A renewal clause in an Ontario commercial lease gives the tenant the right, but not the obligation, to extend their lease for an additional term after the initial period ends. Tenants must exercise this right by delivering written notice within the deadline specified in the lease; missing that deadline can permanently forfeit the renewal right.
For most business owners, a commercial lease is one of the largest fixed costs in their operation. Negotiating the right renewal terms from the start is not a formality, it is a foundational business decision that affects your ability to stay in your location, control your rent, and build on the goodwill you've established there.
Why Renewal Rights Are Not Automatic in Ontario
Ontario's commercial tenancy framework is governed by the Commercial Tenancies Act, R.S.O. 1990, c. L.7 (the "CTA"). Unlike the residential regime, the CTA provides minimal protections for commercial tenants. It does not regulate rent increases, it does not require landlords to offer renewal terms, and it does not grant tenants any automatic right to stay once their lease expires.
As the Ontario government's commercial tenancy guide puts it: if the tenant and the landlord would like to continue with the tenancy agreement, they should take steps to renew or amend the lease before it expires. There is no statutory backstop if they don't.
This matters more than most tenants realize. Once your lease term ends, your landlord is legally free to offer the space to a new tenant, increase the rent dramatically, or simply decline to renew. The only protection a commercial tenant has against any of those outcomes is a well-drafted renewal clause they negotiated before signing their original lease.
What Is a Renewal Clause, and How Is It Different From an Extension?
An option to renew commercial lease Ontario is a contractual provision that grants the tenant the right, not an obligation, to continue leasing the space for an additional defined period once the initial term expires. The tenant can choose to exercise it or walk away.
What many tenants don't know is that there is a meaningful legal distinction between a renewal and an extension, and the difference has real consequences.
With a renewal, the original lease terminates at the end of the term. A new lease is then created on similar terms. Because the original agreement has ended, personal rights that were negotiated into the first lease, such as personal guarantees, radius restrictions, or rights of first refusal, do not automatically carry forward into the renewed lease unless they are expressly included.
With an extension, the original lease simply continues without interruption. The same terms apply, including any personal rights that were embedded in the agreement.
Tenants generally benefit more from an extension clause, because it preserves the protections they worked to negotiate at the outset. If your lease uses the word "renewal," review it carefully to confirm which personal rights survive and which must be re-negotiated.
Renewal terms typically range from one to five years. Aim for at least one five-year renewal option, and ideally two, to give your business meaningful runway. Be aware that renewal options are typically personal to the named tenant, they do not automatically transfer if you sell your business, which we address below.
How the Option to Renew Works in Practice
Exercising a renewal option sounds straightforward, but the mechanics matter enormously. The standard process works like this:
The tenant must deliver written notice to the landlord declaring their intention to exercise the renewal option. This notice must arrive within the window specified in the lease, typically six to twelve months before the end of the term, though some leases require notice as early as eighteen to twenty-four months in advance.
Missing that window has serious consequences. Ontario courts have generally treated the failure to deliver a valid commercial lease renewal notice within the required deadline as a critical error, in many cases, resulting in the permanent loss of the renewal right. The landlord has no obligation to remind you the deadline is approaching, and there is no general duty of good faith that requires the landlord to accept a late notice.
In practice, courts rarely grant relief from forfeiture for missed renewal deadlines, and you should never count on it. Treat the notice deadline with the same urgency as a court filing date.
The practical lesson: record the renewal notice deadline in your calendar on the day you sign your lease, and set multiple reminders.
After valid notice is delivered, the parties move to negotiating the renewal rent, unless the lease already includes a pre-agreed formula for what that rent will be.
How Renewal Rent Is Determined in Ontario Commercial Leases
Rent during the renewal term is where the sharpest disputes arise. There are three main approaches used in Ontario commercial leases.
Fixed or Formula-Based Rent
The most tenant-friendly approach: the lease specifies the exact rent for the renewal term, or a formula to calculate it. For example, a lease might provide that renewal rent will equal the base rent in the final year of the original term plus three percent. This gives the tenant certainty and avoids negotiation at a vulnerable moment, when their only alternative may be to relocate.
CPI-Linked Rent
Some leases tie renewal rent to the Ontario Consumer Price Index. This approach is meant to reflect inflation without either party bearing excessive risk. It can work reasonably well in stable economic conditions, but CPI-linked clauses can produce surprises when inflation spikes.
Fair Market Rent
The most contested approach, and the one most commonly written into landlord-drafted leases, is fair market rent (FMR). Under FMR, the renewal rent is set at whatever a willing tenant in the open market would pay for comparable space at the time of renewal. The definition sounds objective, but in practice it requires the parties to agree on what "comparable" means, and that is frequently where disputes arise.
Two issues make FMR negotiations especially fraught for tenants.
Leasehold improvements. If you spent $200,000 fitting out your premises during your lease term, should that investment be counted as value when the landlord sets your FMR? Ontario case law is not fully settled on this point. In Revenue Properties Co. Ltd. v. Victoria University, the court excluded tenant-funded improvements from the FMR calculation, assessing the space "as was" rather than "as is." But other decisions have reached the opposite conclusion. The only way to avoid this ambiguity is to negotiate express language in your lease specifying that leasehold improvements funded by the tenant are excluded from the FMR calculation at renewal.
Rent caps. Even where FMR is the agreed mechanism, tenants should negotiate a ceiling on the increase. A provision that caps renewal rent at, for example, no more than ten percent above the prior term's base rent protects against dramatic market shifts. This is standard in well-negotiated leases; it is rarely included in landlord-drafted templates.
Arbitration Clauses: What Happens When Parties Cannot Agree on Rent
If FMR is the renewal rent standard and the parties cannot reach agreement, how is the dispute resolved? In a well-drafted lease, the answer is found in an arbitration clause embedded in the renewal provision itself.
A proper arbitration mechanism specifies: how appraisers or arbitrators are selected, the process for each party to submit their FMR position, and a timeline for resolution. Without this, a rent dispute can stall the renewal process and leave both parties in limbo.
Ontario courts have offered some reassurance to tenants stuck in leases without express arbitration procedures. In Mapleview-Veterans Drive Investments Inc. v. Papa Kerollus VI Inc. (2016 ONCA 93), the Court of Appeal held that a renewal clause is not void for uncertainty merely because it lacks a specified arbitration mechanism, the parties remain free to negotiate or refer the dispute to arbitration or the courts.
This is some comfort, but it is not a substitute for drafting. Court proceedings are expensive and slow. Arbitration outside a specified process is uncertain and can itself be disputed. The better approach is to negotiate a clear, workable dispute resolution mechanism into your renewal clause before you sign.
Overholding: The Costly Consequence of Not Renewing in Time
If your lease expires and you neither exercise your renewal option nor negotiate a new agreement, but you continue to occupy the space, you become an overholding (or holdover) tenant. In Ontario, this position carries significant risks.
Under section 58 of the Commercial Tenancies Act, if a tenant wilfully holds over after the term expires, the landlord may charge up to 200% of the prior rent, effectively doubling it. The landlord may also terminate the overholding tenancy on 60 days' notice (for leases originally of one year or more), potentially leaving the tenant with little time to find alternative premises.
Most commercial leases include their own overholding clauses that are less severe than the statutory default, but not by much. A typical lease overholding clause converts the tenancy to a month-to-month arrangement at 125% to 150% of the prior rent, terminable on shorter notice. This is designed to discourage tenants from treating overholding as a de facto renewal.
The risk goes beyond cost. In a month-to-month overhold, the landlord has maximum flexibility. They can terminate with minimal notice, accept a higher bid from a new tenant, or use your precarious position as a bargaining chip in negotiations. Do not allow your lease to expire without a plan. Exercise your renewal option or negotiate a new lease well in advance.
Key Negotiation Points for Ontario Commercial Lease Tenants
When you are at the table, whether negotiating a new lease or approaching a renewal discussion, these are the provisions that matter most.
Seek an extension, not just a renewal. Ask specifically for an extension clause that continues the original lease rather than creating a new one. This preserves personal rights like rights of first refusal and guarantees without requiring re-negotiation.
Lock in at least one five-year renewal option. This gives your business meaningful stability. Two five-year options are better. Shorter renewal periods force you back to the table more frequently, at times you may not control.
Push for a fixed rent formula or a rent cap at renewal. Avoid open-ended FMR language with no ceiling. At minimum, negotiate a provision that caps renewal rent increases relative to your prior term.
Exclude your leasehold improvements from the FMR calculation. Include express language stating that any improvements funded by the tenant during the lease term will not be considered in determining fair market rent commercial lease Ontario at renewal.
Negotiate a dispute resolution mechanism. Specify how FMR will be determined if parties disagree, named appraisers, a selection process, a timeline. Don't leave this to chance.
Diarize your renewal deadline on day one. The moment your lease is signed, record the notice window for your renewal option. Set multiple calendar alerts. Missing this deadline is one of the most avoidable, and most costly, mistakes in commercial leasing.
Start renewal discussions 18 to 24 months before expiry. The earlier you begin, the more negotiating room you have. A landlord who knows you're considering relocation has reason to offer favourable terms. A landlord who knows you're desperate to stay has no such reason.
Negotiate assignability if you plan to sell your business. Renewal options are typically personal to the named tenant. If you intend to sell your business, negotiate at the outset for the renewal option to be assignable to a buyer, or confirm that the landlord will grant consent to an assignment of the option as part of any future business sale.
Always document agreed renewal terms in writing. Verbal agreements about renewal terms are worth nothing. Any agreed changes to the renewal structure must be set out in a formal lease amending agreement or reflected in a new lease document.
Frequently Asked Questions
Do commercial tenants in Ontario have an automatic right to renew?
No. Ontario's Commercial Tenancies Act does not grant commercial tenants any automatic right to renew. Once the lease term expires, the tenant's right to occupy the space is determined entirely by the terms of the lease itself. If the tenant missed the notice deadline, the landlord has no obligation to offer a renewal.
What is the difference between a lease renewal and a lease extension in Ontario?
A renewal terminates the original lease and creates a new one on similar terms, which means personal rights (guarantees, rights of first refusal, radius clauses) must be expressly re-incorporated to survive. An extension continues the original lease without interruption, preserving all existing terms. Tenants generally prefer extensions because they carry over negotiated protections automatically.
How much notice do I need to give to renew a commercial lease in Ontario?
The required notice period is set out in your lease, there is no statutory default for commercial properties. Most leases require written notice six to twelve months before the lease expires, but some require eighteen to twenty-four months. Check your specific lease carefully and calendar the deadline immediately.
What happens if I miss the renewal deadline on my commercial lease?
Missing the renewal notice deadline typically results in losing the renewal right. Ontario courts have treated this seriously, and landlords have no duty to remind tenants or to accept late notice. In very limited circumstances, courts may grant relief from forfeiture, but this is rare and unpredictable. If you miss the deadline, contact a lawyer immediately.
How is rent determined when renewing a commercial lease in Ontario?
Renewal rent depends on the method specified in the lease. Options include a pre-agreed fixed rate or formula, CPI-linked increases, or fair market rent (FMR). FMR is the most common and the most contentious, it requires the parties to agree on what comparable market rent looks like, and disputes are resolved either through negotiation or arbitration.
What is overholding in a commercial lease, and what are the consequences?
Overholding occurs when a tenant remains in the premises after the lease expires without exercising renewal rights or signing a new lease. Under section 58 of the Commercial Tenancies Act, a landlord may charge up to 200% of the prior rent. Most leases also include overholding clauses that convert the tenancy to a month-to-month arrangement at a significant premium, which can be terminated on short notice.
Can I negotiate my commercial lease renewal with my landlord?
Yes, and you should begin early. Tenants who start renewal discussions eighteen to twenty-four months before their lease expires typically have more negotiating room than those who wait. If you have invested significantly in improvements and are willing to commit to another long term, you have real bargaining chips. A commercial lawyer can help you assess your position and structure the negotiation.
Is a commercial lease renewal clause legally binding in Ontario?
Yes, a properly drafted renewal clause is a legally binding contractual right. Provided the tenant exercises the option by delivering written notice in the required manner, the landlord is bound to renew on the agreed terms. Ontario courts enforce properly exercised renewal options.
This article provides general legal information and is not legal advice. Every commercial lease situation is different. Contact a lawyer to discuss your specific circumstances.
Sources & Official Resources
Ontario Legislation
- Commercial Tenancies Act, R.S.O. 1990, c. L.7, Governing statute for commercial landlord-tenant relationships; s. 58 overholding double-rent provision
- Courts of Justice Act, R.S.O. 1990, c. C.43, s. 98 (Relief from Forfeiture), Court's discretion to grant relief from forfeiture
Ontario Government Resources
- Renting a Commercial Property in Ontario, Ontario Government Guide
- Ontario Consumer Price Index Data, Government of Ontario Open Data
Case Law
Contact Hadri Law
Negotiating a commercial lease renewal is rarely straightforward, and the terms you accept now will define your business's operating costs and security for years to come. Whether you're reviewing a new lease, approaching a renewal date, or working through a dispute with your landlord, getting the right legal advice early makes a significant difference.
Hadri Law's commercial lawyers have reviewed and negotiated commercial leases for businesses across Toronto, Mississauga, Oakville, Burlington, and the GTA.
Call (437) 974-2374 or book a free consultation online. We serve clients in English, French, Spanish, and Catalan.
