Commercial Leasing
In Ontario, commercial leases are contracts, not standardized forms. There is no government template, and the Commercial Tenancies Act leaves most of the important decisions to whatever the landlord and tenant actually agree to in writing.
Unlike a residential tenant, a commercial tenant has no automatic protection against rent increases, no automatic right to renew, and very few terms the law will fill in for you.
That means the words in your lease do almost all of the work. Below are the terms that matter most, and what can go wrong when they are ignored.
For a commercial lease to be enforceable in Ontario, five things need to be clear:
If any of these five is genuinely unclear, a court can find that no binding lease was ever formed.
Ontario’s Statute of Frauds also generally requires a commercial lease to be in writing. Unlike a residential lease, there is no mandatory form. A lease can be made up of a signed agreement, correspondence, or a combination of documents, as long as the essential terms are clear. A short-term lease, three years or less, at close to full market rent, is exempt from the writing requirement, but relying on that exemption is a risky substitute for putting the deal in writing.
A lease can be legally valid and still be a poor fit for the business signing it. The right question is not only whether the agreement identifies the premises, term and rent. It is whether the lease gives your business enough certainty, flexibility and protection to operate successfully over the life of the tenancy.
That depends on the business itself. A restaurant may care most about permitted use, exclusivity, construction obligations and demolition rights. A professional practice may focus on renewal options, assignment rights and the ability to sell the company. A retailer may be especially concerned with operating costs, signage, customer access and the surrounding tenant mix.
The terms below are where those practical concerns usually appear.
Suppose you find a commercial space for $7,000 per month. You build your budget around $84,000 per year and decide the numbers work.
Then the additional rent starts arriving.
Many commercial leases, particularly net or triple-net leases, require the tenant to pay more than basic rent. Depending on the lease, additional rent can include:
That does not necessarily make the lease unfair. These structures are common. The problem arises when the agreement gives you very little ability to predict or verify what those additional costs will actually be.
Before signing, look at how operating costs are defined. What is expressly included? What is excluded? Can the landlord charge capital improvements to tenants? Can it add an administrative or management fee? How is your proportionate share calculated? Are costs reconciled annually? Do you have a right to see supporting records? These details can materially change the economics of the lease.
Most commercial leases include a “permitted use” clause specifying what the tenant may do in the premises. A narrow clause might permit only “the operation of a physiotherapy clinic,” while a broader clause might allow “the operation of a health, wellness, and rehabilitation business and all related or ancillary uses”. Those two clauses could produce very different outcomes as the business grows. If the physiotherapy clinic later adds massage therapy, athletic rehabilitation or wellness products, for example, a narrow use clause could turn an ordinary business expansion into a lease issue. The same concern applies if a café expands into catering, a retailer adds e-commerce fulfillment or a professional practice introduces another service line.
Before signing a long-term commercial lease, it is crucial that you ensure the permitted use clause in the agreement reflects not only what your business does today, but also what it might reasonably do 3, 5, or 10 years from now.
In the case Metro 1 Development Corp. Ltd. v. Michael Garron Hospital, 2024 ONCA 60, the tenant leased space within a hospital, and operated a Tim Hortons restaurant under a lease that specifically required the premises to be used for that purpose. After the Tim Hortons franchise arrangement ended, the tenant continued operating a coffee and food business from the premises under a different brand. The tenant argued that the lease should be interpreted more broadly; arguing that the real purpose of the clause was to permit a coffee shop or similar food-service operation — and therefore the tenant should be allowed to continue to operate under a different brand.
The Ontario Court of Appeal rejected the tenant’s argument. The Court treated the specific Tim Hortons requirement as part of the bargain the parties had negotiated. The tenant could not replace that operation with a different business, and then rely on a broader interpretation the lease did not contain. This case highlights why a “permitted use” clause should be reviewed carefully. A tenant may want enough flexibility to change its branding, add related services, or adapt its business over time. And a landlord may want the certainty of a particular use, brand, or tenant mix. If the clause is too narrowly drafted, the tenant may be unable to make a commercially sensible change.
An exclusivity clause stops your landlord from leasing space elsewhere in the same building or plaza to a business that competes directly with yours. If you run the only coffee shop in a plaza, exclusivity means the landlord can’t later lease the unit next door to another coffee shop.
The value of an exclusivity clause depends entirely on how precisely it’s written. A clause that protects you from “another coffee shop” does little if a bakery moves in and starts selling espresso on the side. The stronger version defines the protected category by what a competitor actually does, not by its name, and lists out the specific products or services covered. Exclusivity also needs to survive changes you don’t control. If the landlord sells the building, or the plaza gets a new anchor tenant, does the clause still bind the new owner? Many exclusivity clauses are personal to the original landlord and quietly disappear in a sale unless the lease says otherwise.
A commercial lease should clearly divide responsibility for maintenance, repair and replacement. Imagine you take over a retail unit with an HVAC system that is already twelve years old. Eighteen months into your tenancy, the system fails completely and requires a $25,000 replacement.
Who pays?
If your lease says you are responsible for “maintaining” the HVAC equipment, you may have thought you were agreeing to filters and routine servicing. If it says you are responsible for maintaining, repairing and replacing the HVAC system, the allocation of risk may be considerably different. A cheap lease can become an expensive one surprisingly quickly if the tenant has quietly accepted responsibility for aging infrastructure.
Founders often negotiate a lease based entirely on the business they are operating today. Five years later, they receive an offer to sell the company.
However, many commercial leases restrict a tenant’s ability to:
A sale of the business does not always involve formally assigning the lease. If the tenant is a corporation, the lease may remain in that corporation’s name while the shareholders sell their shares to a buyer. However, some leases treat a change in ownership or voting control of the tenant corporation as a transfer, which can trigger a requirement to obtain the landlord’s consent.
This can become a significant issue during a sale, because the buyer of a corporation may not want to acquire a business without certainty that it can continue operating from the same premises (particularly where the location is important to the value of the company). The lease should therefore be reviewed early to determine whether the landlord’s consent is required, whether that consent can be withheld, and whether any conditions apply to an assignment or change of control.
A five-year lease with an option to renew for another five years may sound like ten years of security, but renewal options often come with strict conditions.
The commercial lease agreement may require you to give written notice during a specific period, such as nine to twelve months before the lease expires. It may also say that you cannot exercise the option if you are in default, or that the renewal right is available only to the original tenant. If you miss one of those requirements, you may lose the right to renew.
A clause that simply says the landlord and tenant will agree on the new rent later can create a serious problem if they cannot agree. That is what happened in Gallant v. Johnson, 2025 ONCA 419. The lease gave the tenant an option to renew, but said the rent for the renewal period would be “agreed upon” by the parties. When they could not reach an agreement, the Ontario Court of Appeal found that the clause did not provide a workable way to determine the rent.
A better renewal clause should explain how the new rent will be set. For example, it might provide for fair market rent and include an appraisal or arbitration process if the landlord and tenant cannot agree. If your business depends on staying in that particular location, do not assume that the words “option to renew” are enough. Make sure the lease clearly explains how you exercise the option and how the new rent will be determined.
A commercial lease can shape your business for years after it is signed. Having the agreement reviewed before you commit gives you an opportunity to understand the financial exposure, identify provisions worth negotiating and make sure the lease gives your business enough flexibility to grow.
At Align Counsel, we help Ontario founders and growing businesses review and negotiate commercial leases in plain language. Already have a draft lease or offer to lease? We can review the agreement, explain what you are taking on and identify the provisions worth addressing before you sign.
Whether you have a draft lease, an offer to lease or a renewal coming up, we can review the agreement and explain what you’re taking on. The first conversation is on us.
Book a free consultationThe information above is general in nature and is not legal advice. Every situation and transaction is different, and advice tailored to your specific circumstances is required to address your particular needs. If you have questions, contact Align Counsel at [email protected].