The Art of Commercial Leases

When a tenant and a landlord enter into a commercial lease agreement without a lawyer, they often do so wearing rose-coloured glasses.

They can’t see the potential pitfalls and worst-case scenarios that lay ahead in their new-found relationship. The plan is to lease a particular property for an agreed upon length of time, and no one sees that derailing along the way. Well, I mean other than us – your friendly neighbourhood legal team.

Commercial leases need to be thoughtfully crafted (it really should be an artform), taking into consideration the type of business the tenant plans to carry out in the property. At the minimum, a commercial lease should include:

  • The length of the lease term
  • The monthly rent and any potential rent increases
  • Consequences if rent is not paid on time
  • Conditions for eviction
  • Tenant’s rights
  • Utilities and maintenance
  • Early termination rights
  • Permitted use of the premises

As a tenant, among the most important clauses in a lease is the section pertaining to “permitted use.” You want to ensure that nothing in the lease prevents you from carrying out your business on the premises. This is not to say that other clauses are not important, however this one is key in ensuring you can actually use the property for your intended purpose.  

As a landlord, you want to have options if the tenant stops paying you rent. Fortunately, for landlords, even if this is left out of the lease agreement, it is captured under the Commercial Tenancies Act, which governs all leases in Ontario. Landlords further have the option of the type of remedy they seek when it comes to unpaid rent. For example, they can evict the tenant upon reasonable notice, or preserve the relationship while still seeking payment of rental arrears. So, if you’re a commercial tenant, you especially want to ensure your lease is reviewed by a professional before you sign!

As you can see, there are lot of considerations when drafting a commercial lease agreement – and that’s just the tip of the commercial tenancy iceberg. It’s time to take those rose-coloured glasses off!

Robin K. Mann, Associate Lawyer