How does the Commercial Tenancies Act affect the sale of my business?

A business that rents its premises depends on the lease in any sale, and in Ontario the Commercial Tenancies Act sets some of the ground rules. It is an Ontario statute, so a business elsewhere should look to the tenancy law of its own province. In a sale the Act matters for two reasons: the lease may have to be assigned, and unpaid rent carries a special remedy.

Assigning the lease in an asset sale

In an asset sale the buyer usually takes over the premises by an assignment of the lease. Where a lease says the tenant cannot assign without the landlord’s licence or consent, the Act deems that covenant to carry a proviso that consent is not to be unreasonably withheld, unless the lease expressly provides otherwise. The Act shapes the standard the landlord must apply. It does not remove the need to ask.

If the landlord refuses

Where a landlord refuses or neglects to give consent to an assignment, a judge of the Superior Court of Justice can, on the application of the tenant or the assignee, decide whether the consent is unreasonably withheld. A court application takes time and a closing date does not wait for it, so the request for consent should reach the landlord early.

Share sales and unpaid rent

In a share sale the tenant company does not change, so there is no assignment, although the lease’s own wording decides whether a change in the tenant’s ownership needs the landlord’s consent. The Act also gives a landlord a right of distress for unpaid rent and says no agreement between the parties is needed for that right. A buyer should confirm rent is current before closing.

Where the term is short or open-ended

BDC’s guidance for sellers includes reviewing contracts and leases and updating them if needed. If there is no fixed term at all, our page on month-to-month tenancies explains why that complicates a sale.