How do commercial lease agreements work in Ontario?

Tenancies come in two varieties: residential and commercial. As a result, there are various institutions and laws that deal with every aspect of renting. The person who rents out a piece of property is referred to as the lessee or tenant, and the owner is referred to as the lessor or landlord. Leasing could be:

  • A periodic agreement is one that is automatically renewed on a monthly or weekly basis and is terminated at the discretion of the parties.
  • A fixed-term agreement, on the other hand, is one of these two: for a specific period of time (the “term”), and end when the term expires; conditional, i.e. last until some specified event occurs, such as the death of a specific individual; or at will, i.e. last only as long as the parties wish it to.

You have the option to sign a commercial lease with the landlord if you rent space for your company. A lease is a written agreement that ensures that both the landlord and the tenant are aware of their respective rights and obligations with regard to the rental.

Since every business is unique, there is no standard commercial lease; however, most commercial leases should include the following:

  • the rent amount, including rules for rent increases and notice requirements
  • the deposit amount
  • insurance requirements
  • repair and maintenance obligations
  • rules about how to renew or end the lease
  • the length and type of tenancy (month-to-month or fixed-term)
  • other business details that have been negotiated between the landlord and the tenant

The lessor always has the better right to enforce all the legal clauses and restrictions governing the use of the commercial property because ownership is still retained by that party. Normally, the contract outlines all of these terms and conditions in full and, ideally, clear language. The ability to sublet or assign the lease, or to transfer control to a third party, is a crucial right that the lessee may or may not be granted.

The Commercial Tenancies Act (CTA)

The relationship, rights, and obligations between commercial landlords and tenants are outlined in Ontario’s Commercial Tenancies Act (the Act). Landlords and tenants with residential properties are exempt from this law. Only commercial tenancies are applicable. Please contact a licenced paralegal at KPA Lawyers if you have any residential landlord/tenant issues.

It is highly advised that you seek legal counsel to help you understand how the CTA applies to your unique situation, whether you are a commercial tenant, subtenant, or landlord. KPA Lawyers can assist.

It’s critical to understand that a written lease agreement might supersede the CTA. In most cases, a lease agreement outlines the precise responsibilities of both commercial landlords and tenants, including those related to rent, upkeep, operating expenses, leasehold improvements, and other issues. The majority of leases contain terms and conditions that outline each party’s obligations, so landlords and tenants should both read their lease agreements carefully.

Turnkey improvements and leasehold improvements

These are modifications made to a rented commercial space to make it functional for your company. Any improvements that are affixed to the building, unless otherwise stated in the lease, typically become the property of the landlord, meaning you cannot take them with you when you move out. Equipment, flooring, and built-in shelving are some examples. To seek exclusions for assets that you want to take with you when you move, seek legal counsel from a commercial real estate attorney when negotiating a lease.

If you ever need a short-term loan to pay for renovations to a leased space, you can always apply for a leasehold improvement loan. These loans are typically amortised over five or six years. A principal holiday for the first six to twelve months of the loan may occasionally be negotiated. A bank might accept the improvement as collateral for the loan depending on its value, which could result in a lower interest rate than an unsecured loan.

Ending a commercial lease

In a “month-to-month” lease, one party must give written notice to the other at least one month in advance. The last day of the month would mark the end of the tenancy.

You must give your landlord written notice no later than October 31 if, for instance, you intend to break your lease on November 30.

A fixed-term lease can be ended with no prior notice. On the date specified in the lease, the tenant must vacate the rental space. Before the lease expires, the parties should take action to renew or modify it if they wish to continue the tenancy agreement.

If a tenant wants to end a fixed-term lease early, they must pay the rent for the balance of the lease term, unless the lease contains a provision that permits an early termination. Unless the lease expressly forbids it, tenants may sublet or assign the lease.

A fixed-term tenant may be charged a penalty of two months’ rent for each month they stay on the property after the landlord has asked them to vacate, in addition to any other costs that may apply.

The landlord has the option to apply to the Ontario Superior Court of Justice for a writ of possession in addition to imposing a financial penalty (eviction order).

Rules for terminating a tenancy may also be included in a commercial lease. Even though they differ from the CTA, these regulations must be followed. For instance, unless they have negotiated terms that allow them to terminate their tenancy early, tenants must pay the rent for the duration of the lease agreement.

If a tenant violates any of the terms of the lease, the lease may state that they are subject to eviction. The landlord is required to give the tenant

  • notice of the breach
  • a reasonable period of time to remedy the breach

The landlord may change the locks if the tenant doesn’t remedy the breach.


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