A signed lease looks like a solved problem. It usually isn't — what a diligence file needs is not proof the lease exists, but proof it will still serve the business after the deal closes, and a clear read on who is still on the hook if it doesn't.
Key takeaways
A diligence file usually treats the lease as a single line item: exists, term remaining, rent. That flattens two separable questions into one. The first is whether the lease can legally move with the deal — consent, guarantee, estoppel, the mechanics of assignment. The second is whether the premises will still make commercial sense for as long as the growth thesis assumes the business stays there. A lease can clear the first test cleanly and still fail the second if the renewal runway is shorter than the hold period, or if nobody is tracking the date that keeps it alive.
Assigning the lease to an acquisition entity is not automatic, and a landlord's conditions are usually enforceable even where the lease says consent “shall not be unreasonably withheld.” Landlords commonly ask for “statements or other proof that the buyer (or the buyer's principals) can meet the rent and other lease obligations going forward,” and, “particularly common where the buyer is a newer or thinly capitalized company, a landlord may ask for a guarantee from the buyer's principals personally.” A freshly incorporated acquisition vehicle with no trading history is exactly the profile that triggers that request — expect it, and decide in advance whether the fund, the operating partner, or the target's own new balance sheet stands behind it.
The landlord will also generally want an estoppel certificate from the seller: “A written confirmation that the lease is in good standing, with no outstanding defaults, rent arrears, or side agreements the landlord hasn't already accounted for.” It will also want confirmation the buyer's intended use still matches what the lease permits, and reimbursement of its own review costs, since “many leases entitle the landlord to recover its reasonable administrative or legal costs for reviewing and documenting a consent.” None of this is exotic, but all of it takes calendar time the landlord doesn't have to compress — the same source's advice is blunt: “approach the landlord early — negotiating consent terms can take real time, and a business sale timeline shouldn't assume it will be quick.”
Where the departing owner personally guaranteed the lease, closing the sale does not, on its own, close that exposure. “Unless the guarantee itself, or a separate release document, says the guarantor is discharged upon assignment, the guarantee typically continues to bind the guarantor for the obligations it covers,” because “a personal guarantee is a contract between the guarantor and the landlord, separate from the lease itself.” The landlord bargained for that personal backstop and has no reason to give it up for free. Ending it requires the landlord's active agreement — a negotiated release as a condition of consent, a replacement guarantee the landlord accepts, or a release mechanism already built into the original document. Where none of those is in the file, the seller stays exposed to the NewCo's future rent defaults long after the purchase price has changed hands, which matters commercially whenever the deal keeps the seller close to the business — an earn-out, a consulting agreement, or continued equity.
The five-year question is really a question about how much real term is left, not how much term is printed on the lease. “Unlike residential tenancies, commercial leases have no statutory minimum or maximum term and no automatic right of renewal,” and a renewal option is a right that has to be exercised on time or it disappears: “a renewal option is not automatic: you must exercise it correctly or it lapses.” The window is usually narrow — “the tenant must provide written notice of exercise within a specified window — often 6 to 12 months before the expiry of the then-current term. Missing this window is the most common and most costly mistake tenants make.” Missing it does not just lose a discount; it can lose the location on the landlord's terms: “the tenant loses the protection of a fixed term — depending on which terms apply, the landlord may be able to require you to vacate on far less notice than the original lease gave you.” For a fund underwriting a five-year hold, that clock does not stop at closing — it becomes a first-100-days ownership item, not a legal-diligence checkbox that gets closed with the deal.
Premises risk is also sector-shaped, not generic. Among deavo's per-sector diligence snags, hospitality's is “lease and licence transfer” and retail's is “lease assignment”, and the site's general first-time-buyer checklist puts “Lease terms, including remaining length, renewal options, and any change-of-control clauses” inside operational and legal diligence, not financial diligence — a reminder that this work sits alongside the numbers, not after them. It also belongs next to a physical walk of the premises, since a lease clause and a leaking roof are two different diagnoses for the same location risk, and next to a read on how the business actually wins its work, since a location-dependent revenue model raises the cost of losing the address.
What to pull before the LOI firms up
The actual term remaining, plus every renewal option and its notice window — not the headline “X years on the lease.”
Who is diarizing the renewal notice date today, and who will own that calendar entry after close.
The assignment and change-of-control language, read against the specific acquisition structure (share deal vs. asset deal changes which clause fires).
Whether the seller's personal guarantee is addressed anywhere in the purchase agreement — release, indemnity, or knowingly left open.
A current estoppel certificate request, filed with the landlord early enough to matter.
A target has 36 months left on its current lease term, with one five-year renewal option carrying a nine-month notice window. That puts the deadline to exercise at month 27 of the current term — roughly 27 months after closing if the deal signs today. The purchase agreement is silent on who tracks that date; the seller's outgoing bookkeeper had it on a personal calendar that leaves the business with the seller. Left there, the option can lapse quietly, at which point the growth thesis built on this specific location is no longer resting on a contracted right — it is resting on whatever the landlord is willing to offer once the fixed term runs out, on terms the fund does not control.
Separately, the seller personally guaranteed the original lease eleven years ago and is staying on as a paid advisor for twelve months after closing under the deal's transition terms. The landlord's consent letter, once obtained, covers three conditions — financial proof from the acquisition entity, a guarantee from its principal, and a current estoppel certificate — but says nothing about releasing the seller's original guarantee. On the guarantor page's own terms, that guarantee “typically continues to bind the guarantor” until the landlord actively agrees otherwise. Flagging that gap before signing, and either negotiating the release or pricing an indemnity for it, is materially cheaper than discovering it after the seller's advisory term ends and the relationship with the landlord has moved on.
Not automatically. “Unless the guarantee itself, or a separate release document, says the guarantor is discharged upon assignment, the guarantee typically continues to bind the guarantor for the obligations it covers.” A release has to be negotiated as a term of the landlord's consent, or the seller stays exposed to the buyer's future rent defaults.
Financial proof the incoming entity can carry the rent, often a personal guarantee where that entity is newly formed, an estoppel certificate confirming the lease is in good standing, confirmation the intended use still matches the lease, and reimbursement of its own review costs. Whether a specific ask goes beyond “reasonable” still depends on the exact lease wording, which is why the lease itself — not the general rule — is the first document to read.
Only the term plus whichever renewal options are both still exercisable and being actively tracked — not the nominal years printed in the lease summary. A renewal option with a missed notice window is worth nothing, regardless of how much term the original document appears to offer.
Nobody publishes Canadian transaction data, so every valuation in this country quotes an American benchmark. We are building the Canadian one — multiples, asking-to-sale spreads and days on market, by sector and by city. Leave an email and you will see it first.
No pitch, no listings. One email when the first report lands.
