When reviewing a commercial lease in Ontario, focus on seven critical areas: rent structure and TMI costs, renewal options and holdover terms, the use clause, maintenance responsibilities, personal guarantee scope, assignment rights, and default provisions. Unlike residential leases, commercial leases are largely unregulated, almost every term is negotiable, and a lawyer review is strongly recommended before signing.
Signing a commercial lease is often the single largest financial commitment a small or mid-sized business will make in its first decade of operation. A five-year lease for even modest space in the Greater Toronto Area can easily represent hundreds of thousands of dollars in total rent, and the clauses in the fine print can add tens of thousands more to that total, or cost you the business entirely if things go wrong.
Because commercial tenancies in Ontario are governed by the Commercial Tenancies Act, R.S.O. 1990, c. L.7 but can be extensively modified by the lease itself, the document you sign almost always takes precedence over the statute. That is why a careful review, ideally with a corporate and commercial lawyer, is essential before you commit.
Why Reviewing a Commercial Lease in Ontario Matters More Than You Think
Unlike the Residential Tenancies Act, which sets a comprehensive floor of protections for residential tenants, the Commercial Tenancies Act leaves most of the relationship to the parties to negotiate. There is no rent control at renewal. There is no automatic right to renew. There are no minimum standards for maintenance responsibility. A landlord can even change your locks on the 16th day after rent is due under the statute, without a court order.
Landlords draft commercial leases. They draft them to protect themselves and their investment. The document that lands on your desk is a starting point, not a final offer. Every phrase, from the definition of "operating costs" to the notice period for renewal, is open to negotiation, and a well-negotiated lease can save a business many times the cost of the lawyer who reviewed it.
At Hadri Law, we regularly help Ontario business owners review and negotiate commercial leases across retail, office, and industrial contexts. The sections below cover the clauses that most often contain the hidden costs and traps.
Understanding the Type of Lease You Are Signing
The first question to answer is what kind of lease you are looking at. Commercial leases in Ontario generally fall into two broad categories: gross leases and net leases.
Gross Lease
Under a gross lease, the tenant pays a flat, predictable monthly amount. The landlord is responsible for property taxes, building insurance, and maintenance of the premises. Gross leases are simpler to budget and are more common in older office buildings or smaller standalone properties.
Net Lease
A net lease shifts cost responsibility onto the tenant. There are three common variations:
- Single Net (N): Tenant pays base rent plus a proportionate share of property taxes.
- Double Net (NN): Tenant pays base rent plus property taxes and building insurance.
- Triple Net (NNN): Tenant pays base rent plus property taxes, insurance, and maintenance of common areas. The triple net lease is by far the most common structure you will see in Ontario retail plazas, industrial condos, and many multi-tenant commercial buildings.
In net leases, the extra amount tenants pay on top of base rent is called "additional rent," and it is often described as TMI, Taxes, Maintenance, and Insurance, or CAM (Common Area Maintenance). TMI is typically estimated at the start of each year and reconciled at year-end based on actual expenses. If the landlord's estimates were too low, the tenant may be invoiced for a shortfall.
When negotiating a net lease, you should ask for:
- A precise, exhaustive list of every expense that may be included in TMI or CAM
- An annual cap on how much operating costs can increase year over year
- An audit right allowing you to verify the landlord's expense calculations
- Express exclusion of major capital expenditures (such as roof replacement or structural upgrades) from operating costs passed through to tenants
Rent, Escalations, and Hidden Cost Triggers
Rent is more than a single number. When reviewing a commercial lease in Ontario, break the rent into its components and confirm each one is clearly defined.
Base Rent and Square Footage Measurements
Base rent is usually expressed on a per-square-foot basis, annualized. The critical question is how that square footage is measured. Two common measurements exist: Usable Square Footage (USF) reflects only the space you actually occupy, while Rentable Square Footage (RSF) includes a share of the building's common areas like lobbies, hallways, and elevator banks. The difference between the two is the "load factor," and it can inflate a tenant's rent meaningfully without adding any usable space.
Escalation Clauses
Most commercial leases build in annual rent increases during the term. The two most common escalation formulas are a fixed percentage increase (typically two to four percent annually) and a Consumer Price Index (CPI) adjustment tied to inflation. Whatever formula is used must be spelled out clearly. Vague language such as "rent will be adjusted annually to reflect market conditions" is a red flag and invites disputes later.
Rent at Renewal
The Commercial Tenancies Act imposes no rent control. A landlord is free to set whatever rent they wish at the end of the lease term, and if the tenant has no renewal option, the tenant can be forced to vacate or accept a significant increase. If your lease includes a renewal option, confirm how the renewal rent will be calculated. "Fair market rent" is common but requires a dispute resolution process (often arbitration) in case the parties cannot agree.
Security Deposit
Security deposits in Ontario commercial leases typically range from one to three months' rent, sometimes with the last month's rent deposited in advance as well. The lease should clearly state what the deposit covers, under what conditions it will be returned, and on what timeline.
Lease Term, Renewal Rights, and What Happens at the End
The lease term governs how long you are committed and how much flexibility you retain as your business changes. A five-year initial term is standard for a first commercial lease. Shorter terms offer flexibility but expose the tenant to forced relocation or significant rent hikes just as the business is hitting its stride. Longer terms provide stability but reduce the ability to adapt.
Renewal Options
There is no automatic right of renewal under Ontario law. When a fixed-term lease expires, the landlord can simply let it lapse and require the tenant to vacate or negotiate a new deal on the landlord's terms. A renewal option, negotiated at the time of initial signing, is the only reliable way to lock in continuing occupancy.
When negotiating a renewal option, focus on:
- The number of renewal terms (ideally at least one five-year option, often two)
- The exercise notice window (typically six to twelve months before expiry)
- The rent formula during the renewal term
- What conditions, if any, attach to exercising the option
Courts have strictly enforced renewal notice deadlines. Miss the window, even by a day, and the option can be lost.
Holdover and Overholding
If a tenant remains in possession after the lease expires without a new agreement, they become a "holdover" or "overholding" tenant. Section 58 of the Commercial Tenancies Act provides that where a tenant willfully holds over, the rent can be claimed at double the rate set out in the lease.
In practice, landlords and tenants often negotiate a lower holdover rate, commonly 115 to 150 percent of the prior rent, directly in the lease. If your lease is silent on holdover rent, the statutory rate can apply. Negotiate an explicit holdover clause and a reasonable notice period to vacate after expiry.
Use Clause, Exclusivity, and Permitted Hours
The use clause defines what business activities are permitted in the leased space. A narrowly drafted use clause can strangle the natural evolution of your business.
Consider a bakery whose lease permits only "retail bakery operations." If that tenant later wants to add a café counter with seating, or sell prepackaged sandwiches, they need the landlord's consent. The landlord may demand additional rent for the expanded use, or refuse outright.
Negotiate a use clause broad enough to accommodate reasonable growth. For a food business, "retail food and beverage establishment and related activities" is far more workable than "bakery only."
Exclusivity
Retailers and service-based tenants should seriously consider an exclusivity clause, a promise from the landlord not to lease space in the same building or plaza to a direct competitor. A coffee shop without exclusivity can find itself sharing a plaza with a national chain six months later.
One important development to note: as of June 20, 2025, private parties gained expanded access to bring applications under section 90.1 of the federal Competition Act, which addresses agreements that may prevent or lessen competition substantially, whether or not the parties are competitors. Exclusivity provisions that unduly restrict competition in a local market may face new scrutiny under this regime. For most legitimate single-tenant exclusivity clauses this is unlikely to be a practical issue, but sophisticated landlords and tenants negotiating large or portfolio-wide exclusivities should take legal advice on the current state of the law.
Permitted Hours
Some leases, particularly those in malls and mixed-use buildings, restrict operating hours. If your business requires early morning, late evening, or weekend operation, confirm the lease permits those hours.
Maintenance, Repairs, and Leasehold Improvements
The Commercial Tenancies Act does not allocate maintenance responsibilities between landlord and tenant. Whatever the lease says, goes.
Typically, landlords are responsible for the structural envelope of the building, the roof, foundation, exterior walls, and structural HVAC systems, while tenants are responsible for the interior of their premises, including cleaning, routine repairs, and internal plumbing and electrical fixtures. But every lease is different, and some landlords attempt to shift major systems onto tenants.
HVAC responsibility is a particularly expensive trap. Rooftop HVAC unit replacements can run into the tens of thousands of dollars, and some commercial leases place full responsibility for "any and all HVAC repairs and replacements" on the tenant. Push back: major capital replacements should remain the landlord's responsibility, or be subject to a negotiated cost-sharing formula or a cap.
Leasehold Improvements and Tenant Improvement Allowances
When a tenant needs to build out a space, installing walls, electrical, plumbing, flooring, or specialized equipment, the cost can be significant. Many landlords offer a Tenant Improvement Allowance (TIA), typically expressed as a dollar figure per square foot, to help fund the work.
Key TIA negotiation points include:
- When the allowance is paid (in stages during construction, or as reimbursement after completion)
- Whether the allowance covers only "hard costs" (labour, materials) or also "soft costs" (design, permits, professional fees)
- Who owns the improvements at lease end, by default, leasehold improvements typically become the landlord's property
- Whether the tenant will be required to remove improvements and restore the space to its original condition on move-out
Assignment, Subletting, and Exit Flexibility
Business circumstances change. Owners retire, companies merge, locations become obsolete. A commercial lease should allow you a reasonable path to transfer the obligation to someone else.
An assignment is the complete transfer of the lease to a new tenant, who steps into your shoes. A sublet is a rental of all or part of the space to a subtenant while the original tenant remains on the hook to the landlord. Assignments are common in business sales; sublets are more common when a tenant downsizes but does not want to break the lease entirely.
Section 23: Consent Not to Be Unreasonably Withheld
Section 23 of the Commercial Tenancies Act provides that where a commercial lease (made after September 1, 1911) contains a restriction on assignment, subletting, or parting with possession, the landlord's consent shall not be unreasonably withheld, unless the lease expressly overrides this rule.
Courts have interpreted "unreasonably withheld" carefully. Landlords who refuse consent for arbitrary reasons, drag their feet for weeks without explanation, or try to use the consent process to extract additional rent concessions have been found to breach the statute. For tenants, this is a meaningful protection, but only if the lease does not explicitly displace it.
When reviewing assignment and subletting language, look for:
- Language stating consent "shall not be unreasonably withheld or delayed" (strong); avoid language giving the landlord "sole discretion" (a red flag that overrides the section 23 default)
- A response deadline, for example, the landlord must respond within fifteen business days
- Clear and objective criteria defining an acceptable replacement tenant
- The right to assign as part of a bona fide sale of the business without additional landlord-imposed conditions
Personal Guarantees: Protecting Yourself as the Business Owner
For newer businesses, landlords frequently demand a personal guarantee from the owner. A personal guarantee is a promise by an individual, almost always the principal shareholder, to pay the rent if the corporate tenant defaults. It effectively undoes the liability protection you gained by incorporating.
Watch for these warning signs:
- Unlimited guarantee covering the full lease term and any renewals
- Guarantee that survives an assignment (so you remain liable even after selling the business to a qualified buyer)
- "Joint and several" liability with co-guarantors, so each of you can be pursued for the full amount
Where a personal guarantee is unavoidable, negotiate its scope. Common compromises include:
- A time-limited guarantee (covering only the first twelve or twenty-four months)
- A capped guarantee (limited to three or six months' rent)
- An automatic release once the business achieves a defined revenue or operating milestone
- Release on assignment to a creditworthy replacement tenant
Equally important: confirm the tenant named in the lease is the corporate entity, not you personally. Signing the lease as an individual makes you directly liable without any guarantee clause at all.
Default, Landlord Remedies, and Cure Periods
The lease should clearly define what constitutes a tenant default, what remedies are available to the landlord, and what opportunity the tenant has to fix the problem before those remedies are triggered.
Common defaults include non-payment of rent, breach of the use clause, failure to maintain insurance, and unauthorized assignment or subletting.
Under the Commercial Tenancies Act, landlords have significant remedies for non-payment of rent:
- Distress: The landlord can seize and sell the tenant's goods on the premises to recover unpaid rent, without a court order. The landlord must hold the seized property for five days and give notice of the amount owing before selling.
- Lock changes: The landlord can terminate the lease by changing the locks as soon as the 16th day after rent is due, ending the tenancy.
- Re-entry: The landlord can enter and take possession of the premises to terminate the lease for breach.
A landlord must choose between distress and termination, they cannot both keep the lease alive (by distraining) and end it (by changing locks) based on the same default.
To protect yourself, negotiate explicit cure periods. A typical structure is five to ten days to cure a rent default after written notice, and fifteen to thirty days to cure a non-monetary breach. Without a contractual cure period, the statute provides limited protection.
Frequently Asked Questions About Commercial Leases in Ontario
Do I need a lawyer when reviewing a commercial lease in Ontario?
Legally, no, there is no requirement to have a lawyer review a commercial lease in Ontario. Practically, yes. Commercial leases are long, complex, and heavily weighted in the landlord's favour. A lawyer review typically costs a small fraction of what a single problematic clause can cost over a five- or ten-year term.
What is the difference between a gross lease and a net lease?
In a gross lease, the tenant pays a flat amount and the landlord covers property taxes, insurance, and maintenance. In a net lease, the tenant pays base rent plus some or all operating costs. Most Ontario commercial plazas and multi-tenant properties use triple net (NNN) leases, where the tenant pays a proportionate share of all operating expenses.
Can a landlord refuse to let me assign my commercial lease?
If the lease requires landlord consent, section 23 of the Commercial Tenancies Act generally prohibits the landlord from unreasonably withholding consent, unless the lease explicitly overrides that rule. Courts have found delays, arbitrary refusals, and attempts to extract extra concessions as unreasonable.
Can a commercial landlord increase rent in Ontario?
Yes. There is no rent control for commercial tenancies in Ontario. During the lease term, rent increases are governed by whatever escalation formula the lease contains. At renewal, the landlord is free to set whatever rent they choose, subject only to any negotiated renewal rent formula in the lease.
What does "quiet enjoyment" mean in a commercial lease?
Quiet enjoyment is a common law principle (also preserved in Ontario property legislation) giving tenants the right to use the leased premises without unreasonable interference from the landlord. It does not refer to noise, it means the tenant's use and possession of the space should be undisturbed.
Sources & Official Resources
Ontario Statutes Cited
- Commercial Tenancies Act, R.S.O. 1990, c. L.7
- Conveyancing and Law of Property Act, R.S.O. 1990, c. C.34
Federal Statutes Cited
Official Government Guidance
- Ontario Government, Renting Commercial Property in Ontario
- Competition Bureau Canada, Bulletin on Private Access to the Competition Tribunal
Contact Hadri Law
If you are negotiating a new commercial lease, renewing an existing one, or trying to understand your options as a tenant, getting legal advice before you sign is one of the highest-value investments you can make in your business. A well-reviewed lease can save many times the cost of the review, and a poorly reviewed one can cost the business itself.
Hadri Law's corporate and commercial team, led by founder Nassira El Hadri and corporate lawyer Nicholas Dempsey, has extensive experience reviewing and negotiating commercial leases for Ontario business owners across retail, office, and industrial contexts.
Call (437) 974-2374 for a free consultation, or book directly at calendly.com/hadrilaw/free-consultation. Our Toronto office is located at First Canadian Place, 100 King Street West, Suite 5700. We serve clients in English, French, Spanish, and Catalan.
This article provides general information and is not legal advice. Every commercial lease and business situation is different. Contact a lawyer to discuss your specific circumstances.
