Reviewing the Commercial Lease Before Buying a Business in Ontario

If the business you're buying depends on its physical location — a restaurant, a retail storefront, a clinic, a shop with walk-in traffic — the commercial lease is arguably as important as the purchase agreement itself. A great business at a location you can't keep, or can only keep on much worse terms than expected, is a very different deal than the one you thought you were signing up for.

This article walks through what to check in the commercial lease before you commit to buying a business that depends on it.

Why the Lease Can Make or Break the Deal

A business purchase agreement transfers the business. It does not, on its own, transfer the right to occupy the premises — that depends entirely on the lease and, in most cases, on the landlord's cooperation. Buyers sometimes focus so heavily on the purchase agreement that they treat the lease as an afterthought, only to discover during due diligence that the remaining term is short, the rent is about to escalate sharply, or the landlord has grounds to withhold consent to the transfer altogether. If the deal also involves purchasing the underlying property rather than leasing it, that shifts into commercial real estate territory with its own separate due diligence.

Key Lease Terms to Review

A Practical Review Checklist

• [ ] Confirm the exact remaining term and whether any renewal options exist, and on what conditions
• [ ] Confirm current rent, any scheduled increases, and how additional/operating costs are calculated
• [ ] Locate and read the assignment or change-of-control clause carefully — word for word, not by summary
• [ ] Confirm the permitted use clause matches what the business actually does (and what you intend to do with it)
• [ ] Check for exclusivity clauses that protect (or restrict) certain types of business at the property
• [ ] Review repair, maintenance, and capital improvement obligations, including who bears the cost of existing issues
• [ ] Check for any default notices, disputes, or unresolved issues with the landlord
• [ ] Confirm whether the lease requires a personal guarantee, and whether that guarantee would need to be replaced by the buyer

Assignment and Consent: The Core Issue

Most commercial leases prohibit the tenant from assigning the lease to someone else without the landlord's consent. Ontario's Commercial Tenancies Act provides that where a lease restricts assignment without consent, that consent is deemed not to be unreasonably withheld — unless the lease itself says otherwise. In practice, this means:

• The lease's own wording still comes first. If it expressly allows the landlord unrestricted discretion to refuse assignment, that language generally controls.
• Even where "not unreasonably withheld" applies, a landlord can still have legitimate, reasonable grounds to refuse — for example, concerns about the buyer's financial strength or the proposed use of the space.
• Getting landlord consent early, and building it into the purchase agreement as a closing condition, protects both the buyer and the seller from a deal that closes on the business but leaves the location in limbo.

What Happens If the Lease Has a Short Remaining Term

A business that looks financially strong today can look very different if the lease is expiring soon with no guaranteed renewal. Buyers in this position typically either negotiate the purchase price to reflect that uncertainty, make the deal conditional on securing a lease extension or new lease before closing, or walk away if the location risk is too central to the business's value.

Frequently asked questions