clause does, how it interacts with Ontario’s general rules on lease assignment, and what sellers and buyers can do to keep a deal on track when one exists.
What a Recapture Clause Does
A recapture clause (sometimes called a "termination on transfer," "cancellation," or "landlord’s option" clause) gives the landlord an alternative to simply granting or refusing consent to an assignment or sublease. Instead of approving your buyer as the new tenant, the landlord can choose to end the lease early and take the premises back for itself.
Landlords use these clauses to preserve control over who occupies their building, and to capture any increase in rental value themselves rather than letting an outgoing tenant transfer that value to a buyer through the sale of the business.
How This Fits With Ontario’s General Assignment Rules
Ontario’s Commercial Tenancies Act generally protects tenants from unreasonable landlord refusals. Under section 23(1) of the Act, where a lease prohibits assignment or subletting without the landlord’s consent, that prohibition is deemed to include an implied condition that consent will not be unreasonably withheld — unless the lease expressly says otherwise. (This provision is well-settled, but as with any statute citation, confirm you’re working from the version in force before you rely on it.)
A recapture clause is one of the main ways a lease says otherwise. Because the statutory protection only fills a gap the lease itself leaves open, a landlord that negotiated an express recapture right isn’t relying on "reasonableness" at all — it’s exercising a separate contractual option the tenant already agreed to. The lease’s own wording controls first, and a clearly drafted recapture right is generally given effect.
Why This Matters More on a Business Sale Than a Simple Sublease
A recapture clause is often overlooked when a lease is signed, because the tenant isn’t thinking about selling the business years later. It becomes a live issue the moment a sale is structured as an asset purchase, where the lease itself — rather than the shares of the corporate tenant — needs to be formally assigned to the buyer.
In a share sale, by contrast, the corporate tenant doesn’t change, so an assignment (and any recapture right tied to it) generally isn’t triggered at all, unless the lease separately restricts a change of control of the tenant. This is one of many reasons the choice between an asset sale and a share sale matters well beyond tax treatment.
How a Recapture Situation Typically Unfolds
- The purchase agreement is signed, often conditional on landlord consent to assign the lease.
- The seller (or the seller’s lawyer) formally requests consent from the landlord, as the lease requires.
- The landlord reviews the request — and if a recapture clause exists, decides whether to consent, refuse, or exercise its recapture right instead.
- If the landlord recaptures, the lease ends on the landlord’s terms rather than transferring to the buyer, which can force the buyer to negotiate a brand-new lease on new terms, or walk away from the deal entirely.
- If the landlord consents normally, the assignment proceeds and the sale can close as planned.
Protecting Your Deal Before It Reaches This Point
- [ ] Read the lease’s assignment and recapture provisions before you sign the purchase agreement, not after.
- [ ] Build a landlord-consent condition (with a realistic timeline) into the letter of intent and purchase agreement.
- [ ] Have your lawyer open an early, informal conversation with the landlord rather than waiting for a formal notice to start the clock.
- [ ] Consider whether the deal should be structured as a share sale where recapture risk is significant and the parties are otherwise indifferent between structures.
- [ ] Ask what alternative space or terms the landlord would offer the buyer if recapture is exercised, so it isn’t a dead end if it happens.
Frequently asked questions
Can a landlord use a recapture clause just to raise the rent on a new tenant?
That’s generally the commercial motivation behind these clauses — the landlord wants the option to re-lease the space at current market terms rather than let the existing lease transfer with the business. Whether the landlord can actually do so depends entirely on how the specific clause is worded.
Does the Commercial Tenancies Act protect me if the lease has a recapture clause?
Not in the way it protects you against an unreasonable refusal. The implied "not unreasonably withheld" proviso in section 23(1) applies where the lease is silent; a validly drafted recapture right is the lease saying something different, and that different wording generally controls.
Can we negotiate the recapture clause out of an existing lease before selling?
Sometimes, if the landlord is willing, but a landlord has no obligation to renegotiate lease terms partway through the term just because a sale is pending. It’s far easier to negotiate this when a lease is signed or renewed than mid-sale.
What happens to our purchase agreement if the landlord recaptures the space?
That depends entirely on how your purchase agreement is drafted. A well-drafted agreement will address what happens to the deal — termination, a price adjustment, or a substitute-premises condition — if lease consent can’t be obtained on acceptable terms, which is exactly why this needs to be addressed before you sign, not after.
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