Taking Over a Commercial Lease When You Buy a Business in Alberta

For many small businesses, the location is a large part of what you are buying. If the premises are leased, the sale only works for you if you can stay there on workable terms. A business with great customers and a lease that ends in four months is a very different purchase from one with a long, renewable term.

This article explains the general questions around taking over a commercial lease in Alberta, how the way you buy changes the answer, and what to confirm before closing. The lease itself is the key document, so a lawyer should review it before you sign.

This article covers the law of Alberta.

Can the lease be transferred to you?

There is no single answer. A commercial lease is a contract between the landlord and the current tenant, and its wording usually decides whether the tenant can hand it over, and on what conditions. Whether the landlord's consent is needed, and on what terms, depends on the wording of the lease, so it is worth confirming with a lawyer.

Because the rules sit largely in the lease, read the sections on assignment, subletting, change of control, renewal and default before you finalize the price. If the lease cannot move to you, the seller or you may need to negotiate a new lease directly with the landlord.

How the structure of the deal changes things

In an asset purchase, you buy the business assets, and the lease is one of the things that has to be assigned to you. In a share purchase, you buy the company, and the company generally stays the tenant. Even then, some leases treat a change in who controls the company as something that needs the landlord's consent, so do not assume a share purchase avoids the landlord.

The structure also affects financing and tax. For example, the federal small business financing program does not finance share purchases or assets acquired by a holding company, so a share purchase of an Alberta company cannot be funded that way.

What an assignment generally involves

• A request to the landlord, usually with information about you, such as your experience and financial position.
• Written consent or an assignment agreement signed by the landlord, the current tenant and you.
• Negotiation over whether the seller stays on the hook for the lease, and whether you must provide a deposit or personal guarantee.
• Confirmation that rent and other charges are up to date.

Build the landlord's consent into the purchase agreement as a condition of closing, so you are not committed to buying a business you cannot operate from its current location.

What to confirm before closing

• The remaining term, renewal options and how rent is reviewed.
• Whether the landlord has consented in writing, and on what terms.
• Whether rent, taxes and other charges owed by the tenant are paid up. Ask the landlord to confirm in writing.
• Who owns the business you are buying. Alberta Corporate Registry searches can show the registration date, owners, directors and legal addresses.
• Whether anyone has registered a claim against the business assets. A Personal Property Registry business debtor name search is one of the available search types.

Corporate Registry searches are requested through a registry agent, and the agent charges a government fee plus a service fee. A Personal Property Registry search returns an exact match, an inexact match, no match, or both exact and inexact matches. For inexact matches, you may need to search the inexact name again or search the specific registration number.

GST and the lease

The section 167 going-concern exemption works through a joint election by the seller and the buyer, made on CRA form GST44. If the election is valid, no tax is payable on the supplies under the agreement. The election is not available where the seller is a GST registrant and the buyer is not.

Even with a valid election, tax is still payable on a taxable lease, licence or similar supply of property. Ask your accountant how any lease-related payments in your deal will be treated.

What to do next

Get a complete copy of the lease and every amendment as early as you can. Have a lawyer review it, then approach the landlord with the seller. Make landlord consent a condition of closing, complete your searches, and let your accountant check the GST treatment before you sign.

Frequently asked questions