- In an assignment, the seller (the original tenant) transfers its entire remaining interest in the lease to the buyer.
- For a genuine change of business ownership, an assignment is almost always the structure both sides actually want: - The buyer wants a direct relationship with the landlord — for rent…
If your business operates out of leased space, transferring the lease is one of the mechanical steps of the sale — but there’s more than one way to do it. A sublease and an assignment can both look like “the buyer takes over the space,” but they create very different legal relationships between seller, buyer, and landlord. Almost every straightforward business sale in Ontario uses an assignment, and there’s a good reason for that.
The Basic Difference Between an Assignment and a Sublease
In an assignment, the seller (the original tenant) transfers its entire remaining interest in the lease to the buyer. The buyer steps directly into a relationship with the landlord — privity between landlord and the new tenant — for the rest of the lease term.
In a sublease, the seller keeps the head lease and grants the buyer a lesser interest in the space, for a term shorter than what remains on the head lease, or otherwise less than the seller’s full interest. The seller remains the landlord’s tenant throughout, and now also effectively becomes the buyer’s landlord under the sublease. The landlord has no direct legal relationship with the buyer at all under a sublease.
Why Business Sales Are Almost Always Structured as Assignments
For a genuine change of business ownership, an assignment is almost always the structure both sides actually want:
- The buyer wants a direct relationship with the landlord — for rent payments, maintenance requests, lease renewals, and any future negotiations, without the seller sitting in between as an intermediary.
- The seller wants out entirely. A sublease keeps the seller on the hook as tenant under the head lease indefinitely, responsible to the landlord for rent and lease compliance even after the business itself has been sold. That’s the opposite of what most sellers are trying to achieve.
- Financing and renewal rights work more cleanly with an assignment. A buyer financing the purchase, or planning to exercise a renewal option down the road, generally wants to hold the lease directly rather than through a sublease arrangement layered on top of the seller’s continuing tenancy.
Side-by-Side Comparison
| Assignment | Sublease | |
|---|---|---|
| Who is the landlord’s tenant afterward? | The buyer (directly) | The seller (still) |
| Does the landlord deal directly with the buyer? | Generally yes | Generally no |
| Does the seller remain involved with the space? | Not operationally — though liability may continue, see below | Yes, as the buyer’s landlord under the sublease |
| Typical use in a business sale | The standard approach | Uncommon; used in specific situations |
| Landlord consent usually required? | Yes, per the lease’s assignment clause | Yes, per the lease’s subletting clause |
When a Sublease Shows Up Instead
A sublease is occasionally used in a business sale in situations such as:
- The lease permits subletting but restricts or prohibits assignment outright, leaving a sublease as the only lease-compliant option
- The seller only wants to sell part of the operation and intends to retain the head lease and part of the physical space for another purpose
- The remaining lease term is very short, and the parties decide a full assignment process (with landlord consent, possibly a release, and amended lease documents) isn’t worth the complexity
Even in these cases, a sublease should be treated as the exception, adopted deliberately and for a specific reason — not as a shortcut to avoid dealing with the landlord.
What Changes for the Buyer If It’s a Sublease, Not an Assignment
A buyer taking space by sublease should go in with clear eyes about the differences:
- No direct lease relationship with the landlord — the buyer’s rights depend on both the sublease and the underlying head lease, and a default or termination of the head lease (even for reasons unrelated to the buyer) can jeopardize the buyer’s occupancy.
- Renewal options may not transfer. Renewal rights in the head lease often belong to the head tenant (the seller) and may not automatically extend to a subtenant.
- The seller stays financially exposed. Because the seller remains the landlord’s tenant, the seller has an ongoing interest in the buyer performing its obligations under the sublease — this is a relationship that doesn’t simply end at closing.
- Additional consents are needed. The landlord’s consent to the sublease is still typically required and should be confirmed and documented, just as it would be for an assignment.
Frequently asked questions
Is a sublease ever a better option for the seller?
Rarely, and usually only where assignment isn’t permitted under the lease, or the seller has a specific reason to retain a foothold in the space. Most sellers who understand the ongoing exposure a sublease creates prefer to negotiate for an assignment wherever the lease allows it.
Does the landlord’s consent process differ between the two?
Both generally require landlord consent under most commercial leases, and the Commercial Tenancies Act implies a “not unreasonably withheld” standard into an assignment covenant, unless the lease says otherwise. The same implied standard applies to a covenant against subletting — the Commercial Tenancies Act treats assignment and subletting the same way — but read the lease carefully either way, since express wording in the lease can displace that implied standard.
Can the parties later convert a sublease into a full assignment?
It’s possible in principle, but it requires fresh documentation and, generally, the landlord’s cooperation — it isn’t something that happens automatically just because time passes or the head lease term runs out.
What happens to the buyer’s occupancy if the seller (as head tenant) defaults on the head lease?
This is one of the core risks of a sublease structure — a default or termination of the head lease can put the buyer’s continued occupancy of the space at risk, even where the buyer has done nothing wrong under the sublease itself.
This is a business purchase or sale question
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