A commercial sublease is an agreement where an existing tenant (the sublandlord) grants a third party (the subtenant) the right to occupy leased premises for a term shorter than the balance of the head lease, while the head lease stays in force. In Ontario, a commercial sublease almost always needs the landlord's written consent, and the subtenant's right to occupy is entirely derivative of the head lease.
For Ontario businesses, subleasing is one of the most common ways to deal with surplus space, take flexible short-term premises, or exit a long lease early without surrendering it. The document looks like a simple back-to-back of the head lease. The legal reality is not. A commercial sublease sits on top of an existing contract that the sublandlord does not control, and if that head lease falters, the sublease can fall with it.
This guide walks through the legal framework for commercial subletting in Ontario: landlord-consent requirements and the rule against unreasonable withholding, the difference between a sublease and an assignment and why it matters, privity of estate and privity of contract, how head-lease obligations flow down to the subtenant, what makes a sublease enforceable, the remedies available when the head lease is terminated, and the drafting traps that catch both sides. A commercial sublease is governed by contract law, the head lease itself, and the Commercial Tenancies Act, RSO 1990, c L.7, not by residential tenancy rules. The distinction matters from the first clause.
Sublease vs Assignment: The Distinction That Drives Everything
The most consequential question at the outset of any deal to transfer space is whether the transaction is a sublease or an assignment. The sublease vs assignment distinction changes who is liable to whom, who can enforce against whom, and what survives if things go wrong. The label on the document does not settle it. The legal substance does.
What Is a Sublease?
In a sublease, the tenant grants occupancy for a term that is shorter than the balance of its own head lease, keeping a reversion (the right to have the premises back). Even a reversion of a single day is enough to make the transaction a sublease rather than an assignment. A sublease creates a brand-new landlord-tenant relationship between the sublandlord and the subtenant. Critically, the original tenant stays in the picture and stays liable to the head landlord for rent and every other covenant in the head lease.
What Is an Assignment?
In an assignment, the tenant transfers its entire remaining interest in the lease. The assignee steps directly into the tenant's shoes for the rest of the term. There is no reversion left with the assigning tenant. Where a sublease would create a second tier of landlord and tenant, an assignment simply substitutes one tenant for another in the existing relationship with the head landlord.
Why the Characterisation Matters
A purported "sublease" that grants the entire remaining term, with no reversion, can be construed at law as an assignment regardless of what the parties called it. That recharacterisation matters for three practical reasons. First, liability: a subletting tenant stays on the hook to the head landlord, while many leases release nothing on assignment either, so both sides need to know their continuing exposure. Second, enforcement: the chain of who can sue whom depends on whether privity of estate passed. Third, consent: head leases often treat subletting and assignment under different clauses with different conditions, so getting the category wrong can mean breaching the very provision you were trying to satisfy. Both sides should confirm the characterisation in writing before signing.
Privity of Estate and Privity of Contract
Understanding a commercial sublease means understanding two relationships that lawyers call privity of contract and privity of estate. They explain why the head landlord and the subtenant usually have no direct legal line to each other.
Privity of contract is the relationship between parties who signed an agreement. The head landlord and the original tenant share privity of contract under the head lease. That bond does not disappear when the tenant sublets. The original tenant remains contractually liable to the head landlord for rent and all other covenants, even though a subtenant is now paying to occupy the space. This is why a sublandlord who walks away assuming the subtenant has taken over its problems is often unpleasantly surprised.
Privity of estate is the relationship that exists between a landlord and a tenant who hold a direct interest in the same property. In a sublease, privity of estate runs between the sublandlord and the subtenant. It does not run between the head landlord and the subtenant. The practical result is direct: the head landlord generally cannot sue the subtenant on the head-lease covenants, and the subtenant generally cannot enforce head-lease obligations (for example, a repair or services covenant) directly against the head landlord. Each party deals with its own counterpart. If a subtenant wants rights it can enforce against the head landlord, those rights have to be created separately, usually through a non-disturbance or recognition agreement signed by the head landlord.
Landlord Consent for a Commercial Sublease: Requirements and Unreasonable Withholding
Almost every commercial head lease prohibits subletting without the landlord's prior written consent. Subletting without that consent is a breach of the head lease and can trigger forfeiture, so consent is not a formality to leave until closing.
Ontario law supplies an important backstop. Under section 23 of the Commercial Tenancies Act, where a lease contains a covenant against subletting or assigning without consent, that covenant is deemed to be subject to a proviso that consent is not to be unreasonably withheld, unless the lease clearly says otherwise. The same section lets a tenant, assignee, or subtenant apply to the Superior Court of Justice for an order determining whether consent has been unreasonably withheld. So even where the head lease is silent on the standard, the statute imports a reasonableness requirement.
What counts as reasonable turns on the landlord-tenant relationship and the protection of the landlord's interest in the property. Landlords are generally entitled to assess the proposed subtenant's financial strength, the nature and reputation of its business, the proposed use of the premises, and any alterations it intends. A landlord may reasonably refuse a subtenant whose covenant is weak or whose use conflicts with the lease or with other tenants. By contrast, withholding consent to capture a collateral advantage that has nothing to do with the lease, for example forcing a surrender so the landlord can re-let at a higher rent, is generally unreasonable.
Process and cost matter too. Head leases routinely allow the landlord to recover its reasonable legal and administrative costs of reviewing a consent request, and may impose a consent fee. They less often commit the landlord to a deadline. A tenant negotiating a head lease should push for a defined response window and, ideally, a deemed-consent mechanism if the landlord fails to respond, because an open-ended consent process can stall or kill a sublease deal that is otherwise ready to sign.
How Head-Lease Obligations Flow Down to the Subtenant
A subtenant cannot acquire greater rights than the sublandlord holds. The principle is old and absolute: you cannot grant what you do not have. Everything the subtenant receives is carved out of the sublandlord's own interest under the head lease, so every restriction in the head lease shapes the sublease whether or not the sublease repeats it.
For that reason, a well-drafted commercial sublease incorporates the head lease by reference and requires the subtenant to comply with its relevant covenants: permitted use, operating hours, insurance, repair and maintenance, signage, and building rules. The subtenant should read the head lease in full before signing, not just the sublease. A clause in the head lease restricting use, capping hours, or imposing a costly restoration obligation at the end of the term binds the space, and the subtenant will feel it.
The flow-down also creates a risk the subtenant did not create. If the sublandlord defaults on the head lease, for example by failing to pay head rent, the head landlord's remedies are against the premises and the head lease, and the subtenant's occupancy is exposed even though the subtenant did nothing wrong. Two tools help manage this. An estoppel certificate from the head landlord can confirm the head lease is in good standing at the time the sublease is signed. A non-disturbance agreement, where the head landlord agrees not to disturb a paying subtenant if the head lease ends, is the stronger protection, though landlords do not grant it automatically and it has to be negotiated.
What Makes a Commercial Sublease Enforceable
A commercial sublease is a contract and a grant of a leasehold interest, so it needs the essentials of both. To be enforceable in Ontario, a sublease should clearly identify the parties, describe the premises (including whether it is the whole or only part of the head-lease space), state a term that ends before the head lease ends, set out the rent and how it is paid, and specify the permitted use.
Consent is part of enforceability in practice. If the head lease requires the landlord's consent to sublet, that consent must be obtained in the form the head lease specifies, usually prior written consent, before the sublease takes effect. A sublease granted without required consent is a breach of the head lease and leaves both the sublandlord and the subtenant exposed to forfeiture of the head lease.
Form matters as well. A sublease should be in writing and signed. Where a leasehold interest runs for more than three years, writing is effectively required to create or transfer it under Ontario property law, and putting any commercial sublease in a signed written agreement is simply good practice regardless of length. Finally, commercial sublease rent is a taxable supply: in Ontario, the sublandlord generally charges 13 percent HST on the sublease rent, and a registered subtenant using the space in commercial activity can usually claim input tax credits. The HST treatment should be addressed in the sublease, not assumed.
Remedies on Head-Lease Termination
Because the subtenant's interest is carved out of the head lease, the general rule is blunt: if the head lease ends, the sublease ends with it. A subtenant who has been paying rent reliably can lose its premises through no fault of its own if the head lease is forfeited for the sublandlord's default. This is the single biggest risk in any commercial sublease, and it drives most of the protections a careful subtenant negotiates.
There are limits and protections worth knowing. A voluntary surrender of the head lease by the tenant does not, on its own, destroy a lawful sublease that the landlord consented to; the head landlord generally takes subject to the existing subtenancy in that situation. Forfeiture for breach is different and more dangerous to the subtenant, because re-entry for the tenant's default can bring down the subtenancy. Where a landlord re-enters or seeks forfeiture, the Commercial Tenancies Act provides for relief against forfeiture: section 20 lets the lessee apply to the court for relief, and section 21 lets a person claiming as an under-lessee (a subtenant) apply for an order protecting its interest, including a vesting order. Relief is discretionary, so it is a safety net, not a guarantee.
The reliable protections are contractual and obtained up front. A non-disturbance and attornment agreement from the head landlord lets the subtenant continue (attorning to the head landlord) if the head lease ends. Some deals are structured so the head landlord grants a direct lease to the subtenant on the same terms if the intermediate lease falls away. On the other side, a sublandlord facing a defaulting subtenant has the usual landlord remedies under the Commercial Tenancies Act, including the right to terminate, to claim damages, and the statutory right of distress, subject to the strict procedural rules that govern distress.
Key Drafting Traps for Sublandlord and Subtenant
A commercial sublease has two sets of interests to protect, and the drafting traps differ for each side.
For the sublandlord, the central trap is forgetting that it remains liable on the head lease. Subletting offloads occupancy, not responsibility. The sublease should include a full indemnity from the subtenant for any breach of the incorporated head-lease covenants, and the subtenant's cure periods should be shorter than the sublandlord's cure periods under the head lease, so the sublandlord has time to fix a subtenant default before the head landlord can act. The sublease should be expressly conditional on obtaining the head landlord's consent, so it does not bind the sublandlord to a breach if consent is refused.
For the subtenant, the traps cluster around the head lease it did not negotiate. Due diligence is essential: review the head lease in full, confirm it is in good standing, and ask for an estoppel certificate and, where possible, a non-disturbance agreement. Confirm the permitted use covers the intended business. Watch for restoration or make-good obligations that the head lease pushes onto whoever occupies the space at the end of the term. Address HST. Above all, make sure the sublease term ends before the head lease term, because a sublease that tries to run to the same end date as the head lease may be recharacterised as an assignment, with very different consequences for liability and consent.
Frequently Asked Questions
What is the difference between a sublease and an assignment in Ontario?
A sublease grants occupancy for a term shorter than the head lease, leaving the original tenant a reversion and continuing liability to the landlord. An assignment transfers the tenant's entire remaining interest, so the assignee steps fully into the tenant's place. The label does not control: a transfer of the whole remaining term can be an assignment at law.
Can a landlord unreasonably refuse consent to a commercial sublease in Ontario?
No. Under section 23 of the Commercial Tenancies Act, where a lease requires consent to sublet, that consent cannot be unreasonably withheld unless the lease clearly states otherwise. A landlord can reasonably assess the subtenant's finances, use, and reputation, but cannot withhold consent to gain a collateral advantage unrelated to the lease.
What happens to a commercial sublease if the head lease is terminated?
Generally, the sublease ends with the head lease, because the subtenant's interest is carved out of the head lease. A voluntary surrender usually does not destroy a consented sublease, but forfeiture for the tenant's breach can. A subtenant may apply for relief from forfeiture under section 21 of the Commercial Tenancies Act, though relief is discretionary.
Is the original tenant still liable to the landlord after subletting?
Yes. Privity of contract between the head landlord and the original tenant survives the sublease. The original tenant (now the sublandlord) remains liable for rent and all head-lease covenants, even though the subtenant is paying to occupy the space. This is why sublandlords negotiate strong indemnities from their subtenants.
Does a commercial sublease have to be in writing in Ontario?
In practice, yes. A leasehold interest for more than three years generally must be created in writing under Ontario property law, and any commercial sublease should be a signed written agreement regardless of length. A written sublease records the term, rent, permitted use, incorporated head-lease covenants, and consent condition, which protects both sides.
Is HST charged on commercial sublease rent in Ontario?
Yes. Commercial sublease rent is a taxable supply, so the sublandlord generally charges 13 percent HST on the rent in Ontario. A subtenant that is HST-registered and uses the premises in commercial activity can usually claim input tax credits to recover the HST paid. The sublease should address HST expressly.
Sources & Official Resources
Ontario Statutes Cited
- Commercial Tenancies Act, RSO 1990, c L.7 (Full Text)
- Commercial Tenancies Act, s. 23: Consent to Assignment or Subletting Not to Be Unreasonably Withheld
- Commercial Tenancies Act, ss. 20-21: Relief Against Forfeiture (Lessee and Under-Lessee)
CRA Guidance 4. Canada Revenue Agency: GST/HST for Businesses
Contact Hadri Law
Whether you are a tenant looking to sublet surplus space, a business taking sublet premises, or a landlord reviewing a consent request, a commercial sublease carries more legal risk than the document suggests. The consent process, the sublease versus assignment line, the flow-down of head-lease obligations, and what happens if the head lease ends all need to be handled before you sign, not after a dispute. Our work in commercial law and on commercial leases covers exactly these arrangements.
Hadri Law's commercial team advises Ontario businesses on head leases, subleases, assignments, landlord consents, and lease disputes. Our founder, Nassira El Hadri (Law Society of Ontario, 2021), leads a boutique practice that gives commercial clients direct lawyer attention on the terms that actually carry risk.
We offer a free initial consultation and serve clients in English, French, Spanish, and Catalan.
- Phone: +1 (437) 974-2374
- Book online: calendly.com/hadrilaw/free-consultation
- Office: First Canadian Place, 100 King Street West, Suite 5700, Toronto, ON
This article is for general information only and does not constitute legal advice. Reading or relying on it does not create a solicitor-client relationship with Hadri Law Professional Corporation.
