Ontario Commercial Lease Law: Key Clauses, Landlord and Tenant Rights, and Disputes

The Commercial Tenancies Act (Ontario)

Commercial leases in Ontario are governed by the Commercial Tenancies Act R.S.O. 1990, c. L.7 (CTA) and the common law. Unlike residential tenancies, commercial leases are largely governed by the parties' contract — the CTA provides a framework but gives the parties significant freedom to vary its provisions. Key CTA provisions include:

• Part II — Distress (ss.31-62): governs the landlord's right to distrain for unpaid rent by seizing and selling tenant goods
• Section 18: landlord's liability for interference with tenant's quiet enjoyment
• Section 19: waiver of breach (accepting rent with knowledge of breach waives the landlord's right to forfeit for that breach)
• Section 20: relief from forfeiture (court may grant relief on such terms as it sees fit)
• Section 21: right to re-enter after default; notice requirements
• Part IV: holdover tenancy and implied periodic tenancy provisions

Lease Structures: Gross, Net, and Triple-Net

Understanding the lease structure is essential to understanding the tenant's total occupancy cost and the landlord's risk exposure:

In practice, the term "net" is used inconsistently — always read the specific additional rent and operating cost provisions of the lease to understand exactly what the tenant owes beyond base rent. Common additional rent items include: realty taxes (including business improvement area levies), building insurance, common area maintenance (CAM), management fees (cap these where possible), utilities, and capital replacement reserves.

Distress (Distraint) for Unpaid Rent

Distress is a self-help remedy allowing a landlord to seize the tenant's goods on the premises and sell them to recover unpaid rent, without first obtaining a court order. It is a powerful but technically demanding remedy governed by CTA Part II:

• Right to distrain — arises when rent is due and in arrears; the lease must not have been forfeited (cannot distrain after forfeiture); distress cannot be used for other amounts owed (e.g., operating costs labeled as "additional rent" — check the lease definition of "rent")
• Goods exempt from distress — CTA s.31 exempts tools of trade, wearing apparel, goods in transit, goods of a third party, goods leased under PPSA (Personal Property Security Act) chattel leases
• Bailiff requirement — distress must be carried out by a licensed bailiff (Bailiff Act R.S.O. 1990); a landlord conducting their own distress without a bailiff commits an unlawful distress
• Notice and timing — CTA s.43 requires five days' notice to the tenant before sale of distrained goods; the tenant has the opportunity to redeem goods by paying the arrears
• Illegal distress — proceeding without proper authority, seizing exempt goods, or using excessive force makes the landlord liable for wrongful distress (conversion); significant damages possible

Forfeiture and Re-Entry

Forfeiture terminates the lease and allows the landlord to re-enter the premises and re-let to a new tenant. Key requirements:

• Right of re-entry clause — the lease must contain an express right of re-entry clause triggered by non-payment of rent or breach of covenant; without such a clause, the landlord cannot forfeit
• Section 19 waiver — a landlord who accepts rent with knowledge of a breach waives the right to forfeit for that breach; be careful about accepting any rent after an event of default without expressly reserving rights
• Notice for non-rent breaches — for breaches other than non-payment of rent, the landlord must serve notice under CTA s.19(2) specifying the breach, requiring remedy within a reasonable time (typically 20 days for remediable breaches under the CTA); only then can re-entry be exercised
• Peaceful re-entry — the landlord must re-enter peacefully; forcible entry (breaking and entering with risk of violence) is an offence under the Trespass to Property Act and the Criminal Code
• Effect of forfeiture — all subleases and mortgages registered against the leasehold are extinguished; the subtenant's interest ends with the head lease

Relief from Forfeiture

Relief from forfeiture is an equitable remedy allowing a court to restore the tenant to possession despite the landlord's valid forfeiture. In Ontario, relief is available under:

• CTA s.20 — court may grant relief from forfeiture for non-payment of rent on such terms as it sees fit (payment of arrears plus costs is the standard condition)
• Courts of Justice Act s.98 — courts may grant relief against penalties and forfeitures on such terms as to compensation and otherwise as seem just
• The court considers: the gravity of the breach, the conduct of the tenant, the landlord's losses, whether the breach is remediable, the value of the tenant's interest, and any hardship
• For non-rent breaches (e.g., unauthorized use), relief is more difficult to obtain than for pure non-payment breaches where the arrears can be cured

Assignment and Subletting

Commercial leases almost invariably restrict assignment and subletting without the landlord's prior written consent. Unlike residential tenancies, there is no Ontario statutory requirement that a commercial landlord act reasonably in refusing consent. The lease language controls.

• Assignment vs sublease — an assignment transfers the entire remaining term to the assignee; a sublease creates a new tenancy for less than the remaining term. On assignment, the original tenant remains liable (privity of contract) unless expressly released by the landlord.
• Consent not to be unreasonably withheld — where the lease contains this provision (best practice to negotiate), the landlord cannot refuse for unrelated reasons; grounds for reasonable refusal include: creditworthiness of the proposed assignee, incompatibility with the use clause, and financial ability to perform lease obligations
• Recapture clause — many commercial leases give the landlord the right to terminate the lease (recapture the premises) instead of permitting the assignment; the landlord then avoids the obligation to consent and can negotiate directly with the proposed assignee or re-let at market rent
• ROFO / ROFR on assignment — right of first offer or refusal clauses requiring the tenant to first offer the lease to the landlord before assigning to a third party; common in retail and food and beverage leases

Demolition and Relocation Clauses

Many commercial leases — particularly in urban core, shopping mall, and redevelopment contexts — include demolition clauses giving the landlord the right to terminate the lease if the building is to be demolished or substantially renovated for redevelopment. Key considerations when reviewing demolition clauses:

• Notice period — negotiate the longest possible notice period before the landlord can exercise the demolition right (12-24 months is reasonable for established businesses needing time to relocate)
• Demolition permit requirement — insist the clause only be triggered after the landlord obtains an actual demolition or building permit (not merely an application or approval in principle)
• Relocation option — negotiate a right to be offered equivalent space in the redeveloped building at equivalent terms before the demolition right can be exercised
• Compensation — negotiate compensation for disruption, leasehold improvements, signage costs, and lost goodwill triggered by demolition clause exercise; include a specific damages formula
• Fixturing period / build-out costs — if the tenant invested significantly in leasehold improvements, ensure the compensation formula accounts for unamortized improvement costs

Repair and Maintenance Obligations

The allocation of repair and maintenance obligations between landlord and tenant is lease-specific. Common structures:

• Landlord obligations — structural repairs (roof, foundation, exterior walls, building systems in gross leases), common areas, base building HVAC (sometimes), elevators, and parking lots
• Tenant obligations — interior leasehold improvements, non-structural repairs within the unit, HVAC serving exclusively the tenant's premises (in many NNN leases), plate glass, doors, fixtures
• HVAC disputes — the most litigated repair issue in commercial leases is the responsibility for HVAC equipment. Clarify in the lease: who owns the HVAC serving the tenant's premises, whether the landlord or tenant maintains it, and whether the tenant must replace a failed HVAC unit
• Condition at end of term — most commercial leases require the tenant to restore the premises to the condition at commencement (reasonable wear and tear excepted), remove trade fixtures, and make good any damage. Negotiate an express carve-out for fixtures the tenant does not want to remove.

Quiet Enjoyment and Landlord Liability

The covenant of quiet enjoyment — implied in every lease under CTA s.18 and at common law — is the landlord's promise that the tenant will have peaceful possession of the premises for the term of the lease, free from substantial interference by the landlord or those claiming under the landlord.

Breach of quiet enjoyment occurs where:

• The landlord or agents repeatedly enter the premises without proper notice or consent
• The landlord cuts off essential services (heat, water, electricity) to pressure the tenant
• Construction by the landlord substantially interferes with the tenant's use and enjoyment
• Failure to maintain common areas in a manner preventing access to the tenant's premises

Remedies for breach of quiet enjoyment include damages (including loss of business), rent reduction (abatement) for the period of interference, and in extreme cases an argument for constructive eviction — where the landlord's conduct renders the premises uninhabitable, the tenant may treat the lease as ended and claim damages.

Limitation Periods for Commercial Lease Claims

The Limitations Act 2002 two-year basic limitation period (from the date of discovery) applies to most commercial lease claims in Ontario:

• Arrears of rent: two years from each missed payment (continuing obligation — each missed payment starts a new period)
• Distress and wrongful distress claims: two years from the distress action
• Forfeiture and relief from forfeiture applications: prompt action required; delay can bar equitable relief
• Repairs and maintenance breaches: two years from discovery of the breach
• Breach of quiet enjoyment: two years from the date of the breach or discovery

The 15-year ultimate limitation period (s.15) applies regardless of discoverability. Landlords pursuing rent arrears claims for periods more than two years before the action will face a limitation defence unless an acknowledgment of the debt resets the period under s.13 (written acknowledgment signed by the debtor or agent).

Frequently Asked Questions