Insurance Requirements in Ontario Commercial Leases

Ontario commercial leases almost always divide insurance responsibility between landlord and tenant along fairly consistent lines. The landlord is generally responsible for insuring the physical building — its structure, roof, and major systems — while the tenant is responsible for insuring its own contents, fixtures, leasehold improvements, and the liability risk created by operating its business in the space. Neither party’s insurance is typically expected to cover the other’s side of that split.

This division matters because it’s easy to assume coverage exists where it doesn’t. A tenant that assumes the landlord’s building policy will cover its inventory or equipment in the event of a fire is often mistaken, and could be left with an uninsured loss. The insurance section of the lease — not general assumptions about how insurance “usually” works — is what actually determines who bears which risk, so it’s worth reading that section closely alongside our broader guide to commercial lease agreements in Ontario.

It is also common for the lease to address a third layer: the landlord’s own liability insurance covering common areas and the building’s shared systems, separate from the tenant’s liability coverage for its own leased space. Keeping these three layers — the landlord’s property insurance, the landlord’s liability coverage for common areas, and the tenant’s own liability and contents coverage — straight in your head makes it much easier to spot a gap where a loss might fall between policies rather than being clearly covered by one of them.

Commercial general liability insurance is close to a universal requirement across Ontario commercial leases, regardless of property type. It covers claims brought by third parties — typically customers, delivery personnel, or other visitors — for bodily injury or property damage connected to the tenant’s business operations or its use of the leased premises. If a customer is injured in a tenant’s retail space, for example, CGL coverage is generally the policy expected to respond.

Landlords typically specify a minimum CGL coverage amount in the lease, require that the policy remain in force for the entire lease term, and require the landlord to be notified if the policy is cancelled or materially changed. Because this is a negotiated minimum rather than a figure set by Ontario law, it’s worth confirming the required amount is reasonable for the size and nature of the specific business before signing.

Some leases also require specific endorsements beyond a base CGL policy, such as liquor liability coverage for a tenant serving alcohol, or product liability coverage for a tenant manufacturing or selling physical goods. These endorsements aren’t automatically included in a standard commercial policy, so confirming with an insurance broker that the policy actually matches what the lease requires is worth doing rather than assuming one general policy covers every scenario the lease contemplates.

Beyond liability coverage, most commercial leases require the tenant to insure its own contents — inventory, equipment, furniture, and often leasehold improvements — against standard perils such as fire and water damage. Since the landlord’s building policy generally doesn’t extend to a tenant’s belongings, this coverage is what actually protects the tenant’s own investment in the space.

Business interruption insurance serves a related but distinct purpose: it covers a tenant’s lost income and certain continuing expenses, such as payroll, if the business is forced to stop operating because of a covered event. Many tenants mistakenly assume property damage coverage alone will keep the business financially whole during a forced closure — but without business interruption coverage, a tenant could have the physical damage repaired while still suffering serious income loss with no insurance recovery for that separate harm.

The landlord typically carries its own property insurance on the building structure, and many leases require the landlord to maintain this coverage throughout the term, sometimes including a requirement to rebuild if the building is damaged, subject to the terms of the lease. This coverage generally protects the landlord’s own investment in the property, not the tenant’s business or belongings.

Some leases also address who bears responsibility if the property becomes unusable due to damage covered by the landlord’s insurance — for example, whether rent is abated during repairs, and what happens if the landlord chooses not to rebuild. These provisions overlap with broader lease termination concerns, covered in more detail in our guide to commercial lease termination in Ontario.

In a multi-tenant property, the landlord’s building insurance is also what typically covers damage affecting several units at once — for example, a fire that starts in one tenant’s space but spreads to a neighbouring unit. How the costs of that kind of shared loss are ultimately allocated between the landlord’s insurer, the originating tenant’s insurer, and any affected neighbouring tenant can get complicated, which is part of why clear insurance and liability language in each individual lease matters even for losses that don’t originate in that specific tenant’s own space.

There’s no provision of Ontario law that sets a universal minimum insurance amount for commercial tenants — the figures found in a lease are a product of negotiation between landlord and tenant, often shaped by the landlord’s own insurer, the size and type of property, and market practice for similar leases. Two million dollars in CGL coverage per occurrence is a commonly seen figure, but it’s not a legal floor, and leases requiring significantly more or less are both common depending on the circumstances.

Because these figures are negotiable, a prospective tenant facing a coverage requirement that seems disproportionate to the size of the business — or, conversely, a landlord concerned that a requirement is too low given the nature of the tenant’s operations — can generally raise the point before signing rather than treating the first draft as fixed.

Most Ontario commercial leases require the tenant to name the landlord — and often the landlord’s property manager and mortgagee — as an additional insured on the tenant’s CGL policy. This generally means the landlord is also protected under that policy for liability arising from the tenant’s operations, without needing to rely exclusively on its own coverage or pursue a separate claim against the tenant.

Leases also typically require the tenant to deliver a certificate of insurance confirming the required coverage before taking occupancy, and to provide updated certificates on renewal so the landlord can confirm coverage hasn’t lapsed. Falling behind on this administrative step is a surprisingly common and avoidable source of lease default, so tenants are generally well served by tracking renewal dates alongside other key lease obligations — see the broader overview at Commercial Leases for related considerations, or our contact page for general questions.

Finally, it’s worth checking whether the lease requires the tenant’s insurer to carry a minimum financial strength rating. A landlord may want assurance that the insurer behind a tenant’s policy is itself financially stable enough to pay out a significant claim if one ever arises, particularly for a larger property with substantial potential liability exposure. This kind of requirement is less commonly negotiated than the coverage amounts themselves, but it can still affect which insurer a tenant is able to use to satisfy the lease’s conditions.