Signing a Commercial Lease? How well do you know Your Rights and Responsibilities?

Signing a Commercial Lease is a two-way agreement

Significant differences exist in Ontario between standard commercial and standard residential leases, as well as in the laws that govern landlords and tenants. Residences are governed by the Landlord and Tenant Act, 2006, whereas commercial matters fall under the Ontario Commercial Tenancies Act, 1990. Both Acts set out the “relationship, rights and obligations” between landlords and tenants. One of the key differences is the existence of a Landlord Tenant Board as set out in the Landlord and Tenant Act, and for which there is no equivalent in the commercial sphere.

The residential lease and the law behind it provide far more tenant protection than commercial leases offer to tenants. A good example is the eviction process for non-payment of rent, always a prime conflict area. The residential tenant can avoid paying rent for months, and when the case finally comes before the Landlord Tenant Board, by paying the ‘back rent’ the tenant neutralizes the eviction and can then remain in the apartment. The landlord of a commercial property, on the other hand, merely has to wait 16 days after the rent due date and can then padlock the premises, which clearly forces the issue.

Fair and equitable commercial leases work best for everyone’s interest

But in either case, whether landlord or tenant, you need to know the basic law and your rights and obligations when entering into a binding tenancy agreement. The commercial tenant’s business depends on a fair and equitable lease, while for the landlord, a fair and equitable lease is his business.

Tenants: What you need to be aware of:

1.  A signed lease agreement may take precedence over the CTA (Commercial Tenancies Act).
   Be aware that the lease you are offered might not be in agreement with the CTA, and moreover, that if you sign it, it might well be binding on you.
2. It follows from the above, that the tenant is not obligated to agree to every stipulation of a commercial lease agreement. You can request changes.
3. Unlike its residential counterpart, The CTA does not regulate rent increases. However, as the government explains, “most commercial tenancy agreements outline in detail issues such as the amount of rent charged and frequency of rental fee increases.” As a tenant, you should make sure that such provisions are included in the lease, and that you are comfortable with them.
4. If no formal lease is signed, the landlord can increase the rent as much as and as frequently as he wishes.
5. Tenants with unresolved disputes concerning money or personal property can file a claim against the landlord in Small Claims Court. The limit is $25,000 – otherwise, tenants can make an application to the Superior Court of Justice.

Landlords: What you need to be aware of.

1. Reversing number 5 above, Landlords can demand a security deposit for commercial tenancies and also have the right to apply to Small Claims Court or the Superior Court of Justice, depending on the amount, to seek reparation for damages from the tenant and for any loss of rental income owing for the balance of the term of the lease.
2. Although the landlord can padlock the premises after sixteen days for non-payment of rent, landlords (tenants also, for that matter) should not force their way into the premises.
3. When the issue has been resolved and the locks changed, landlords should allow tenants reasonable access to the rental unit to remove their property.
4. If the issue has not been resolved, the landlord can distrain goods of tenants. Essentially, this means that the landlord can seize and hold the tenant’s property – the tenants have forfeited their goods, but they also have the right to ask for relief from forfeiture. If there is no tenant request for relief from forfeiture, the landlord can sell and otherwise dispose of the tenant’s property after first obtaining two separate appraisals. Proceeds are to be applied to the rental arrears; any excess amount over the outstanding debt is to be returned to the tenant. Note that leased or co-owned tenant property cannot be seized.
5. Landlords, and tenants as well, can terminate a lease, with written notice provided one month in advance or in accordance with the terms of the tenancy agreement. The note should include the names of both parties, a description of the property or its address, the date served and the date of termination. If the lease runs its course, then tenants must vacate the property no later than the last date of the lease’s fixed term. The landlord can impose a financial penalty of up to 2 month’s rent for each month the tenant remains on the premises after the date of termination or in accordance with the overhold section of the commercial lease negotiated between the landlord and the tenant, and can also apply to the Ontario Superior Court of Justice to obtain an eviction order.

A Harmonious Relationship begins with a good lease and informed parties

Don’t just read your section of concern, tenant or landlord, because really, each is the flip side for the other: the legal rights and protection for one is the legal obligation of the other. Most people automatically associate the tenant with the “little guy,” and the landlord with the large, faceless corporation. While this certainly can be the case, it isn’t necessarily so: large companies do lease properties, and do move or go out of business – as attested to by the many large, vacant buildings with a hundred empty parking spaces all around the GTA; and sometimes those small, commercial plazas are owned by a solitary landlord, or a small group of investors.

Government websites (see www.mah.gov.on.ca/Page1698.aspx and canadabusiness.ca/eng/page/3430/) provide clear, helpful information, but as with all technical situations the “devil is in the details.” And therefore, knowing how much depends on an equitable and fair lease, the government recommends that both parties seek legal advice before signing any commercial lease.

Commercial work is one of my key areas of expertise, and I am always available to review your lease and make recommendations that will protect you, landlord or tenant. Please contact Howard Nightingale Professional Corporation, 416 663 4423 (toll free at 1-877-224-8225).