Renewing a Commercial Lease in Ontario: What Business Tenants Should Review

Many commercial leases include options that allow tenants to renew their lease after the initial term expires. For businesses that rely on maintaining a consistent location, renewal options can be extremely valuable.

However, exercising a lease renewal is not always as simple as continuing the existing arrangement. Renewal provisions often contain strict notice requirements and may include new rent terms or other conditions that affect the tenant’s obligations.

Business owners approaching the end of a commercial lease should carefully review the renewal provisions in their lease to ensure they understand the process and potential consequences.

Understanding Renewal Options

Commercial leases often include one or more renewal options that allow the tenant to extend the lease for an additional period after the initial term ends.

A renewal option typically gives the tenant the right to continue occupying the premises for a specified period, such as:

• three years

• five years

• ten years

The renewal period may be governed by the same terms as the original lease, or the lease may allow certain provision to be renegotiated.

Tenants should review their lease carefully to understand the conditions attached to renewal options.

Notice Requirements for Renewal

Renewal options often require tenants to provide written notice to the landlord within a specific timeframe.

Many leases require notice several months before the end of the lease term. For example, a lease may require the tenant to notify the landlord:

• six months before the lease expires

• nine months before the lease expires

• twelve months before the lease expires

If the tenant fails to provide notice within the required period, the renewal option may expire, potentially requiring the tenant to vacate the premises.

Because these notice requirements can be strict, tenants should track key dates carefully.

Rent During Renewal Periods

Commercial leases frequently provide that rent during renewal periods will be adjusted.

The lease may specify that rent during renewal will be:

• negotiated between the parties

• based on market rates

• determined by a formula in the lease

If the lease provides for market rent, disputes may arise if the landlord and tenant disagree on the appropriate rate.

Tenants should review how rent is determined during renewal periods and whether the lease includes mechanisms for resolving disputes.

Reviewing Lease Terms Before Renewal

The renewal of a commercial lease may provide an opportunity for tenants to renegotiate certain terms of the lease.

Although renewal options often preserve the original lease terms, landlords and tenants sometimes negotiate modifications before the renewal period begins.

Examples of terms that may be renegotiated include:

• rent levels

• tenant improvement allowances

• maintenance obligations

• renewal periods

Tenants may benefit from reviewing the lease well in advance of the renewal deadline to determine whether renegotiation is possible.

Evaluating the Business’s Long-Term Needs

Before exercising a renewal option, business owners should consider whether the current premises continue to meet their operational needs.

Factors to consider may include:

• the size and layout of the premises

• accessibility for clients or customers

• rent levels compared with other available properties

• anticipated growth of the business

Evaluating these factors can help determine whether renewing the lease is the best option for the business.

Why Legal Review of Lease Renewals Matters

Commercial lease renewals often involve important financial and operational considerations.

Before exercising a renewal option, tenants may wish to obtain legal advice to ensure they understand:

• the notice requirements for renewal

• how rent will be determined during the renewal period

• whether the lease terms can be renegotiated

Carefully reviewing the renewal provisions can help businesses make informed decisions and avoid unintended consequences.

Speak With a Lawyer Before Renewing a Commercial Lease

Business owners approaching the end of their lease term should review the renewal provisions carefully before exercising a renewal option.

If you are reviewing a commercial lease renewal or negotiating renewal terms in Ontario, you can Book a Consultation to discuss your situation and determine the appropriate next steps.