Can a Landlord Refuse to Assign My Commercial Lease When I Sell in Ontario?

For many small businesses, the lease is the most valuable part of the deal. A buyer who cannot take over the premises may not want to buy at all. That puts the landlord in a powerful position, and sellers often worry about what happens if the landlord says no.

This article explains in general terms how to approach a lease assignment when you sell your business in Ontario. The details turn on your lease and on the law that applies to it, so a lawyer should review both before you commit to a closing date.

What an assignment is

An assignment is when a tenant transfers its interest in a lease to someone else, here the buyer of the business. The buyer then deals with the landlord as the tenant going forward. It is different from a sublease, where you stay the tenant and the new occupant deals with you.

In an asset sale, the lease does not move on its own. It has to be assigned, and that usually involves the landlord. In a share sale, the tenant company stays the same, but the lease may still say something about a change of control, so it is worth reading either way.

Start with the lease wording

Most commercial leases deal with assignment directly. Some require the landlord's written consent, some address how consent is to be given or withheld, and some say a change in ownership counts as an assignment. The answer to whether a landlord can refuse usually starts here, then continues with the law that applies to the lease. A lawyer can confirm how those two fit together for your situation.

• The assignment or subletting clause and any change-of-control wording.
• Any language about how or when the landlord must respond.
• Fees, costs or conditions the landlord may charge for considering a request.
• Renewal or extension rights, and whether they pass to a buyer.
• Any guarantee attached to the lease.

What landlords typically look at

Landlords commonly want to know whether the buyer can pay the rent and run the business. They may ask for financial information, business experience, and sometimes a new guarantee or a larger deposit. Whether any particular request is acceptable depends on the lease and on the law, so do not assume a request is improper, or required, without advice.

Present the buyer well. A clear package, sent early, with the buyer's details and the proposed use of the premises, tends to make the process smoother and gives you a record of what was asked and when.

If the landlord refuses or delays

A refusal, or silence, does not necessarily end the matter, but your options depend on the lease and the reasons given. Ask the landlord to state its reasons in writing and keep every communication. Do not move the buyer into the premises or sign a closing that assumes consent before you understand the risk.

Possible paths include negotiating changes the landlord is concerned about, offering additional security from the buyer, restructuring the deal, or, in some cases, asking a court to decide. Each has costs and risks, and timing matters if closing is near.

What to do next

• Get a complete copy of the lease and every amendment.
• Ask your lawyer to review the assignment clause before you sign a purchase agreement.
• Make landlord consent a stated condition of the sale, with a realistic deadline.
• Send the landlord a full request early and keep written records.
• Agree with the buyer who pays any landlord fees and what happens if consent is refused.

Also check the rest of your deal. For example, a sale may involve tax elections and employee issues, and those timelines should line up with the lease timeline.

Frequently asked questions