What is the holdover tenancy risk when buying a business?

If you buy a business that depends on its location, you are also buying its right to stay there. A holdover tenancy puts that right in question: the lease term has ended, but the business is still operating in the premises. This page covers Ontario. Other provinces run their own commercial tenancy regimes, so ask a lawyer licensed in the province where the premises are.

What the lease and the Act say

Ontario’s commercial renting guidance says the Commercial Tenancies Act sets out landlord and tenant rights, and that a signed commercial lease may take precedence over it. The Ontario Court of Appeal, in Orion Interiors v. State Farm, 2016 ONCA 164, applied s. 14.03 of one lease to hold that the tenant was an overholding tenant remaining subject to the terms, covenants and conditions in the lease. So the lease’s own overholding clause is the first thing to read.

Notice and penalties

The Ontario government says a month-to-month tenancy needs written notice at least one month in advance, ending on the last day of a month. It also says a fixed-term tenant who stays after the landlord has asked them to leave may face a rent penalty for every month they remain, plus costs. Which of these applies to the seller depends on the lease and on what the landlord has done since it ended.

Assignment to you

The same guidance says tenants can sublet or assign unless the lease prohibits it. Where a lease requires the landlord’s consent, s. 23 of the Act, headed “licence to assign not to be unreasonably withheld”, applies unless the lease contains an express provision to the contrary. Where the landlord refuses or neglects to consent, a judge of the Superior Court of Justice, on the application of the tenant, assignee or sub-tenant, may determine whether consent was unreasonably withheld. Ask whether the landlord will grant you a new lease or a written extension, and consider making that a condition of closing. See what happens on closing day.