Commercial Leases in Ontario: What Every Business Tenant Must Know

Gross vs. Net Leases

In an NNN lease, your actual monthly cost can be 30–50% higher than the advertised base rent once TMI (taxes, maintenance, insurance) is added. Always ask for a breakdown of estimated TMI before signing.

Key Clauses to Negotiate

• Exclusivity clause: Prevents the landlord from leasing to a direct competitor in the same plaza or building. Essential for service businesses and retailers.
• Permitted use: Should be broad enough to cover your full business operations, including any likely expansions. A narrow permitted use can void your lease if your business evolves.
• Leasehold improvements: Who pays for the build-out? Negotiate a tenant improvement (TI) allowance from the landlord. Clarify who owns improvements at the end of the lease.
• Assignment and subletting: Standard leases require landlord consent. Negotiate that consent cannot be unreasonably withheld — critical if you ever want to sell your business.
• Renewal options: Secure the right (not obligation) to renew for 1–2 additional terms at a predetermined rent or formula. Options must be exercised in writing by the deadline (typically 6–12 months before expiry).
• Demolition / redevelopment clause: Some leases allow the landlord to terminate on 6 months' notice if they plan to demolish or redevelop. Push for adequate notice and relocation compensation, or remove this clause entirely.

Personal Guarantees

Landlords routinely require the owner(s) of the business to personally guarantee the lease. This means if the corporation defaults, the landlord can sue you personally. Key negotiation points:

• Cap the guarantee — limit it to the first 12–24 months of rent, not the full lease term
• Request a good-guy clause — you are released from future obligations if you vacate and return possession on time
• Request the guarantee burn off after a period of on-time payments
• If you have a co-founder, negotiate that guarantors are joint and several — then seek contribution from your co-guarantors if you are the one who pays

When the Landlord Breaches the Lease

Common landlord breaches include failing to maintain the building, changing common area access, or cutting off utilities. Your options:

• Send a written notice demanding remedy within a specified period (typically 10–30 days)
• Exercise a right of set-off against rent if the lease allows it (or if a court orders it)
• Apply for an injunction or commence an action in Superior Court for damages
• In extreme cases, repudiate the lease if the breach goes to the root of the contract

Unlike residential tenants, commercial tenants generally do not have a dedicated tribunal — disputes go to Superior Court, making early legal advice essential.