When you sell your business in Ontario, the commercial lease is often one of the most important (and most overlooked) parts of the transaction.
For many small and medium-sized businesses, the location is the business — and transferring (or “assigning”) your lease to the buyer isn’t as simple as handing over the keys.
Here’s what every seller should know before signing an agreement of purchase and sale that involves an assignment of lease.
1. Understand What “Assignment” Means
An assignment of lease transfers your leasehold rights and obligations to the buyer (the new tenant).
However — and this is where many sellers get caught — you may still remain liable to the landlord even after the assignment.
Most commercial leases in Ontario state that:
The landlord’s consent is required before any assignment or sublease; and
The original tenant remains responsible if the new tenant defaults on rent or damages the property.
In other words, if your buyer stops paying rent, your landlord may come after you for the unpaid amount — even years after you’ve sold your business.
💡 Tip: Ask your lawyer to review the lease to see whether the landlord can be required to “release” you from future obligations when the assignment takes effect.
2. Check the “Consent” Clause Carefully
Most leases include a clause such as:
“The Tenant shall not assign this Lease without the prior written consent of the Landlord, such consent not to be unreasonably withheld.”
This sounds simple, but in practice:
The landlord may require financial statements from the buyer;
The landlord may charge an administration or legal fee;
The landlord may impose conditions (e.g., a personal guarantee from the buyer); and
“Reasonable” can still leave room for argument.
A lawyer can negotiate a timeline for consent and ensure your deal doesn’t get delayed waiting on the landlord’s lawyer.
3. Coordinate the Timing Between Sale and Assignment
In most business sales, you’ll sign:
An Agreement of Purchase and Sale (APS) for the business assets; and
A separate Assignment of Lease to transfer the tenancy.
The APS should clearly state that the sale is conditional upon landlord’s consent to the lease assignment.
If the landlord refuses, the buyer can walk away — and you could be left without a sale and still on the hook for the lease.
✅ Best Practice: Make landlord consent a condition precedent to closing, not an afterthought.
4. Review Any “Restoration” or “Make-Good” Obligations
Many leases require the tenant to restore the premises to its original condition at the end of the term or after an assignment.
If you made improvements — new flooring, kitchen equipment, signage, or partitions — the landlord could insist that you (not the buyer) pay to remove them.
Make sure your APS clearly allocates:
Who pays for repairs or restoration; and
Whether the buyer is assuming responsibility for existing leasehold improvements.
5. Don’t Forget About the Security Deposit or Last Month’s Rent
If you paid a security deposit or last month’s rent, it doesn’t automatically transfer to the buyer.
You should:
Confirm with the landlord whether the deposit will be credited to the buyer; or
Negotiate for the buyer to reimburse you directly on closing.
Your lawyer should handle this in the statement of adjustments to ensure you aren’t left short.
6. Review Any Personal Guarantees
If you or another shareholder personally guaranteed the lease, that guarantee doesn’t disappear upon assignment unless the landlord releases it.
Without a formal release agreement, your personal liability may continue even though the buyer is in possession.
⚠️ Always insist on a landlord release or novation agreement that fully substitutes the buyer as tenant and ends your guarantee obligations.
7. Consider the Buyer’s Intended Use
If the buyer plans to change the business model — for example, from a café to a vape shop or from retail to office — the landlord may refuse consent.
Review the “use clause” in your lease to confirm what activities are permitted.
🧾 Pro Tip: Attach a copy of the existing lease to your APS and make sure the buyer understands and accepts its restrictions before signing.
8. Legal and Tax Coordination
Lease assignments often happen as part of an asset sale (not a share sale).
That means your lawyer, accountant, and the buyer’s team need to coordinate:
HST implications under section 167 of the Excise Tax Act;
Allocation of purchase price between equipment, goodwill, and leasehold improvements; and
Any Landlord Consent Fees or Assignment Costs under the lease.
Failing to structure this properly can result in unnecessary tax exposure or cash-flow issues at closing.
✅ Final Thoughts
Selling your business is one of the biggest transactions of your life — and the commercial lease is often the hinge that makes or breaks the deal.
Before you sign anything:
Have a business lawyer review your lease;
Make landlord consent a condition of sale; and
Ensure you are released from personal liability.
At Droit Ouimet-McPherson Law, we regularly help Ontario business owners sell, assign, and transfer commercial leases safely and efficiently. We coordinate with landlords, accountants, and buyers’ lawyers to make sure your exit is smooth, compliant, and stress-free.
📞 Ready to sell your business? Contact our business law team today at 343-888-8913 to review your lease and protect your interests before signing your agreement.
