The residential rules many people know offer little guidance in a commercial lease. Ontario’s Residential Tenancies Act does not apply. Rent can be whatever the parties agree, and there is no standard form the landlord must use. For the most part, the document you sign is your protection, and if a right isn’t in it, you may not have it.
That makes the weeks before signing unusually valuable. A landlord who wants your business may agree to changes during negotiation that would be impossible to get later. Once you have moved in, installed equipment and printed your address on everything, you have much less leverage.
This checklist is general information for Ontario tenants and isn’t legal advice. Every lease is different, and a clause that’s harmless in a short plaza lease can be serious in a ten-year industrial one.
Before You Sign the Offer to Lease
Most deals start with an offer to lease or letter of intent, and many tenants treat it as a preliminary formality. Be careful: it may be binding once accepted, and it often sets the commercial terms that the longer lease then repeats. Raise the issues below at this stage, not after.
- Are you signing through a corporation, and has it been incorporated?
- Is the agreement conditional on your review of the full lease, on financing, and on confirming permitted use?
- Have you seen the landlord’s standard lease form?
- Is the deposit refundable if your conditions are not satisfied?
- Is any broker commission clearly the landlord’s responsibility?
Work Out the Real Monthly Cost
Advertised rates are often quoted per square foot per year, and most commercial leases are net, meaning the tenant pays additional rent on top. A hypothetical 2,000-square-foot unit at $22 per square foot is $44,000 per year of base rent, about $3,667 a month. If additional rent runs at $12 per square foot, that adds $24,000 per year, so the monthly figure is about $5,667 before HST and utilities. The advertised rate understated the cost by more than half again.
Ask for the following:
- Actual operating costs and property taxes for the last two or three years
- A written list of what operating costs include and exclude
- How your proportionate share is calculated, and how the building’s area is measured
- Whether administration or management fees are charged on top
- Whether capital repairs, such as a roof replacement, can be passed through to tenants
- Your right to review the landlord’s year-end reconciliation and records
- Any limit on annual increases in controllable costs
Year-end adjustments catch many tenants by surprise. The landlord estimates costs monthly, reconciles after year-end, and may send a bill for the shortfall. Budget for it.
Confirm You Can Legally Operate There
A lease permitting your use doesn’t mean the City does. Brampton’s zoning by-law controls what can happen on each property, and the use clause in the lease may be narrower still. Restaurants, places of worship, auto repair, training schools, and warehouses storing certain materials may each raise specific questions. Parking requirements can also matter.
- Confirm zoning with the City of Brampton before you waive conditions
- Check whether a licence, building permit, or change of use permit is needed
- Make the use clause broad enough for your current business and reasonable growth
- Ask about exclusivity, so the landlord will not rent to a direct competitor in the same plaza
- Check whether existing tenants hold exclusives that restrict what you can sell
A retail tenant selling phone accessories might find a neighbour holds an exclusive on them. It’s far better to find out now.
Get the Term and Renewal Right
Term length is a balancing act. A short term limits your exposure if the business struggles, but you could lose your location just after building up a clientele. Often the best position is a modest initial term with options to renew.
- When does rent start, and is there a rent-free fixturing period?
- If the landlord’s work is late, does the start date move, and can you walk away?
- Is the renewal right written clearly, with the number and length of options?
- How is renewal rent set? “To be agreed” with no fallback may not be enforceable
- Does the lease provide arbitration or a formula for rent if the parties can’t agree?
- What is the notice window? Mark it down
Renewal deadlines are commonly strict. Courts in Ontario have limited powers to help a tenant who misses a notice date, and you shouldn’t count on them. Put the date in more than one calendar.
Understand Who Fixes What
Don’t accept the phrase “as is” until you know what it covers. HVAC units are a classic flashpoint in Brampton plazas and industrial condos, where a tenant may be responsible for maintaining and even replacing a unit that was already old on move-in.
- Have HVAC, electrical, plumbing and the roof inspected before signing
- Is HVAC replacement a tenant cost, or only routine maintenance?
- Does the landlord have to complete any work, and is there a written specification?
- What must be removed at the end of the term, and must you restore the unit to its original condition?
- Does the landlord own any leasehold improvements you pay for?
- What happens to the lease and to rent if a fire or flood damages the unit?
Take dated photographs at move-in. You may want them years later, when the landlord claims damage to the unit.
Protect Your Way Out
Businesses get sold, and others outgrow their space or close. Your assignment and subletting clause decides how hard those moments will be.
Ontario’s Commercial Tenancies Act provides, unless the lease says otherwise, that a landlord’s consent to assignment or subletting cannot be unreasonably withheld. Leases often modify the position with their own process and conditions.
- Does the landlord have a recapture right, meaning it can cancel the lease and take back the space when you ask to assign?
- Does a sale of your company’s shares count as an assignment requiring consent?
- Are you released after assignment, or do you remain liable for the rest of the term?
- Can you assign to an affiliated company without consent?
- Is there an early termination right, perhaps after a stated year on payment of a fee?
If you intend to sell the business one day, a buyer will read this clause carefully, and a restrictive one can reduce what your business is worth.
Limit Personal Guarantees
Landlords of small businesses often require a personal guarantee or indemnity, and many owners sign it without thinking through the consequences. It may make you personally liable for rent for the whole term, potentially years of it, even after the business closes. An indemnity may be drafted to survive a bankruptcy disclaimer of the lease, so the document’s wording counts.
- Could the guarantee be capped to a dollar amount or a set number of months?
- Could it reduce over time, or expire after a clean payment record?
- Does it end on an approved assignment?
- Could a larger deposit or letter of credit replace it?
- Does it continue into renewals you might not control?
Before you agree to anything, ask what you would owe if the store closed in year two, then read the document with that answer in mind.
Know What Default Can Look Like
The remedies available to a commercial landlord can be swift, and they surprise tenants. Rent arrears are the biggest issue. Under the Commercial Tenancies Act, a landlord may generally re-enter where rent is 15 days overdue, and a lease may address this differently. There is no Landlord and Tenant Board hearing first, and locks can be changed. A landlord may also be able to seize certain property on the premises through distress, although it generally can’t both terminate the lease and distrain for the same arrears.
For breaches other than unpaid rent, the Act generally requires written notice and a reasonable time to fix the problem before the landlord can end the lease. Tenants can ask the Superior Court for relief from forfeiture, but it’s a discretionary remedy. It usually means paying what is owed and costs, and courts have limited appetite for tenants who have ignored their obligations.
- How much grace or notice does the lease allow for a late payment?
- Are there cross-default clauses tying this lease to your other obligations?
- Does the lease allow acceleration of several months’ rent on default?
- Does the lease restrict your right to redeem or remove equipment?
- Has your equipment lender been considered, since landlord waivers may be required for financing?
If you ever fall behind, get advice immediately. Options narrow fast, and an early conversation with your landlord or a lawyer is better than finding the door locked. Our business litigation page describes help with disputes that have reached that point.
Other Clauses Worth a Second Look
- Relocation. Can the landlord move you to another unit, and who pays?
- Demolition or redevelopment. Can the landlord end the lease early on notice? This is especially risky if you are spending heavily on fit-out
- Registration. Can you register notice of the lease on title? A long-term tenant may want this to protect its interest against a later purchaser or lender, and landlords often have a form for it
- Subordination and non-disturbance. Will your lease survive if the landlord’s lender enforces its mortgage?
- Signage. What can you put up, and who approves it? City sign rules may also apply
- Access and hours. Can you get in on weekends, and is parking shared?
- Insurance. Do your policies match what the lease demands?
While you still have leverage, a few habits make a real difference. Don’t give notice on your current location until your new lease is signed. Don’t begin renovating before signing. Be clear with your broker on who they work for. Above all, have someone qualified read the lease before you commit, because a clause that’s cheap to change now can be very expensive to live with later.
Our corporate law team reviews and negotiates commercial leases as part of its broader business work, and our Brampton page has local information. Whatever route you choose, read every page, ask questions, and get every promise in writing.