Lease assignment
A lease assignment transfers a commercial lease from the seller to the buyer, so the buyer takes over the existing lease on its existing terms. Almost every commercial lease requires the landlord’s consent to assign, which makes the landlord an unavoidable third party in the transaction.
For a restaurant, a retail store or a service business tied to its location, the lease is much of what is being bought. A five-year term with renewal options at a below-market rent is a genuine asset; a lease expiring in eight months with no renewal is a problem the purchase price has to reflect.
What a landlord will typically ask for
- Financial statements and a credit check on the buyer
- A personal guarantee, often regardless of what the seller gave
- An assignment fee and reimbursement of the landlord’s legal costs
- Confirmation of permitted use, particularly if the buyer plans to change it
- Sometimes an increased deposit, or amendments to the lease as the price of consent
Consent is not unlimited
Many commercial leases provide that consent is not to be unreasonably withheld, though a lease can expressly say otherwise. Even where the standard applies, "reasonable" gives a landlord real room, and disputing it takes time a deal usually does not have. Approaching the landlord early is worth far more than being right later.
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Canada Revenue AgencyGovernmentSelling a business
- 02Treadstone LawLegal commentaryGetting Landlord Consent to Assign a Commercial Lease in an Ontario Business Sale
- 03Treadstone LawLegal commentaryLease Red Flags to Watch For Before Buying a Business in Ontario
- 04Treadstone LawLegal commentaryGetting Released From a Personal Guarantee on Lease Assignment in Ontario
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