- Renewal options are typically drafted for "the tenant" under the lease — meaning, at the moment the deadline arrives, whoever is legally the tenant on record.
- The renewal deadline falls well before closing.
A commercial lease renewal option almost always comes with a notice deadline — a specific window before the current term ends when the tenant must tell the landlord it's exercising the right to renew, or lose it. When that deadline happens to land in the middle of a business sale, both sides can be left wondering: is this the seller's decision to make, the buyer's, or something they need to work out together?
The short answer is that the lease's own wording controls who technically holds the right — but the purchase agreement is where the parties decide, practically, what to do with it.
Why the Timing Question Comes Up
Renewal options are typically drafted for "the tenant" under the lease — meaning, at the moment the deadline arrives, whoever is legally the tenant on record. In most business sales, that's still the seller, because the lease assignment to the buyer doesn't happen until closing. If the renewal notice deadline falls before closing, the seller is technically the one who must act (or not) to preserve the option. If it falls after closing, and the assignment has gone through, the option may belong to the buyer as the new tenant — assuming the option itself is transferable, which is a separate question addressed in our companion article on assignment and renewal options.
Three Common Timing Scenarios
- The renewal deadline falls well before closing. The seller is still the tenant and holds the right to exercise (or let lapse) the option. Because the outcome directly affects what the buyer is paying for, the purchase agreement should specify whether the seller is required to exercise it, and often makes doing so a condition the seller must satisfy before closing.
- The renewal deadline falls in a grey zone close to closing. This is the trickiest scenario — the parties may need to coordinate so that whoever is the tenant of record when the deadline hits takes the necessary action, with the purchase agreement documenting that the other party's interests are protected either way (for example, through a covenant that the seller will exercise the option for the buyer's benefit if it's still the tenant when the deadline arrives).
- The renewal deadline falls well after closing. The buyer, as the new tenant (assuming the lease has been properly assigned and the option survives assignment), is generally the one who will exercise it when the time comes — subject to whatever the lease requires.
What the Purchase Agreement Should Address
| Question | Why it needs to be answered in writing |
|---|---|
| Must the seller exercise the option before closing? | Without a clear obligation, a seller with no further stake in the business has little incentive to act on a deadline that doesn't affect them. |
| What happens if the seller fails to exercise it in time? | The purchase agreement can address remedies or price adjustments if a missed deadline costs the buyer a renewal it was counting on. |
| Does the option survive assignment to the buyer? | Some leases tie renewal rights to the original named tenant only — this needs to be checked before assuming the buyer inherits the same option. |
| Who bears the risk if the landlord disputes the exercise? | Disputes over whether a renewal was validly and timely exercised can arise; the agreement should say who deals with that risk. |
Practical Steps for Both Sides
- Sellers: Identify every renewal deadline across all leases early in the sale process, and don't let a deadline pass "because the deal is happening anyway" — an expired option can reduce the value of what you're selling.
- Buyers: During due diligence, ask specifically about upcoming renewal deadlines on every lease, not just the overall lease term. A renewal option that quietly lapses during a slow-moving deal can materially change what you're buying.
- Both sides: Address renewal timing explicitly in the purchase agreement rather than assuming it will sort itself out — silence on this point is a common source of post-closing disputes.
Frequently asked questions
What if nobody notices the renewal deadline until it's already passed?
This is exactly the risk this issue creates — a missed deadline can mean the option is lost entirely, regardless of who was "supposed" to catch it. It underscores why lease renewal dates should be flagged the moment a business sale process begins, not left for closing week.
Can the buyer just exercise the option early, before closing?
Generally no — if the buyer isn't yet the tenant under the lease, it typically has no standing to exercise a renewal option that belongs to the current tenant. This is why the purchase agreement needs to address the seller's obligations around the deadline instead.
Does it matter whether the deal is a share sale or an asset sale?
It can. In a share sale, the corporate tenant doesn't change, so there's no assignment step and the renewal option issue is generally simpler — the entity that has always held the option still holds it. In an asset sale, the lease itself is being assigned to a new tenant, which raises the transferability question directly.
Should we just ask the landlord directly about the renewal deadline?
Confirming the deadline with the landlord (in addition to reviewing the lease) is a sound practice, but the landlord's confirmation doesn't substitute for having your lawyer review who is legally entitled to exercise the option and what the purchase agreement needs to say about it.
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