Most Ontario business owners learn how their commercial lease works on the day something goes wrong. A roof begins to leak over the inventory in a Bramalea unit. Rent falls two months behind because a big customer has stopped paying. Or a tenant returns on Monday morning to find the locks changed and a notice on the door. Each situation calls for a fast decision, and a wrong step can cost the premises, the deposit, or a lot of money in legal fees.
Commercial tenancies do not work the way residential ones do. There is no Landlord and Tenant Board to hear these disputes, no standard form lease, and no statutory cap on rent. The bargain is largely set out in the lease, read alongside Ontario’s Commercial Tenancies Act and the general law of contract and property. Those sources give both sides real rights, but the rights have to be exercised correctly and at the right time.
This is general information about Ontario commercial leasing, and it is not legal advice. Before you act on a default or stop paying rent, have someone review your actual lease, since its wording usually controls much of what follows.
Start With the Lease and Its Companions
Pull the whole package together: the lease, offer to lease, any amendments, renewal letters, the guarantee, the indemnity, the deposit record, the estoppel certificates, and all notices. Then find the provisions dealing with:
- base rent, additional rent and how common-area costs are calculated;
- who repairs what, particularly the roof, structure, HVAC and parking lot;
- default, cure periods and remedies;
- the landlord’s right to re-enter or to distrain;
- how notices must be delivered, and to which address;
- assignment and subletting;
- any personal guarantee and how long it lasts.
Do not rely on memory or on what the leasing agent said. An entire-agreement clause can exclude earlier promises. And a surprising number of disputes turn out to be about whether the notice went to the right address.
When the Rent Is Not Paid
The Commercial Tenancies Act says that, unless the lease states otherwise, if rent remains unpaid for 15 days after it was due, the landlord may re-enter the premises, and no formal demand is required. Many leases shorten or change this, so read the default clause. Re-entry for unpaid rent can occur without the kind of notice that applies to other breaches.
A landlord facing arrears usually has to choose among several paths, and some of them cannot be combined.
Terminate and re-enter. The landlord ends the lease and takes back the premises. A landlord may then claim arrears and, depending on the lease and steps taken, losses for the unexpired term. It is often done by changing the locks when the premises are vacant, without a confrontation.
Keep the lease going and distrain. Distress is an old remedy that allows a landlord to seize and sell a tenant’s goods on the premises to pay rent arrears. It is available for rent, but not, generally, for other money the lease does not treat as rent, and the premises must not be damaged or entered by force. The Act exempts some goods and sets rules about others, including goods belonging to third parties and leased goods. Under the Act, goods exempt from seizure under execution are generally not liable to distress, with a limit in monthly tenancies. It is highly technical, and a mistake can expose a landlord to liability.
Keep the lease going and sue. The landlord can sue for arrears as they fall due, in Small Claims Court if the amount is within the $50,000 limit, or in the Superior Court.
The important point for landlords is that these remedies can be inconsistent. A landlord who has terminated cannot usually then distrain as though the lease were still alive, and distraining generally affirms the lease. The sequence should be planned before you take any step, especially when a guarantor is involved.
Non-Rent Defaults Need a Notice
A breach other than the non-payment of rent is treated differently. Examples include operating an unauthorized use, failing to maintain insurance, or doing unauthorized renovations. Under section 19(2), a right of re-entry or forfeiture for a breach of that kind is not enforceable unless the landlord serves a notice that identifies the particular breach, requires the tenant to remedy it if it can be remedied, and requires compensation in money. The tenant must then have failed, within a reasonable time, to remedy it and to compensate the landlord.
Landlords who skip this step risk wrongful termination, which can leave them owing damages to the tenant. Tenants who receive this kind of notice should respond in writing right away, and fix the problem or explain why there is no breach. “Reasonable time” depends on the facts, so ignoring the notice while you decide is risky.
Repairs and Leaks: Who Pays?
Commercial tenants often assume that a landlord has to keep the building in good repair. There is no general rule to that effect. The lease allocates that responsibility, and in many “net” leases, a tenant pays for much of it, directly or through additional rent. It is common to see a landlord responsible for the structure and roof, while the tenant is responsible for the interior and sometimes the HVAC, but no two leases are necessarily alike.
If you are a tenant with a repair problem, try the following approach:
- Check the repair clause and the definition of the premises.
- Report the issue in writing, in the way the notice clause requires. A phone call to the property manager may not count.
- Take dated photos and video, and keep a record of any damage to stock or equipment.
- Tell your insurer, as you may be covered, and there may be time limits.
- Get quotes before doing substantial work yourself, particularly where the lease requires consent.
- Keep paying rent until you have had legal advice.
That last point deserves emphasis. In a commercial lease, a tenant’s duty to pay rent is often independent of the landlord’s repair obligations, and many leases expressly prohibit set-off. Stopping rent because a roof leaks can put you in default even if the landlord is also in breach, giving the landlord the upper hand. The Act contains a right to set off a debt owed by the landlord against rent, but a lease can affect how far that applies, and an unliquidated claim for damage may not qualify. Get advice before you deduct anything.
A landlord who is responsible for a repair, or who substantially interferes with the tenant’s use of the premises, may be liable for damages. In serious cases, the tenant may have an argument that the lease is at an end, but walking away is a high-risk step and should never be done casually.
Getting Back Into the Premises: Relief From Forfeiture
Suppose a tenant comes back to find the locks have been changed for unpaid rent. It is not always over. Section 20 of the Commercial Tenancies Act allows a tenant to apply to the court for relief against re-entry or forfeiture, whether for non-payment of rent or for another cause. The court can grant relief on terms it considers appropriate, such as payment of the arrears, costs and interest, or it can refuse.
Courts often look at the tenant’s conduct, how serious the breach was, whether the landlord has already re-leased the premises, and whether the tenant has come to court promptly and is able to pay what is owed. There are limits and no guarantee of success, but speed matters. A tenant who waits two months while the landlord is signing a new tenant may have lost the practical chance of getting back in.
A subtenant may have separate rights to ask the court for an order preserving their interest under section 21.
For landlords, the existence of relief is a reason to document everything carefully and to avoid quickly re-leasing without considering the tenant’s possible response, or the alternative of an agreement.
Abandonment and the Unexpired Term
Some tenants simply leave, especially a struggling business in the middle of a long lease. A landlord then has options set out by the Supreme Court of Canada in Highway Properties Ltd. v. Kelly, Douglas & Co., [1971] S.C.R. 562. A landlord generally may do nothing and insist on the lease, or accept the tenant’s surrender and end it, or re-let on the tenant’s account, or terminate and sue for damages for the lost benefit of the lease, if proper notice of that claim is given at the time. Each approach has different consequences, and courts may treat the duty to reduce losses differently depending on which one is chosen. Do not assume a lease ends simply because the tenant handed the keys over.
If the tenant becomes bankrupt or a formal insolvency proceeding begins, other rules apply. The Commercial Tenancies Act limits the landlord’s preferred claim for rent, generally to three months of arrears and three months after the assignment, along with occupation rent while the trustee stays. A guarantee could become the landlord’s most valuable asset.
Guarantees, Deposits and Personal Exposure
Many Brampton business owners sign personally without really registering it. A guarantee or indemnity can leave you responsible for rent long after the corporation has stopped operating, and the form of the document may decide whether a later lease renewal or amendment changes your liability. Do not assume incorporating has protected you.
Deposits raise their own questions, too. Find out whether a deposit is to be applied to the last month’s rent, can be used to cover arrears, must be topped up, or is to be returned at the end, and how a sale of the building affects it.
Before It Turns Into a Lawsuit
Not all disputes need to go to court. Many commercial disputes can be solved by a practical agreement, such as a rent deferral with a written acknowledgement, a surrender agreement with a mutual release, or a negotiated assignment to a new tenant. Where you need more room for time, a proper written amendment is far better than a verbal promise from a property manager.
Keep your position strong while you negotiate. Landlords should be careful about accepting a late payment after a default notice without a clear reservation of rights, because accepting rent can affect the right to terminate. Tenants should not rely on informal concessions, and should get any changes put in writing, signed by the right person.
If a claim does start, an action may be brought in the Superior Court of Justice at 7755 Hurontario Street, or in Small Claims Court for a money claim within the limit. Limitation periods also apply, generally two years. Our contractual litigation page describes this type of dispute more generally. For disputes tied closely to a company’s operations, see business litigation.
Three Quick Rules
If you are reading this because something has just happened, these will help in the first day or two:
- Tenants: do not stop paying or leave the premises without advice. If you have been locked out, get help the same day and bring the arrears figure.
- Landlords: do not change the locks, seize goods or send a final notice until you have decided which remedy you are choosing, and have read the lease’s notice rules.
- Everyone: write it down, keep the emails, take dated photos, and get any deal in writing.
To talk through a lease dispute, contact Sawan Law House LLP and have the lease and your most recent notice ready. Being able to see the exact wording makes the advice far more useful.