Taking Over a Commercial Lease When You Buy a Business in British Columbia

For many businesses, the location is a large part of what you are paying for. If you cannot keep the premises, the price you agreed may no longer make sense.

This article explains the usual ways a commercial lease moves to a buyer in British Columbia, what the landlord typically has to approve, and what to sort out before closing. The lease itself is the most important document, so read it first.

This article covers the law of British Columbia.

Asset sale or share sale: how the lease moves

In an asset sale, you buy the business property and the seller's company stays behind. The seller is the tenant, so the lease has to be assigned to you, or the landlord has to sign a new lease with you. In a share sale, you buy the shares of the company that is the tenant. The tenant does not change, so there is no assignment, but many leases treat a change of control of the tenant company as if it were an assignment. Read the clause carefully.

What the landlord gets to decide

Most commercial leases say the tenant cannot assign or sublet without the landlord's consent. The Commercial Tenancy Act has only one provision on such covenants that we are aware of: section 29(3), which deals with a trustee in bankruptcy. A covenant not to assign or sublet without the landlord's leave or consent does not apply to a trustee's transfer if the Supreme Court approves it, and the incoming party must give security of up to 3 months' rent. The Act does not set a general rule on when a landlord may refuse consent, so the lease terms and case law govern.

In practice, the landlord will usually want to know your finances, your experience and your intended use of the space. They may ask for a personal guarantee, a larger deposit or a new lease term as the price of consent.

What to check in the lease

• How much of the term remains and whether there are renewal options you can actually use.
• The assignment and subletting clause, and any change-of-control wording.
• Whether the seller stays liable after assignment, and whether you will have to guarantee the lease.
• Current rent, additional rent charges and any arrears the seller owes.
• The permitted use, to confirm it fits what you plan to do.
• Any deposits held by the landlord and who gets credit for them.
• Restrictions on signage, alterations and operating hours.

Ask the landlord for a written statement confirming the lease is in good standing and setting out the rent and any defaults. Lawyers often call this an estoppel certificate. It helps you avoid inheriting a surprise.

Other closing items that touch the premises

• If the purchase includes the building, the purchaser pays property transfer tax of 1% on the first $200,000 of fair market value, 2% from over $200,000 to $2,000,000, and 3% above $2,000,000, based on fair market value on the day of registration at the Land Title Office.
• If the business holds a liquor licence, an expired licence cannot be transferred, so renewal should be current before closing. The seller remains responsible for the licence until the LCRB tells both parties the application is administratively complete.
• If it is a franchise, a resale is a grant under the Franchises Act, so a prospective franchisee must receive the disclosure document at least 14 days before the earlier of signing a franchise agreement or related agreement, or paying consideration relating to the franchise. A franchisee granting a franchise for its own account is exempt from the disclosure requirement, but only if the grant is not effected by or through the franchisor. A franchisor's right to approve a grant, or a fee not exceeding reasonable processing costs, does not by itself mean the grant was effected through the franchisor. The franchisor may also have its own approval rights over the premises and the transfer.
• A purchaser buying a business in a bulk transaction should obtain a PST clearance certificate, or they are liable for any outstanding amount owed by the collector.

What to do before closing

• Get a full copy of the lease and every amendment, and have it reviewed before you waive conditions.
• Contact the landlord early, with the seller's agreement, to learn what they will require.
• Make landlord consent, in a form you accept, a condition of closing in the purchase agreement.
• Ask for the lease status statement and confirm there are no defaults.
• Decide who pays any landlord fees and whether the seller is released.
• Confirm in writing any new guarantee or deposit before you commit.
• Have a lawyer review the assignment or new lease and the purchase agreement together.

Frequently asked questions