Assigning or Subletting a Commercial Lease in Ontario

Commercial tenants looking to exit a space, sell a business, or free up excess square footage generally have two main options short of simply walking away: assigning the lease, or subletting part or all of the space. The two are often used loosely in conversation, but they work quite differently, and a lease will typically address them as separate concepts with separate consent requirements.

An assignment transfers the tenant’s entire interest in the lease to a new tenant, who effectively steps into the original tenant’s shoes and deals directly with the landlord for the remainder of the term. A sublease, by contrast, has the original tenant lease all or part of the space to a subtenant while remaining the tenant under the original lease — the original tenant is now effectively a landlord to the subtenant, while still answering to the actual landlord under the head lease.

This distinction matters because it affects who owes what to whom. Under a sublease, the subtenant generally pays rent to the original tenant, not the landlord, and the original tenant remains fully responsible for the head lease regardless of whether the subtenant pays on time. Under an assignment, the new tenant typically deals with the landlord directly going forward, though — as covered below — the original tenant doesn’t always get off the hook simply because the lease has been assigned.

Which option makes more sense in a given situation often depends on how much long-term exposure the original tenant is willing to keep. A tenant planning to exit the space permanently, such as one selling the business outright, will usually look to assign the lease outright. A tenant that only has excess square footage to fill temporarily, or that expects to need the space again later, may prefer a sublease, which keeps the original lease intact and gives the tenant more direct control if the arrangement with the subtenant doesn’t work out as planned.

Almost every commercial lease requires the landlord’s prior written consent before the tenant can assign the lease or sublet the space. This is one of the areas where commercial leasing differs most significantly from residential tenancy law in Ontario. The Residential Tenancies Act generally requires a residential landlord not to unreasonably withhold consent to an assignment, but no equivalent statutory standard automatically applies to commercial leases.

Instead, whether a commercial landlord has to act reasonably comes down entirely to what the lease itself says. Some commercial leases do include a reasonableness standard, requiring the landlord not to unreasonably withhold or delay consent. Others are drafted to give the landlord much broader latitude, and still others give the landlord outright discretion over the decision. This makes the specific wording of the consent clause one of the most important things to review, whether you’re the one seeking to transfer the lease or trying to understand what flexibility a space actually offers before signing.

Commercial leases can validly include language giving the landlord “sole discretion” or “absolute discretion” over whether to consent to an assignment or sublease. Courts have generally recognized that commercial parties are free to negotiate this kind of term, and where a lease clearly grants that level of discretion, a landlord can often refuse consent without needing to justify the refusal on reasonableness grounds — a sharp contrast to the reasonableness standard that governs residential tenancies.

This doesn’t mean a landlord’s discretion is always entirely unconstrained in every circumstance — general principles like good faith in the performance of contracts can still be relevant, and the specific wording of the clause always matters. But as a general matter, a tenant should not assume a commercial landlord has to behave the way a residential landlord would when evaluating a proposed assignment, which is exactly why this clause deserves close attention during lease negotiation, not just at the point a transfer becomes necessary.

Many commercial leases include a change-of-control clause, treating certain changes in the ownership or control of the tenant entity as equivalent to an assignment, even though the lease itself never formally changes hands. This typically applies when a majority of the shares in a corporate tenant are sold or transferred, or when voting control of the tenant otherwise changes, triggering the same consent requirements that would apply to a direct assignment of the lease.

The purpose of this clause is to prevent a business sale from being structured purely as a share sale specifically to avoid the landlord’s consent rights over an assignment. Where a lease includes this kind of clause, a tenant planning a sale of the business — even one structured as a sale of shares rather than a sale of assets — generally still needs to account for the landlord’s consent requirements as part of the transaction, which can affect timing and deal structure if it isn’t anticipated early.

A common misconception is that assigning a lease ends the original tenant’s obligations under it. In most cases, that isn’t automatically true. Unless the landlord specifically agrees in writing to release the original tenant, many commercial leases provide that the original tenant remains liable for the new tenant’s performance of the lease for the balance of the term — meaning if the new tenant later defaults, the landlord may still be able to pursue the original tenant for the shortfall.

This is particularly significant where the original tenant also signed a personal guarantee for the lease, since that guarantee generally doesn’t automatically end with an assignment either. Negotiating an explicit release from the landlord as a condition of consenting to an assignment — rather than assuming the transfer alone ends the original tenant’s exposure — is a meaningful protection worth pursuing wherever possible.

Subletting raises a related but distinct issue: because the original tenant remains the landlord’s tenant under a sublease, it stays fully responsible for the head lease regardless of how reliably the subtenant pays. If the subtenant stops paying or vacates, the original tenant is still on the hook to the landlord for the full rent and other obligations under the original lease.

Before attempting to assign or sublet, reviewing the lease’s consent clause closely — including the applicable consent standard, any change-of-control language, fee or profit-sharing provisions, and whether a release of the original tenant is available — is a sensible starting point. Understanding these terms in advance avoids discovering a restrictive clause partway through a business sale or space transfer, when the pressure to close quickly is at its highest.

It’s also worth building in realistic time for the consent process itself, since landlords often request financial information, a statement of intended use, and sometimes a new personal guarantee before approving a proposed assignee or subtenant. Our overview of the commercial lease agreement and our hub page on commercial leases in Ontario cover related terms worth understanding alongside the assignment clause. Where a transfer becomes contentious, our guide to commercial lease disputes looks at how these disagreements are generally approached.