Are you looking for a commercial lease agreement in Ontario? We also have lawyers that can provide independent legal advice and contract reviews. Commercial property is complex in that you need to think about property tax, base rent, common areas, and automatic renewal. It’s always important to get legal advice before signing a contract. This is even more true with a commercial lease agreement. Getting office space is required for many companies as they grow. It’s fine to work from home, Regus or WeWork when you start your company. But when you have fifty staff, you are going to need office space. Don’t assume the terms that the landlord gives you are set in stone. You can hire a law firm to negotiate the security deposits, automatic renewal, and base rent.

Is there a standard commercial lease in Ontario?

Commercial leases in Ontario are unique and tailored to the specific needs of the parties involved. While there are certain basic requirements under the Commercial Tenancies Act, of 1990, such as a requirement that the lease is in writing and include certain information, the terms and clauses of the lease will vary depending on a range of factors, including the type of property being leased and the intended use. Commercial leases in Ontario can range from relatively simple agreements with only a few clauses to complex agreements addressing a wide range of issues, such as rent payments, maintenance and repair obligations, insurance requirements, and dispute resolution mechanisms.

Commercial leases in Ontario

Given the complexity of these agreements, it is recommended that both landlords and tenants seek legal advice when negotiating and drafting the lease agreement to ensure that the terms are fair and balanced. In addition to seeking legal advice, landlords and tenants can also refer to resources such as the guide for commercial tenants provided by the Ontario Ministry of Municipal Affairs and Housing. This guide provides information on lease negotiations, rent increases, and dispute resolution, among other topics. Overall, commercial leases in Ontario are not standardized and require careful consideration and negotiation between the parties involved. Seeking legal advice and using available resources can help ensure that the lease agreement is fair and meets the needs and expectations of both parties.

Negotiate a Commercial Lease

While a major consideration, negotiating a commercial lease agreement is more difficult than simply discussing rent. Rather, to negotiate a commercial lease well, there are several important considerations to be aware of.

In fact, the first step in properly negotiating a commercial lease is to understand and evaluate one’s own needs. How much space do you need now? How much space will you need in the future? What is your budget?

Where do you prefer to be located? By first considering your own needs at a high level, you will be able to approach the negotiation with specific goals in mind.

Having understood your own needs, it is next important to understand the options available to you. For one, you should consider whether costs (like taxes, insurance, and utilities) will be covered in the base rent or not.

For example, a gross rent lease will require the tenant to pay a single amount to the landlord, which covers base rent and any incidentals. Compare this with the various types of net leases (net, double net, and triple net leases) where the tenant pays for some incidentals directly.

Other options, like the parties’ rights to terminate/renew the lease, competition clauses, repairs, signage, alterations, etc. are all considerations that go into negotiations.

Handling Rent Increases

Legally speaking, there is no limit on how much a landlord can increase the rent each year under a commercial lease. Accordingly, commercial tenants should weigh the pros and cons of entering into a long-term lease in order to fix the cost in the near future.

While this may provide the tenant with stability, it may also lock the tenant into a lease that they later wish to get out of. Alternatively, the tenant and landlord may negotiate a short-term lease with options to renew at a specific base rent.

This can be a fixed or variable based on the Consumer Price Index or other inflation index or market increases).

Commercial Lease Agreement Ontario

 The landlord and tenant relationship typically result in a power imbalance in favour of the landlord.

Such control typically is especially exerted by landlords in their ability to prevent tenants from transferring the lease to another party (i.e. an assignment of the lease) and/or leasing the rented space to another tenant (i.e. subletting).

Many commercial leases provide that a tenant cannot assign or sublet without the landlord’s prior consent, which may make it difficult for a tenant looking to sell its business.

If being able to freely assign or sublet is important to the tenant, then the tenant should consider negotiating such that (i) the tenant can assign or sublet without the landlord’s consent; or (ii) the tenant can assign or sublet with the landlord’s consent.

But the landlord must consent within a specified time period and cannot unreasonably withhold consent.

Ontario Lease Agreement

If a tenant is experiencing or expecting high growth, the space rented under a commercial lease may be insufficient in the future.

Accordingly, such tenants should consider negotiating the commercial lease agreement to provide for certain rights of expansion. For example, a tenant may negotiate a right of the first offer, which gives the tenant the first right to offer lease space if it becomes available.

Similarly, a tenant may negotiate for a right of first refusal, which gives it the right to match any third-party offer made on the vacant premises.

However, tenants should be aware that such rights do not guarantee them such additional space (as these rights only arise upon space becoming available).

Accordingly, a tenant should be aware of the likelihood of such spaces becoming available and should negotiate accordingly.

Commercial lease agreement Ontario

You will also need to discuss who will be responsible for the property tax. Your company’s success will be partly subject to the terms of the agreement you sign. If you are a landlord, your entire business success will be subject to the terms of the lease agreement. A residential lease is completely different than a business property lease. The parties must agree on all the terms. It’s helpful to provide examples of why leases are so important. When dealing with a commercial lease agreement in Ontario, it’s no joke. We once had a client who had a small claims lease dispute. It was a commercial lease that was agreed upon and confirmed by email. There were no terms minus the base rent. After moving into the space, it was obvious that the wifi didn’t work. It wasn’t clear who was responsible to pay for the upgrade. After a few months, the landlord wanted to update all the carpets in the office. The tenant was sent a bill for $4000. The tenant did not want to pay.

Commercial Lease Agreement Ontario

The tenant decided to move out of the space. There were no terms in the email that confirms the lease agreement on how much notice should be provided. The tenant had paid for January, February, and March. Therefore, at the end of March, the tenant moved out all their stuff from the office after hours. The next day, the landlord was looking for their payment for April, May, and June. The tenant confirmed they had moved out of the office and would not be paying. The commercial landlord said that it was three months at a time lease. Further, at least three months’ notice was required. The tenant obviously did not agree as they had already moved out of the office. The landlord said they were going to file a small claims action to recover their three months’ rent. Of course, the tenant avoided being served with the papers. It wasn’t worth it for the landlord to spend tons of money trying to find the tenant. They also could have filed a motion with the court to serve the tenant by email. However, this all costs money. It wasn’t worth over $4500 in rent. Normally it’s not worth it to file a lawsuit unless it’s big enough.

Lease renewal Ontario

If you are looking for a commercial lease signage clause, you should definitely get it properly done. You won’t believe how many lawsuits start because of the signage of the business. For example, many franchises have strict rules about taking down the sign if you go out of business. The last thing that a company like Booster Juice wants is their sign to be turned off during the day with a “for lease” sign below it. Sometimes a tenant wants a really large sign, and the landlord is only willing to offer a small sign. All of this should be properly agreed to in the contract before signing. Get a lawyer to create the signage clause for you.

Who pays for a commercial lease agreement?

Another common reason for lawsuits is lease renewal. Maybe the tenant wants to stay, but the tenant wants to sell the building to a developer to be knocked down for condos.[ If a tenant puts over $100K into renovating their space, this can be devastating for the business. They would need to spend another $100K at a new location. And of course, they could be shut down for a year while looking for new space. Spending $5000 on a lawyer to create a proper lease renewal clause for your needs (either as the business or landlord) can save you hundreds of thousands in the future. Don’t save a penny and lose a dollar.

Sample commercial lease agreement Ontario

If you are looking for a sample commercial lease agreement in Ontario, contact us. We can send you one by email. We have real estate lawyers that focus on commercial lease lawsuits. If someone signed an agreement to pay you $20,000 of rent for 36 years, it could be worth $720,000. It is obviously worth it to hire a lawyer to file a lawsuit for $720K. If you spend $20,000 on legal fees to get $720,000, it’s worth it. A business lawyer can help you with:

• how many months’ rent is due upfront
• the terms around written notice
• discuss the term of the lease
• the leasing agreements
• negotiate the base rent
• seeing if a month-to-month tenancy is possible

Some people have been attracted to models like WeWork because they offer month-to-month leases. This gets companies out of the risk of taking on $720,000 of risk. In conclusion, if you are looking for a commercial lease agreement in Ontario, speak to one of our lawyers today. You can also learn about Canadian law on Youtube. Author: Alistair Vigier is the CEO of ClearWay Law