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Commercial tenants have no rent control, no security of tenure and no Landlord and Tenant Board. Every protection you get is one you negotiated, and the offer to lease is usually already binding.
Arrange a Call →An offer to lease is normally a binding contract, not a preliminary step. Once it is accepted, the landlord’s standard form lease is often incorporated by reference, which means the negotiation is over before most tenants realise it has begun.
Usually yes. An accepted offer to lease is normally a binding contract that fixes the premises, term, rent, deposit and allowance, and typically obliges the tenant to sign the landlord’s standard form lease. Because that standard form is incorporated by reference, most of the tenant’s negotiating leverage is gone once the offer is accepted. Legal review should happen before the offer is submitted, not after.
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Business owners often assume that renting commercial space works like renting an apartment. It does not. The Residential Tenancies Act, 2006 has no application to commercial premises. There is no rent control, no guideline increase, no requirement that a landlord have cause to refuse a renewal, no prescribed notice periods for termination beyond what the lease provides, and no Landlord and Tenant Board to which you can apply. Commercial tenancies are governed by the Commercial Tenancies Act, R.S.O. 1990, c. L.7 and, overwhelmingly, by the lease document itself.
The practical consequence is that a commercial tenant's entire position is contractual. If the lease permits the landlord to relocate you, demolish the building on twelve months' notice, recover the cost of replacing the roof through additional rent, or refuse consent to an assignment when you sell your business, then that is the deal, a court will enforce it. Landlord standard forms are drafted by landlords' counsel and are, unsurprisingly, one-sided. They are also almost always negotiable, particularly on additional rent definitions, restoration obligations and the length of a personal guarantee.
Lexaltico LLP acts for restaurant and food service operators, medical and professional practices, retailers, logistics and light manufacturing businesses, franchisees and office tenants across Toronto and the GTA. We review and mark up offers to lease and formal leases, negotiate directly with landlord's counsel, advise on renewals and options, negotiate lease assignments on the sale of a business, and act for tenants facing default notices, distress or lock-out.
The single most common and most expensive mistake a commercial tenant makes is signing an offer to lease without legal review. An offer to lease that has been accepted is normally a binding contract. It fixes the premises, the rentable area, the term, the base rent schedule, the deposit, the fixturing period and the allowance. Critically, it usually states that the tenant will execute the landlord's standard form lease, which means you have contractually agreed to a document you have not read, and your leverage to change it has largely evaporated.
Where an offer is signed without review, the fix is to negotiate hard on the wording that survives: an express right to review and negotiate the formal lease acting reasonably, a stated list of amendments already agreed, and a condition making the offer subject to the tenant's approval of the lease within a defined number of days. Better still, have the offer reviewed before it goes in. A short review at the offer stage costs a fraction of what it costs to unwind a bad additional rent clause five years into a ten-year term.
Rent is usually quoted per square foot of rentable area, which includes a gross-up for common areas and may not have been measured to any recognised standard. Ask which measurement standard was used, whether the area has been certified, and whether the lease permits remeasurement mid-term. A five per cent difference on a ten-year lease is real money.
Under a net lease the quoted base rent is only part of the cost. Additional rent covers a proportionate share of realty taxes, building insurance, utilities, maintenance, snow and landscaping, security, property management and administration. On many Toronto retail and industrial properties additional rent runs from a third to more than half of the total occupancy cost, and unlike base rent it is not fixed. It moves with reassessment, insurance markets and the landlord's spending decisions.
| Question to ask | Weak landlord-form answer | What a tenant should negotiate |
|---|---|---|
| What is in operating costs? | All costs of operating, maintaining, repairing and replacing | Express exclusions for structural repairs, capital replacements, leasing commissions and the landlord’s own financing costs |
| Capital items | Fully recoverable in the year incurred | Amortised over the useful life, with only the current year’s portion charged |
| Administration fee | A percentage on top of all operating costs including taxes and utilities | Capped percentage, applied only to controllable operating costs |
| Annual increases | Uncapped | A cap on controllable operating cost increases, commonly a fixed percentage per year |
| Reconciliation | Statement delivered whenever the landlord chooses | Deadline for the year-end statement, tenant audit rights, and refund of overpayments |
| Gross-up | Applied to all costs | Applied only to variable costs, never to realty taxes |
Retail tenants face additional layers. Percentage rent obliges the tenant to pay a share of gross sales above a breakpoint, and the definition of gross sales should exclude returns, taxes, employee sales, gift card issuances and, increasingly, online sales fulfilled from elsewhere. Continuous operation covenants require the tenant to stay open during specified hours and can be enforced by damages. Radius restrictions prevent the tenant opening a competing location nearby. Each of these is negotiable, and each is worth quantifying before signing.
Most commercial landlords will require a personal guarantee or indemnity from the principals of a corporate tenant. This is the provision with the greatest potential to affect you personally, and it is more negotiable than tenants assume. Options include limiting the guarantee to a fixed number of months of gross rent, having it burn off after a defined period of default-free payment, limiting it to the initial term so it does not automatically extend into renewals, and releasing the guarantor on a permitted assignment. A guarantee that is unlimited in amount and unlimited in time, extending through every renewal, is a serious personal exposure.
Assignment rights determine whether you can sell your business. If the lease allows the landlord to withhold consent in its sole discretion, or to recapture the premises instead of consenting, the value of your business is in the landlord's hands. Tenants should press for consent not to be unreasonably withheld or delayed, a defined response deadline with a deemed-consent consequence, an express carve-out permitting transfers to affiliates and to a purchaser of substantially all of the business assets who meets stated financial criteria, and a cap on the landlord's consent costs.
Watch for landlord termination rights buried in the middle of the form: demolition and redevelopment clauses, relocation clauses allowing the landlord to move you to comparable premises, and rights to terminate on a sale of the building. If they cannot be removed, negotiate compensation, unamortised leasehold improvement costs, moving expenses, and a notice period long enough to actually relocate a business. Equally, look at what you owe at the end: a restoration obligation requiring removal of all leasehold improvements and return to base building condition can cost tens of thousands, and should be narrowed to trade fixtures and specified alterations.
Fit-out is where tenants most often lose money they had not budgeted. The lease should contain a clear schedule dividing landlord's work from tenant's work, describing exactly what condition the premises will be delivered in, demising walls, base building HVAC capacity, electrical service, sprinklers, washrooms, accessible entry, and what the tenant must supply. A schedule that says the premises are delivered "as is, where is" transfers every base building deficiency to the tenant, and in an older building that can be a very large number.
A fixturing period is rent-free time before the term begins, during which the tenant builds out and installs. It should be long enough to absorb permit processing, which for a change of use under the Building Code Act, 1992 or for a food service kitchen can take considerably longer than the construction itself. Tenants should confirm that additional rent and utilities are also abated during fixturing, not just base rent, landlord forms frequently abate base rent only, and additional rent on a large industrial premises is not trivial.
Tenant improvement allowances need conditions the tenant can actually satisfy. Landlords commonly require completion of the work, delivery of paid invoices, statutory declarations, lien-free title and occupancy before the allowance is advanced, which means the tenant finances the entire build-out first. Negotiate progress draws where possible, and ensure the allowance is not forfeited if it is not drawn by an arbitrary date. If the allowance is amortised into rent, confirm the interest rate and whether the unamortised balance becomes payable on early termination.
Tenants should also understand their exposure under the Construction Act, R.S.O. 1990, c. C.30. The tenant is the payer for its own build-out and must hold the ten per cent statutory holdback, and unpaid subtrades can register liens that the lease will require the tenant to discharge within days. Insisting on statutory declarations of payment from the general contractor before each draw, and keeping the holdback until the lien periods have expired, is basic protection that also prevents a lease default for failure to keep title lien-free.
A commercial landlord does not need a court order to change the locks. If rent is in arrears and the lease permits re-entry, the landlord can terminate and take possession. The tenant's remedy is to move quickly: section 20 of the Commercial Tenancies Act allows a tenant to apply to the Superior Court of Justice for relief from forfeiture, and the court has broad equitable discretion to restore the tenancy where the breach can be remedied and the landlord can be made whole. Tenants who have invested substantially in leasehold improvements have a strong equitable case, but delay damages it.
Read the lease for the cure period. Many leases give as little as five days for rent and fifteen for other breaches. Do not assume the statutory position gives you longer, for commercial premises, it generally does not.
Whether to pay under protest, dispute the amount, or negotiate a forbearance agreement depends on whether the arrears are genuinely owing and whether the landlord has miscalculated additional rent, which is common.
If the landlord distrains, the lease continues and the seizure is limited to the tenant’s own goods for rent arrears only. If the landlord terminates and re-enters, the tenancy is at an end unless relief is granted.
An urgent application to the Superior Court of Justice under section 20, supported by evidence of ability to pay everything owing, the value of the leasehold improvements and the absence of prejudice to the landlord.
Relief is normally conditional: payment of all arrears and the landlord’s costs, and often a strict compliance schedule going forward. Meeting those terms is what makes the reinstatement stick.
Prevention is far cheaper. Before a dispute arises, tenants should keep the additional rent reconciliations, exercise renewal options strictly on time and in the manner the lease specifies, a renewal right lost by late or informal notice is usually lost for good, and register a notice of lease where the lease permits it, so that the tenancy is protected against a subsequent purchaser or mortgagee. If a landlord has served a default notice or you have been locked out of your premises, contact Lexaltico LLP without delay.
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