Does a purchase agreement transfer assets that need a third party’s approval?

A purchase agreement is a contract between two parties, and the people it does not name are not bound by it. That matters because some of the most valuable things in a small business sit with someone else’s permission: the lease, a licence issued by a regulator, a supplier or customer contract, a franchise right. Signing can promise those assets to the buyer. Only the third party’s approval can deliver them.

Leases

Where a lease restricts assignment without the landlord’s consent, Ontario’s Commercial Tenancies Act adds a rule. Unless the lease expressly says otherwise, a covenant against assigning or parting with possession without consent is read as carrying a proviso that consent is not to be unreasonably withheld, and a court can decide whether it was. Other provinces have their own rules, and the lease wording can change the result. The landlord consent checklist lists what to gather.

Licences issued by a regulator

Licensing sits outside the contract entirely. In Ontario a liquor sales licence can be transferred to someone else only if the regulatory requirements are met and the AGCO approves, and the person taking over submits the application. British Columbia’s branch describes a transfer that the current licensee starts and the buyer then applies for, with the buyer treated as the deemed licensee once the application is administratively complete. What licences transfer when you buy a business covers the wider picture.

What the agreement can do

• Make the approval a condition of closing, so the buyer is not bound to complete without it.
• Require the seller to apply promptly and answer the third party’s questions.
• Set an outside date, and say what follows if the approval is refused: a price adjustment, leaving the asset out, or a right to walk away.
• Decide who carries the risk and the cost while an application is pending.