Negotiating a Commercial Lease in Ontario: Key Points

Commercial leases in Ontario are almost always drafted by the landlord, typically using a standard form the landlord’s lawyer has refined across many previous leases in the same property or portfolio. That form naturally reflects the landlord’s priorities and risk preferences, and it’s rarely in the landlord’s interest to volunteer more favourable terms than the market requires. None of this is improper — it’s simply how commercial leasing works — but it means the tenant’s side of the negotiation is where any rebalancing needs to happen.

Because the Residential Tenancies Act generally doesn’t apply to commercial space, there’s no broad statutory floor of tenant protections layered on top of the negotiated terms, as there would be for a residential tenancy. Our general guide to commercial lease agreements in Ontario covers this distinction in more depth. In practice, this makes the negotiation stage more consequential for a commercial tenant than it would typically be in a residential context.

This doesn’t mean a landlord’s draft is unfair or drafted in bad faith — it simply reflects whose lawyer wrote it first. A tenant entering negotiations with that expectation in mind, rather than assuming the draft already represents a balanced starting point, is generally better positioned to identify which clauses are genuinely worth pushing back on and which are reasonably standard for the type of space and market being considered.

A landlord’s marketing materials or initial quote often emphasize the base rent figure, but base rent is frequently only part of the real monthly cost. Depending on the lease structure — gross, net, or triple net — the tenant may also owe additional rent, covering a proportionate share of property tax, insurance, and common area maintenance costs. Our guide to triple net leases in Ontario explains how this structure works in more detail.

When negotiating, it’s worth asking for historical additional rent figures rather than relying solely on a landlord’s forward estimate, confirming whether there’s a cap on annual increases, and clarifying exactly which costs are included. A lease that looks inexpensive based on base rent alone can turn out to be considerably more costly once the full additional rent obligation is factored in.

It is also worth asking how additional rent is billed and reconciled over the course of the year. Many leases bill an estimated monthly amount with an annual reconciliation against actual costs, which can produce a lump-sum bill or credit once the true figures are known. Understanding this cycle in advance generally avoids an unwelcome surprise when the first reconciliation statement eventually arrives.

A renewal option gives the tenant the right, but generally not the obligation, to extend the lease for a further term once the initial term ends, often at a rent set by a pre-agreed formula or a fair-market-rent mechanism. Without a renewal option, the tenant has no guaranteed right to remain in the space once the term expires, which can be a real risk for a business that has invested significantly in build-out, signage, or a location- based customer base.

Negotiating a renewal option — and making sure the rent-setting mechanism for the renewal term is clear and not left entirely to the landlord’s discretion — is one of the more valuable protections a tenant can secure during negotiation. Our dedicated guide to commercial lease renewal options in Ontario covers how these clauses are typically structured and exercised.

It is also worth confirming the notice period required to exercise a renewal option, and marking that deadline well in advance. Missing a renewal notice deadline, even by a short margin, can mean losing the right to renew altogether in some leases, regardless of how long the tenant has otherwise occupied the space without issue.

Most commercial leases require the landlord’s consent before a tenant can assign the lease to a new party or sublet part or all of the space, and the way that consent requirement is worded matters a great deal. A draft that lets the landlord withhold consent for any reason, or no reason at all, gives the tenant very little real flexibility if the business needs to be sold, downsized, or restructured later.

Tenants often negotiate for a standard requiring the landlord’s consent not to be unreasonably withheld, along with a defined process and timeline for requesting consent. Our guide to commercial lease assignment and subletting in Ontario covers this topic in detail, including what landlords commonly look for before granting consent.

Some leases also include a landlord’s right of “recapture” on a proposed assignment or sublease, allowing the landlord to take back the space itself rather than consenting to the transfer. Where this right exists, it’s worth understanding exactly how and when it can be exercised, since it can affect a tenant’s ability to rely on finding its own replacement tenant or sub-tenant when circumstances change.

Landlords leasing to smaller or newer businesses frequently require a personal guarantee from the business owner, making that individual personally liable if the corporate tenant defaults. An open-ended guarantee, with no dollar limit and no time limit, can expose the guarantor’s personal assets to a risk well beyond what the business itself is worth.

Even where a landlord insists on a guarantee as a condition of the lease, the specific wording of what triggers liability under it is worth reading closely. Some guarantees are limited to unpaid rent, while others extend to every obligation under the lease, including the cost of repairing damage or completing restoration work at the end of the term — a meaningfully broader scope that is worth noticing before signing.

Retail tenants in particular often benefit from raising a few additional points during negotiation that landlords rarely offer unprompted: an exclusivity clause preventing the landlord from leasing to a direct competitor in the same property, and a co-tenancy clause tied to the continued presence of an anchor tenant or a minimum occupancy level.

It’s also worth checking whether the lease includes a relocation clause allowing the landlord to move the tenant to a different unit within the property, and under what termination rights, if any, the tenant can end the lease early — for example, if the business closes, the property is sold, or a co-tenancy or exclusivity condition is breached. Our guide to commercial lease termination in Ontario covers how these rights are typically structured.

A commercial real estate broker can be a useful resource during the early stages of a lease negotiation, helping compare available space, understand market-standard rent and terms, and negotiate the core business points of the deal. A lawyer’s review generally serves a different purpose — focusing on the legal drafting itself, flagging unfavourable or ambiguous language, and confirming the final document actually reflects what was negotiated.

Given how significant a multi-year commercial lease typically is for a business financially, having the document reviewed before signing — not after — is one of the more valuable steps available in the entire process. For a broader overview of related topics, see the Commercial Leases hub, or reach out through our contact page with general questions.