What you need to know about Commercial Leases in Ontario

Signing a commercial lease can be one of the biggest commitments a business owner makes. Whether you are opening a retail store, office, clinic, restaurant, warehouse, studio, or service business, the lease can affect your costs, your risk, and your ability to operate for years.

A commercial lease review is when a lawyer reviews a proposed lease before you sign it. The goal is to help you understand what the lease actually says in plain English. This matters because commercial leases in Ontario are often long, technical, and written mainly to protect the landlord.

Commercial leases are very different from residential leases. In Ontario, residential tenants have many protections under the Residential Tenancies Act. Commercial tenants do not have the same kind of consumer-style protection. Commercial leasing is mainly governed by the lease itself, Ontario’s Commercial Tenancies Act, and the common law. Ontario’s own commercial leasing page explains that the Commercial Tenancies Act outlines the relationship, rights, and obligations between commercial landlords and tenants, and also warns that a signed commercial lease agreement may take precedence over the Act.

In simple terms, this means the document you sign is extremely important. If the lease says you must pay certain costs, repair certain things, maintain insurance, personally guarantee the lease, or stay responsible even after leaving the space, those terms may be binding. You should not assume that a government board will step in and protect you the way it might in a residential tenancy.

One of the most important issues in a commercial lease is rent. Many business owners look only at the base rent, but that may not be the full amount they have to pay. A lease may also require additional rent, common area maintenance charges, property taxes, insurance, utilities, HST, administration fees, repair costs, snow removal, garbage removal, HVAC charges, signage fees, and other expenses. A space that looks affordable at first can become much more expensive once all charges are included.

Commercial leases often use terms like “net lease,” “additional rent,” or “TMI.” These terms can be confusing. TMI usually refers to taxes, maintenance, and insurance. If the tenant is responsible for these costs, the monthly payment may change over time. A lease review can help you understand what you are actually agreeing to pay, not just what the listing or landlord says the rent is.

Another major issue is the term of the lease. The lease should explain when it starts, when it ends, whether there is a fixturing period, whether rent is delayed during setup, and whether the tenant has any renewal options. A five-year lease can be a serious commitment, especially for a new business. If the business fails or needs to move, the tenant may still be responsible unless the lease allows an exit.

Renewal rights are especially important. A tenant may assume they can stay if the business is successful, but that depends on the lease. Some leases include an option to renew. Others do not. Even when there is a renewal option, the tenant may need to give written notice by a strict deadline. Missing that deadline can cause the tenant to lose the right to renew.

Commercial leases also often restrict how the space can be used. The permitted use clause may say exactly what kind of business can operate from the premises. This matters because a tenant may not be allowed to change the business, add services, sublease part of the space, or expand into a related business without the landlord’s consent. A narrow permitted use clause can limit growth.

Repairs and maintenance are another major concern. A tenant may think the landlord is responsible for the building, but the lease may say otherwise. Commercial leases can shift major repair obligations to the tenant, including responsibilities for plumbing, electrical systems, HVAC, windows, doors, flooring, leasehold improvements, or even structural issues depending on the wording. A lease review can help identify these risks before they become expensive surprises.

The HVAC system is a common example. If the lease says the tenant must maintain, repair, or replace the HVAC system, the tenant may face a large unexpected bill. This can be a serious problem for small businesses because HVAC repairs or replacements can cost thousands or even tens of thousands of dollars.

Insurance and indemnity clauses also matter. A lease may require the tenant to carry specific types and amounts of insurance. It may also require the tenant to indemnify the landlord for claims connected to the tenant’s use of the premises. In plain English, indemnity means one party may have to cover losses, damages, or claims suffered by another party. These clauses should be read carefully because they can create significant financial exposure.

Many landlords also ask for a personal guarantee. This is a major issue. If a corporation signs the lease, the business owner may think their personal assets are protected. But if the owner signs a personal guarantee, they may become personally responsible for rent, damages, and other lease obligations if the corporation cannot pay. A lease review can help you understand whether you are personally on the hook.

Assignment and subletting clauses are also important. If your business grows, shrinks, sells, or changes direction, you may want to transfer the lease or sublease the space. Many commercial leases say the tenant cannot assign or sublet without the landlord’s consent. Some leases also allow the landlord to charge fees, impose conditions, or refuse consent in certain circumstances. This can affect your ability to sell the business later.

Default clauses explain what can happen if the tenant breaches the lease. This may include failing to pay rent, using the premises improperly, failing to maintain insurance, making unauthorized alterations, or becoming insolvent. The Commercial Tenancies Act contains rules dealing with commercial landlord and tenant rights, but the lease itself may also contain detailed default remedies. Ontario’s official law page sets out the Commercial Tenancies Act, R.S.O. 1990, c. L.7.

A commercial lease may also include demolition, relocation, redevelopment, or early termination rights for the landlord. These clauses can be risky for tenants who spend money building out the space. If you invest heavily in renovations, signage, equipment, or leasehold improvements, you need to understand whether the landlord can move you, terminate the lease, or disrupt your business.

Build-out and leasehold improvement clauses are also important. If you are renovating the space, the lease may require landlord approval, building permits, contractors approved by the landlord, construction schedules, deposits, restoration obligations, and compliance with building rules. The lease should also explain who owns improvements at the end of the lease and whether the tenant must remove them.

A commercial lease review can also help identify missing terms. Sometimes the problem is not only what the lease says, but what it does not say. For example, the lease may not clearly deal with parking, signage, exclusivity, access hours, garbage, storage, security, loading areas, patios, food use, cannabis restrictions, environmental rules, or accessibility obligations. Missing details can become disputes later.

For restaurants, clinics, gyms, salons, retail stores, and other location-based businesses, the lease can be central to the business model. A bad lease can harm the business even if sales are strong. High additional rent, repair obligations, limited signage, poor renewal rights, or a personal guarantee can turn a promising location into a long-term problem.

A commercial lease review does not mean every clause can be changed. Some landlords refuse to negotiate. Others may agree to changes if the tenant asks before signing. Either way, understanding the lease before you sign is valuable. You may decide to negotiate, ask for clarification, budget for risk, walk away, or accept the terms with your eyes open.

Flatly.ca offers Commercial Lease Review in Ontario for tenants who want a lawyer to review a proposed lease, prepare a plain-English risk summary, and help them understand what they are agreeing to before they commit.

A commercial lease is not just paperwork. It can control your rent, your costs, your personal liability, your ability to sell or move, and your business’s future. Before signing, it is worth slowing down and understanding the lease carefully. In Ontario commercial leasing, the terms you sign can matter more than what you assumed the deal was.