Reviewing the Lease Before You Buy a Business That Rents Its Location in Ontario

If the business you're buying operates out of a rented location — a retail storefront, a restaurant, a salon, a warehouse — the commercial lease is one of the most important documents in the entire deal. A great business at a location it may not be able to keep, on terms it doesn't control, is a very different purchase than the one advertised. Before you rely on the current premises, the lease needs a careful legal review, not just a quick read.

This article covers what changes depending on how the deal is structured, what Ontario law says about a landlord's ability to block a transfer, and what to look for in the lease itself.

Why the Lease Deserves Early Attention

A business's value is often tied closely to its location — foot traffic, visibility, proximity to suppliers or customers, or simply the cost of relocating specialized equipment. If the lease can't transfer, transfers only on materially worse terms, or is close to expiring with no guaranteed renewal, the buyer may be paying for a location they can't actually keep. This needs to be confirmed before the purchase price is finalized, not discovered afterward.

Share Sale or Asset Sale: The Lease Question Looks Different

If You're Buying Shares

In a share purchase, the corporation that holds the lease doesn't change — the buyer simply acquires ownership of that corporation. Because the tenant named on the lease stays the same, a share sale generally does not require landlord consent to an assignment, unless the lease itself contains a change-of-control clause treating a change in the corporation's ownership as equivalent to an assignment. Many commercial leases for closely-held businesses do include this kind of clause, so it needs to be checked specifically — don't assume a share deal avoids landlord involvement entirely.

If You're Buying Assets

In an asset purchase, the lease itself is one of the assets being transferred, which almost always means a formal assignment to the buyer, and, in turn, landlord consent. This is one of the clearest practical differences between the two deal structures, and it should be raised with the landlord well before closing, not treated as a formality to sort out afterward.

What Ontario Law Says About Landlord Consent

Under Ontario's Commercial Tenancies Act, where a lease prohibits assignment or subletting without the landlord's consent, the law deems that consent is not to be unreasonably withheld, unless the lease itself expressly says otherwise. In practice, this means:

• The starting point favours a tenant, and an incoming buyer, being able to assign the lease, provided the landlord's consent isn't unreasonably refused.
• The lease's own wording still controls first — many commercial leases contain detailed conditions on assignment, such as financial disclosure, a personal guarantee from the new tenant, a fee, or landlord approval rights over use, that are enforceable even though the general "not unreasonably withheld" rule applies.
• What counts as "reasonable" is fact-specific and isn't defined by a simple checklist in the statute — a landlord's specific objection needs to be assessed against the actual lease terms and circumstances.

Because the answer depends heavily on the specific lease's wording, this is exactly the kind of clause that benefits from a lawyer's review rather than a general assumption either way.

Lease Terms Worth Reading Closely Before You Rely on Them

• [ ] How much time remains on the current term, and are there renewal options, and on what rent terms?
• [ ] Does the lease contain an assignment or change-of-control clause, and what conditions does it impose?
• [ ] Is there a personal guarantee currently in place, and will the landlord require a new one from the buyer or the buyer's principals?
• [ ] Are there permitted-use restrictions that could limit how the buyer operates the business going forward?
• [ ] Who is responsible for repairs, structural maintenance, and property taxes under the lease's specific terms?
• [ ] Are there any outstanding disputes, arrears, or notices between the current tenant and the landlord?
• [ ] Does the lease include exclusivity or non-competition protection, for example in a shopping plaza, that the buyer will want to keep intact?

Timing: Bring the Landlord In Early, Not Late

Landlord consent, financial disclosure requirements, and a possible new personal guarantee all take time to negotiate, and a landlord under no particular time pressure has little incentive to move quickly for a buyer who raises the issue at the last minute. Raising the lease assignment with the landlord — or confirming there's no change-of-control issue, in a share deal — early in the process gives everyone room to negotiate terms calmly, rather than under the pressure of a looming closing date.

Frequently asked questions