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A commercial lease is only as good as its default, additional rent and end-of-term provisions. We draft leases that recover what they should and enforce them when a tenant stops paying.
Arrange a Call →Under the Commercial Tenancies Act a landlord must choose: distrain on the tenant’s goods for arrears, or terminate the lease and re-enter. Doing both defeats the remedy, because seizing goods for rent affirms the very lease that termination brings to an end.
Yes. Commercial tenancies fall outside the Residential Tenancies Act, so a landlord may terminate and re-enter for non-payment under the lease and the Commercial Tenancies Act, without any Landlord and Tenant Board order. However, the landlord must elect between distress and termination, because seizing goods for rent affirms the lease, and the tenant may apply to the Superior Court of Justice for relief from forfeiture under section 20.
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Commercial landlords in Ontario operate with far more freedom than residential landlords. The Residential Tenancies Act, 2006 does not apply. There is no rent control, no prescribed form of lease, no statutory right of renewal for the tenant, and no Landlord and Tenant Board. What governs is the lease itself, supplemented by the Commercial Tenancies Act, R.S.O. 1990, c. L.7, and enforced through the Superior Court of Justice or, for smaller money claims, the Small Claims Court.
That freedom cuts both ways. Because the statute supplies so little, anything the lease fails to address is either resolved by common law default rules that may not favour the landlord, or left genuinely uncertain. Leases that are silent on gross-up of operating costs, on whether capital replacements are recoverable, on the tenant's restoration obligations at the end of the term, or on whether a change of control of the tenant corporation constitutes an assignment, produce the disputes we are later retained to litigate.
Lexaltico LLP acts for owners of retail plazas, industrial and flex buildings, office floors, mixed-use properties and single-tenant assets across the GTA. We draft and update standard-form leases, negotiate offers to lease and formal leases with national and local tenants, prepare renewals, assignments, consents and surrenders, and advise on enforcement when a tenant defaults. Where a portfolio is being sold or financed, we prepare estoppel certificates and SNDAs and clean up the lease file so it survives a purchaser's diligence.
Most Ontario commercial leases are net leases: the tenant pays base rent plus a proportionate share of realty taxes, building insurance, utilities, maintenance and operating costs. A gross lease bundles those costs into a single rent number and leaves the landlord carrying the variance. The distinction matters most in years when realty taxes are reassessed, insurance premiums jump, or a major system needs replacement.
| Issue | Gross lease | Net lease |
|---|---|---|
| Base rent | Single all-in figure | Base rent plus additional rent |
| Realty taxes | Landlord absorbs increases unless a tax escalation clause applies | Tenant pays proportionate share, including reassessment increases |
| Operating cost risk | Landlord | Tenant, subject to any negotiated cap |
| Vacancy in the building | Landlord absorbs unallocated costs | Landlord may recover through a gross-up clause if drafted |
| Capital replacements | Landlord, absent express recovery | Recoverable only if the lease expressly says so, often amortised |
| Administration fee | Built into rent | Commonly a percentage of operating costs, and negotiated |
Three drafting points determine whether a net lease actually performs. First, the gross-up clause: without it, a landlord with a partly vacant building cannot recover the unallocated share of variable costs from occupied premises, and effectively subsidises the vacancy twice. Second, the treatment of capital expenditure: a lease that recovers "all costs of operating, maintaining, repairing and replacing" reads differently from one that excludes structural and capital items, and courts read exclusions against the drafter. Third, the reconciliation mechanic, the deadline for delivering the year-end statement, the tenant's audit rights and the time limit on disputing a statement should all be express.
Permitted use should be drafted narrowly and tied to the applicable zoning, with an express statement that the landlord makes no representation that the tenant's intended use is permitted and that obtaining permits and licences is the tenant's responsibility. Broad use clauses reduce the landlord's control over tenant mix and can inadvertently conflict with an exclusivity granted to another tenant in the same plaza.
Assignment and subletting provisions should require the landlord's prior written consent, define what constitutes a transfer to include a change of control of a corporate tenant, preserve the original tenant's liability after any consented transfer, and, if the landlord wants it, include a recapture right allowing the landlord to terminate rather than consent. Where a tenant is a numbered company or a start-up, an indemnity agreement from the principals is materially stronger than a simple guarantee, because an indemnifier's obligations are primary and survive a disclaimer of the lease by a trustee in bankruptcy.
End-of-term provisions are consistently underwritten. The lease should say precisely what the tenant must remove, whether leasehold improvements become the landlord's property, whether the premises must be restored to base building condition, and what happens to abandoned property. It should also address overholding expressly, because the Commercial Tenancies Act contains overholding provisions that can operate harshly and are best supplemented by a clear contractual rate, commonly 150 to 200 per cent of the last base rent on a monthly tenancy, with no implied renewal of the term.
Section 50 of the Planning Act treats a lease of part of a parcel for a term of twenty-one years or more, including all renewal and extension rights, as a conveyance requiring consent. A long-term pad, rooftop, ground or storage lease granted without consent may be void. Count the renewals, not just the initial term.
A landlord facing rent arrears has two principal self-help remedies and must elect between them. Distress, preserved by section 18 of the Commercial Tenancies Act, allows the landlord to seize and ultimately sell goods found on the premises to satisfy arrears, subject to the restrictions in section 19 and to the rights of third parties with registered PPSA security in those goods. Termination and re-entry ends the lease and lets the landlord retake possession and re-let. The two are mutually exclusive: distraining for rent affirms the continuing existence of the lease, so a landlord who seizes goods and then changes the locks will usually find the termination invalid.
| Distress for rent | Termination and re-entry | |
|---|---|---|
| Effect on the lease | Affirms the lease; tenancy continues | Ends the lease and the tenant’s right to possession |
| What the landlord recovers | Arrears only, from the proceeds of goods seized | Possession, plus a damages claim for the balance of the term subject to mitigation |
| Available for non-rent breaches | No, rent arrears only | Yes, subject to any notice and cure provisions |
| Third-party goods | Cannot seize goods that are not the tenant’s; PPSA-secured goods raise priority issues | Not applicable, but bailiff and abandoned property rules apply |
| Tenant’s counter-move | Damages for illegal distress | Application for relief from forfeiture under s. 20 |
| Can they be combined | No. The landlord must elect. Doing both defeats the termination. | |
Section 20 of the Commercial Tenancies Act allows a tenant to apply to the Superior Court of Justice for relief from forfeiture. Courts approach that discretion equitably: a tenant who is prepared to pay everything owing, including the landlord's costs, and whose breach is remediable, has a real prospect of being restored to possession, particularly where the tenant has invested heavily in leasehold improvements. That reality should shape the landlord's strategy. Where arrears are recoverable and the tenant is otherwise viable, a forbearance agreement with a strict payment schedule and consent terms is frequently a better commercial outcome than a lock-out that is unwound six weeks later.
Insolvency changes the analysis entirely. A stay under the Bankruptcy and Insolvency Act or the Companies' Creditors Arrangement Act suspends the landlord's remedies. Under the Commercial Tenancies Act, where a tenant becomes bankrupt the landlord's preferred claim is limited to arrears for the three months preceding the bankruptcy plus, if the lease so provides, three months' accelerated rent, payable out of the proceeds of the property on the premises; the trustee may occupy the premises for a period or disclaim the lease. A landlord who receives notice of an insolvency proceeding should obtain advice before taking any step, because a remedy exercised in breach of a stay can expose the landlord to liability.
Most commercial leasing transactions begin with an offer to lease prepared by a broker. From the landlord's perspective the offer should do three things: bind the tenant, incorporate the landlord's standard form lease by reference so that the substantive terms are already settled, and set a firm deadline for execution of the formal lease with a consequence if the tenant fails to sign. Offers that leave the lease form open, or that promise a lease "in a form mutually acceptable to the parties", hand the tenant a second negotiation the landlord thought it had avoided.
A well-maintained standard form is one of the more valuable assets a landlord owns. It should be reviewed periodically against current legislation and current market practice, the Construction Act reforms, the shift in insurance markets, the treatment of force majeure and business interruption, and evolving expectations around building systems and sustainability requirements have all changed what a competent lease looks like. Updating the precedent once is far cheaper than negotiating the same deficiency across forty tenancies.
Lease administration matters as much as drafting. Landlords should maintain a complete lease file for each tenancy containing the offer, the lease, every amendment, renewal, assignment and consent, the guarantee or indemnity, the certificate of insurance, the deposit record and the annual operating cost reconciliations. Options and notice windows should be diarised on both sides, a landlord who fails to respond within a stated period to a tenant's exercise of a renewal or expansion right can find the right deemed exercised on the tenant's terms. When the property is eventually sold, that file is what a purchaser's counsel will abstract, and gaps in it become price adjustments.
When a leased property is sold or refinanced, the purchaser or lender will require estoppel certificates from tenants confirming the commencement and expiry dates, the current rent, deposits held, the absence of defaults and the absence of side agreements. A lease that does not oblige the tenant to deliver an estoppel certificate within a fixed number of days, in the landlord's form, and with a deemed-certification consequence for failure to respond, will delay or derail a closing. The same applies to subordination, non-disturbance and attornment agreements required by lenders.
Landlords should also control their exposure under the Construction Act, R.S.O. 1990, c. C.30. Where a landlord requires a tenant to make improvements, or pays for them through a tenant improvement allowance, the landlord's interest in the land can become subject to lien claims by the tenant's contractors. Protective measures include express lease covenants requiring the tenant to keep title free of liens and to discharge any lien within a short fixed period, requiring proof of insurance and of payment before allowance instalments are advanced, holding back the statutory ten per cent where the landlord is effectively the payer, and posting and registering notices where appropriate.
Finally, notice of lease. Registering a short-form notice of lease protects the tenant's interest against subsequent purchasers and encumbrancers, and tenants of any size will ask for it. Landlords should control the form so that the notice discloses only the parties, premises and term, and should require the tenant to register a discharge on expiry, an unreleased notice of lease sitting on the parcel register is a routine and avoidable obstacle on a future sale. To review your standard-form lease or to deal with a defaulting tenant, contact Lexaltico LLP.
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