Why Sellers Need a Landlord Release Letter When Assigning a Commercial Lease in Ontario

Selling a business that operates out of leased commercial space? Once the deal closes, it’s tempting to assume the lease is entirely the buyer’s problem now. That assumption can be wrong — and expensive — if you don’t get a landlord release letter as part of the lease assignment.

In Ontario, assigning a commercial lease to a buyer does not automatically let the original tenant off the hook for what happens after closing. Unless the landlord agrees otherwise, in writing, the seller can remain legally exposed to the lease’s ongoing obligations for years after they’ve walked away from the business.

This article explains what a landlord release letter is, why sellers should insist on one, and what to do if the landlord won’t give a full release.

Assigning a Lease Doesn’t Automatically End Your Obligations

When a tenant assigns a commercial lease, the assignee (the buyer) takes over the tenant’s rights and day-to-day obligations under the lease going forward. But an assignment transfers the leasehold interest — it does not, by itself, cancel the original tenant’s contract with the landlord.

As a general matter of Ontario commercial leasing law, the original tenant and the landlord remain bound to each other under the lease they signed, unless the landlord expressly agrees to let the original tenant go. That means if the buyer later stops paying rent, fails to maintain the premises, or otherwise breaches the lease, the landlord may still be able to look to the seller for the shortfall — even though the seller no longer owns or operates the business.

This surprises a lot of sellers, who feel they’ve moved on. Legally, the lease may not have moved on with them.

What a Landlord Release Letter Actually Does

A landlord release letter — sometimes built into the assignment agreement itself, sometimes issued as a separate document alongside the landlord’s consent — is the landlord’s written confirmation that it releases the seller from further liability under the lease from the assignment date onward.

Consent and release are two different things, and a landlord can give one without the other. A landlord may happily approve the buyer as the new tenant while still preserving its right to chase the seller if the buyer defaults down the road.

A properly drafted release should be specific about:

• The exact date the seller’s liability ends
• Whether it covers all lease obligations, or only some (for example, future rent but not obligations that already accrued before closing)
• Any conditions the landlord attaches to giving it, such as a top-up to the security deposit or a guarantee from the buyer

When Landlords Are Willing to Release a Seller — and When They Aren’t

Under the Commercial Tenancies Act, where a lease includes a covenant against assignment without the landlord’s consent, that consent generally cannot be unreasonably withheld unless the lease says otherwise. That rule is about getting the assignment approved in the first place — it does not require a landlord to also release the seller.

Whether to grant a release is a separate, commercial decision for the landlord, driven by its own risk assessment. A landlord is more likely to agree to a full release where the buyer brings strong financials or a solid personal guarantee, the remaining lease term is short, or the seller has been a long-standing, reliable tenant. A landlord is more likely to resist where the buyer is newer or thinly capitalized, or a long term remains — the landlord simply prefers to keep as many parties on the hook as possible.

If the Landlord Won’t Give a Full Release

A full release isn’t always on offer. If the landlord refuses, consider:

• [ ] Negotiating a partial or time-limited release — liability capped to a defined period after closing rather than the full remaining term
• [ ] Asking the buyer to strengthen the landlord’s security (an increased deposit or a letter of credit), which can make a release easier to obtain
• [ ] Building an indemnity from the buyer into the purchase agreement, so the buyer is contractually on the hook if the landlord later comes after the seller
• [ ] Confirming precisely which obligations survive — rent, or also end-of-term repair and restoration obligations

An indemnity from the buyer is not a substitute for a landlord release. It only helps if the buyer is still around and solvent when a claim eventually lands.

Building This Into the Deal Timeline

Landlord cooperation is often outside either party’s direct control, so it needs to be raised early rather than left until the week before closing. Consider:

1. Making landlord consent — and, ideally, a release — a stated closing condition in the purchase agreement
2. Giving the landlord’s response process realistic lead time ahead of your target closing date
3. Deciding with your lawyer, in advance, what your fallback position is if a full release isn’t offered

Frequently asked questions