Do I need the landlord's consent to take over the business's lease?

What the lease says about assignment

Start with the lease itself. Most commercial leases prohibit assignment, subletting or a change of control of the tenant without the landlord's prior written consent, set out the information the landlord can require, allow the landlord to charge its legal costs, and sometimes give the landlord a right to terminate the lease instead of consenting. Some say the original tenant remains liable after assignment; many require the assignee to sign a direct covenant with the landlord.

Also read the term and renewal options. A business with two years left on its lease and no renewal right is a different purchase from one with ten years secured, and lenders price that difference.

What the Commercial Tenancies Act adds

Section 23 of the Commercial Tenancies Act reads a proviso into most leases: where the lease requires the landlord's consent to assign, that consent is not to be unreasonably withheld, unless the lease expressly says otherwise. What is unreasonable depends on the facts; a landlord may legitimately look at the buyer's financial strength, experience and intended use, and may impose conditions such as a guarantor or a deposit.

The Act also lets a tenant apply to court where consent is refused. In practice that is slow and expensive, so the better route is to give the landlord a complete application early and a closing date that leaves time to answer.

Assignment, a new lease, or a share deal

An assignment transfers the existing lease to you with its remaining term, options and rent. A new lease resets the terms and can be better or worse; landlords sometimes use the request as a chance to raise rent or remove options. In a share purchase the tenant does not change, so no assignment is needed, but most modern leases treat a change in control of the tenant as an assignment requiring consent.

If the business is a franchise the franchisor may hold the head lease and sublet to the franchisee, in which case both landlord and franchisor consents are required.

Guarantors, indemnifiers and the seller's release

Landlords usually ask the buyer, and often its principals personally, to stand as guarantor of the lease. The seller, meanwhile, wants a release from its own covenants and any role as guarantor; unless the landlord agrees in writing, the seller often stays liable after assignment. A landlord release letter is therefore a common seller deliverable, and negotiating it can slow consent.

Ask for an estoppel certificate in which the landlord confirms the rent, the term, the deposit held and that there are no defaults. It is the only reliable way to learn about arrears or disputes before you inherit them.

Timing and the closing condition

The purchase agreement should make landlord consent a condition of closing, say who applies, who pays the landlord's costs, and what happens if consent is refused or comes with unacceptable conditions. Send the landlord a full package early: financial statements or a personal net worth statement, a resume, the business plan and the proposed guarantor. Leases commonly give the landlord a set number of days to respond, and lenders will not fund without the consent letter in hand, so the request usually goes out in the same week as the financing application.

We draft the consent condition in the purchase agreement, prepare the landlord's package, and chase the estoppel certificate so financing and closing stay on schedule.