Commercial Leases in Ontario
Disclaimer: This article on commercial leases is intended for the purposes of providing information only and is to be used only for the purposes of guidance. This article is not intended to be relied upon as the giving of legal advice and does not purport to be exhaustive.
Moving from your garage (or kitchen table) to a storefront or office space is a significant step for any business. That commercial lease tells the world that you are serious about your business and committed to its success. But commercial leases come with a price tag, both in terms of the monthly rent and the upfront costs associated with leasing commercial space.
Before signing a lease, it is important to understand the different types of commercial leases and what they entail. We believe that an informed tenant is a happy tenant. So, we have put together this article to help you understand the ins and outs of commercial leases.
In this article, we will discuss common terms in your lease agreement, how they differ from residential agreements and why you would be wise to have a lawyer review your agreement before you sign. If you want a legal team that is experienced in commercial leasing who are passionate about providing clear, strategic legal advice, contact our team today.
Common Terms and Provisions in Ontario Leases
There are no standardized lease forms for commercial real estate. Therefore, it is important to understand some of the common terms that you may see in your lease agreement.
The Commercial Tenancies Act in Ontario governs commercial leases and sets out the rights and responsibilities of landlords and tenants. It is important to note that a lease agreement may take precedence over the provisions of the Commercial Tenancies Act.
Generally, a lease will cover the following topics:
1) The term of the lease
This is the length of time that the tenant can occupy the space. It may be a fixed term or a periodic term. A periodic tenancy means that the lease will automatically renew on a monthly or yearly basis, unless either the landlord or tenant gives notice to terminate the lease.
If the lease is for a fixed term, your lease may also address provisions for renewing your lease.
2) The rent
The amount of rent and when it is due. There may also be provisions for how the rent will be increased over the term of the lease.
Commercial leases in Canada are usually fully net. This means that a tenant must pay basic rent as well as a percentage of the building’s realty taxes, insurance, utility and other maintenance expenses.
3) The use of the property
This will be specific to your business needs. For example, if you are leasing a retail space, the lease may indicate that the property can only be used for retail purposes.
4) The condition of the property
The landlord is responsible for ensuring that the property is in good repair and habitable, but the tenant is responsible for keeping the space clean and tidy.
5) The responsibilities of the landlord and tenant
These will be specific to the property and the needs of the tenant. For example, the landlord may be responsible for maintaining the common areas, while the tenant may be responsible for snow removal.
6) The right to assign or sublet
This allows the tenant to rent out part or all of the space to another party. Assignment refers to the tenant renting the entire space to another party. Subletting refers to the tenant renting out part of the space to another party. The landlord’s consent is usually required for both assignment and subletting.
7) The right of first refusal
This gives the tenant the right to lease any additional space that becomes available in the same building.
- ownership of any leasehold improvements; and
- the provisions of any security/damage deposit.
8) Tenant improvements
This refers to any changes or improvements that the tenant makes to the property, such as adding partitions or painting walls. The landlord may require that the tenant remove these improvements at the end of the lease.
9) Security deposit
A security deposit is an amount of money that a tenant gives to a landlord as security for damages or missed rent.
10) Common areas
Common areas are areas of a building that are shared by all tenants, such as hallways, washrooms, and elevators.
11) Operating expenses
These are the costs of running and maintaining the property, such as utilities, janitorial services, and snow removal. In a commercial lease, these expenses are usually the responsibility of the tenant.
The landlord is responsible for insuring the property, but the tenant may be required to insure their own contents and business operations.
13) Notice provisions for terminating the tenancy
These provisions outline the notice period that either the landlord or tenant must give when they want to terminate the lease.
14) Default provisions
These are the consequences that a tenant will face if they default on the terms of the lease, such as failing to pay rent on time.
15) Quiet enjoyment
The tenant has the right to quiet enjoyment of the property, which means that the landlord cannot evict the tenant without cause or interfere with the tenant’s use and enjoyment of the property. Likewise, other tenants have the same right and should not be disturbed by the actions of any one tenant.
16) Dispute resolution
This provision outlines how disputes between the landlord and tenant will be resolved, such as through arbitration or mediation.
There are other provisions that may be included in a commercial lease, but these are some of the most common.
Differences Between Residential and Commercial Leases
You may be more familiar with residential rental agreements and believe that the same rules apply to both. However, there are some important differences between commercial and residential leases that you should be aware of before signing a lease agreement.
One main difference is in how the courts will view disputes . In a residential lease, the courts will usually give more deference to the tenant. This is because tenants are often seen as being at a disadvantage when negotiating with landlords. However, in a commercial lease, the courts will typically treat both parties equally.
As both the tenant and landlord are knowledgeable business people, the courts will view the dispute through the lens that both parties should have had the lease reviewed by independent legal counsel and negotiated the terms to their liking.
Another difference is that there is no legislation that addresses rent increases in commercial leases. In contrast, residential tenancy law often sets out rules around how much and how often landlords can increase rent. As a result, landlords have more flexibility when it comes to setting rent prices in commercial leases.
Expert Legal Advice For Commercial Leases in Ontario
Now that you understand the basics of commercial leases, you may be ready to sign a lease agreement. As with any legal contract, it’s important to have an experienced lawyer review the agreement before you sign.
As we noted, the courts will not give as much deference to either party in a commercial lease dispute. This means that it’s even more important to ensure that the agreement clearly sets out the rights and obligations of both parties.
For expert legal advice on your Ontario lease agreement, contact our team of experienced real estate lawyers today. We take the time to discuss what is important to you and ensure that the agreement protects your interests.
Because our team practices both sides of real estate law – the transactional (aka preparing contracts) and the litigation (aka handling disputes and bringing forward actions) – we are uniquely positioned to provide you with the best legal advice. We use our litigation experience to see problems before they arise – and craft creative solutions to solve them.
We understand that your business is important to you and will take the time to ensure that your commercial lease agreement meets your needs. Start by contacting us today.