What Should a Business Review Before Signing a Commercial Lease in Ontario?

Aug 21, 2025

6 min read

Signing a commercial lease is a significant commitment for any business.

The monthly rent may be the first number a business owner looks at, but the financial and operational consequences of a lease extend far beyond base rent. A commercial lease can determine who pays for repairs, how additional costs are calculated, whether the business can transfer the lease, what happens if the premises no longer meet its needs, and what rights the business has when it comes time to renew or leave.

In Ontario, there is no standard commercial lease. Commercial leases can vary substantially depending on the property, landlord, tenant and negotiated terms.

Ontario's Commercial Tenancies Act governs aspects of the commercial landlord and tenant relationship, but the lease itself plays a significant role in establishing the parties' rights and obligations.

For that reason, a business should review a commercial lease as both a legal agreement and a long-term business commitment.

Here are ten important areas to consider before signing.

1. Understand the Full Cost of Occupancy

Base rent rarely tells the whole story.

Depending on the lease structure, the tenant may also be responsible for additional rent or operating costs relating to the property.

A business should understand:

the base rent throughout the term;
scheduled rent increases;
additional rent or operating costs;
property taxes;
utilities;
maintenance charges;
insurance costs;
management or administration fees; and
any other amounts that may be charged to the tenant.

The lease should also be reviewed to understand how these amounts are calculated and what may change during the term.

Ontario specifically identifies rent, rent increases, deposits, insurance, maintenance and repair obligations among the matters commonly addressed in commercial leases.

The important question is not simply, "What is the rent?" It is, "What will this space actually cost the business?"

2. Review the Length of the Term and Renewal Rights

A longer lease can provide stability, particularly where location is important to the business or the tenant is investing significantly in the premises.

It can also reduce flexibility if the business grows, contracts, relocates or changes its operating model.

Before signing, consider whether the initial term aligns with the company's plans and whether the lease provides renewal options.

Where renewal rights exist, pay close attention to:

how and when the option must be exercised;
whether renewal depends on the tenant not being in default;
how rent will be determined during the renewal term;
how many renewal periods are available; and
whether any other lease terms change on renewal.

A renewal option can be valuable, but only if the business understands the conditions attached to it.

3. Make Sure the Permitted Use Covers the Business

Commercial leases commonly specify how the premises may be used.

A narrowly drafted permitted-use clause may create problems if the business later expands its services, introduces new products or changes how it operates.

The business should consider whether the permitted use is broad enough for both its current operations and reasonably anticipated growth.

It is also important to consider whether the intended use is compatible with applicable zoning, property restrictions and other requirements affecting the premises.

The question is not only whether the business can operate there today, but whether the lease provides enough flexibility for how the business may evolve.

4. Determine Who Is Responsible for Repairs and Maintenance

Repair obligations can create significant and sometimes unexpected costs.

A commercial lease may allocate responsibility for HVAC systems, plumbing, electrical systems, windows, doors, equipment, structural components or other parts of the property.

The Ontario government's commercial leasing guidance specifically identifies repair and maintenance obligations as an issue that should be addressed in the lease.

A business should understand:

what it is responsible for maintaining;
what it must repair or replace;
which obligations remain with the landlord;
whether it could become responsible for major building systems;
whether there are limits on its financial responsibility; and
what happens when repairs are required because of age or ordinary deterioration rather than the tenant's actions.

This can be particularly important in older properties or where the business depends on specific environmental or operating conditions.

5. Review Alterations, Improvements and Fixturing Requirements

Many businesses need to modify their premises before they can operate.

That may involve signage, walls, plumbing, electrical work, accessibility improvements, specialized equipment or substantial leasehold improvements.

The lease should be reviewed for:

whether landlord approval is required;
who is responsible for the cost of improvements;
construction and contractor requirements;
whether permits or approvals are required;
who owns the improvements;
whether the tenant must restore the premises at the end of the term;
whether a fixturing period is provided; and
when rent begins.

If the business is investing substantially in the premises, it should understand what happens to that investment when the lease ends.

6. Consider Assignment and Subletting Before You Need Them

The business signing the lease today may eventually be sold, reorganized, relocated or require different premises.

That makes assignment and subletting provisions important even if the tenant has no intention of transferring the lease when it signs.

Review whether:

assignment or subletting is permitted;
landlord consent is required;
there are conditions attached to obtaining consent;
the landlord has additional rights when a transfer is requested;
the original tenant remains liable after an assignment; and
corporate reorganizations or changes in control are treated as assignments.

The ability to transfer a lease can become particularly important if the business is sold.

A lease provision affecting assignment may therefore have consequences beyond the tenancy itself.

7. Understand Personal Guarantees and Other Security

A landlord may require a business owner, shareholder, parent company or another party to guarantee the tenant's obligations.

A personal guarantee can materially change the risk associated with the lease.

Rather than liability remaining solely with the corporation that signed the lease, an individual may become personally responsible for some or all of the tenant's obligations.

Before agreeing to a guarantee, consider:

whether it is unlimited;
whether liability is capped;
how long the guarantee continues;
whether it applies during renewal terms;
whether liability reduces over time; and
what happens to the guarantee if the lease is assigned.

A guarantee should not be treated as a routine signature requirement.

It creates a separate financial exposure that should be understood before the lease is signed.

8. Look Closely at Default and Termination Rights

Businesses understandably spend considerable time thinking about getting into a new location.

They should also consider what happens if the relationship needs to end.

Review what constitutes a tenant default, whether there is an opportunity to correct certain defaults and what remedies become available to the landlord.

The tenant should also understand whether the lease gives it any ability to terminate early and what conditions apply.

Ontario's commercial leasing guidance distinguishes between fixed-term and month-to-month commercial tenancies and emphasizes the importance of the lease terms governing how a commercial tenancy may be ended.

For a business committing to several years of rent, the exit provisions deserve careful attention before the agreement is signed.

9. Review Relocation, Demolition and Redevelopment Provisions

Some commercial leases give landlords substantial rights relating to the future of the property.

Depending on the agreement, a landlord may reserve rights concerning relocation, redevelopment or demolition.

For a tenant that has invested significantly in its location, these provisions can be particularly important.

Consider:

when the landlord can exercise the right;
how much notice must be provided;
whether replacement premises must meet particular requirements;
who bears relocation costs;
what happens to leasehold improvements; and
whether the tenant has any corresponding termination rights.

For many businesses, location is part of the value of the operation.

The lease should be assessed accordingly.

10. Consider How the Lease Fits the Business, Not Just the Property

Commercial lease review should not happen in isolation from the broader business decision.

A lease can affect cash flow, financing, expansion plans, staffing, customer access, future transactions and the ability to relocate.

A provision may be relatively common in commercial leasing and still be commercially problematic for a particular business.

A long term may provide stability but reduce flexibility.

A broad repair obligation may create manageable risk in one property and considerable exposure in another.

A personal guarantee may be acceptable if appropriately limited but significantly increase the owner's risk if it is broad and continues indefinitely.

The objective of commercial lease review is not simply to identify unusual clauses. It is to understand what the lease requires and whether those obligations make sense for the business entering into them.

Review the Lease Before the Commitment Is Made

The best time to identify a problematic lease provision is before the agreement has been signed.

Once the lease is executed, the tenant's ability to renegotiate a term may be substantially reduced.

A commercial lease review can help a business understand the financial commitments, operational obligations, restrictions and allocation of risk contained in the agreement before making a long-term commitment.

For Ontario businesses, the question should not simply be whether the space works.

The lease needs to work for the business as well.

Commercial Lease Review for Ontario Businesses

Delta Law assists Ontario businesses with the review and negotiation of commercial leases, including rent and additional rent, renewal rights, repair obligations, assignment provisions, guarantees, termination rights and other material lease terms.