Can I negotiate to leave certain contracts behind in an asset purchase?

In an asset purchase, the buyer acquires some or most of a company’s assets rather than its shares. The Saskatchewan Workers’ Compensation Board describes it in those terms, and BDC asks applicants for its business purchase loan to have a clear transaction structure, asset purchase or share purchase. The purchase agreement then spells out what is bought and which obligations the buyer assumes. A contract the buyer does not want can simply stay off that list. That is a point to negotiate, and it is worth raising early.

What a left-out contract means for the seller

A contract the buyer does not take stays between the seller and the other party. The seller needs a plan to perform it, wind it down or end it, and the price discussion may reflect that. Ask the seller what will happen to customers or suppliers under that contract, and whether the business can run without it.

Contracts you cannot take without consent

A lease is one example. Under article 1870 of the Civil Code of Québec, a lessee who wants to assign a lease must give the lessor notice and obtain the lessor’s consent. Check every other contract you do want for a clause that restricts assignment, and plan for the counterparty’s answer. In Ontario, s.23 of the Commercial Tenancies Act deals with consent to assign a lease, and other provinces have their own rules.

What can follow the business anyway

Statutes can attach obligations to a business whatever the contract says. In Quebec, the CNESST says that when a company changes owner the staff’s employment relationship is maintained, provided the new owner demonstrates continuity of operation. Unsettled claims under the Act respecting labour standards are not cancelled, and the former and new owners are solidarily liable for them. In Saskatchewan, the WCB describes a key advantage of an asset sale as the purchaser not being responsible for the seller’s liabilities, but a purchaser who does not obtain a clearance certificate is responsible for an amount equal to any money the seller owes the WCB.

So “leaving a contract behind” has limits that the province sets. For the wider picture, see can a new corporation buy a business’s assets and leave its liabilities behind.