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How To Break A Commercial Lease In Ontario

When your business experiences financial stress, bills and expenses still need to be paid. You may find yourself needing to cut out not only the small expenses, but also the big monthly expenses, such as rent. As you downsize your business to make ends meet, you may end up having to get out of your Ontario lease agreement.

Doing so is common these days. The costs of a commercial lease constitutes a big portion of any operating budget. As a business owner, you may have been switching to work-at-home policies during the COVID pandemic. Restaurant or retail owners affected by the loss of customers have  either had to rely on government financial assistance for businesses or close down for good. 

Even as Ontario slowly re-opens and resumes business, it may be too late to recover all your financial losses.

Thus, having signed an Ontario business lease agreement with a landlord, business owners are now wondering how they can eliminate that expense. We explore how to get out of your Ontario lease agreement.

What Should Be In An Ontario Commercial Lease?

To start, all business leases are different. There is no standard one-size-fits-all lease agreement. Each business is unique and, hence, getting out of your business lease will depend on what terms you and the landlord have included in it.

In general, however, all commercial business leases are made in compliance with the Commercial Tenancies Act. Typically, business lease agreements should indicate and include some essentials: 

  • Details outlining monthly rent and frequency of rent increases 
  • The length of the lease
  • Building services (electricity, cleaning, HVAC)
  • Consequences of being in arrears  
  • Conditions for eviction 
  • The tenant’s rights 
  • Responsibility for renovations

A commercial lease can come in different types too – gross net lease, double and triple net leases, and percentage net leases – which may complicate the termination process. Moreover,  . As you can see, a commercial lease is a complex agreement to draft and, hence, may be just as complex to break. 

How To Break A Commercial Lease In Ontario

There are a few actions you can take, though, to prepare a smooth exit strategy from your commercial lease:

Give Your Landlord Notice

When you want to end a business lease that is signed for a specific amount of time, you can give the landlord notice. Otherwise, if, after 16 days, you have not paid the rent nor have given the appropriate notice, your landlord is entitled to cancel your tenancy. He or she has the right to do this by changing the locks and evicting you without notice.

For a monthly lease, you must provide the landlord one month’s written notice in advance. If the lease does not specify the lease as monthly, then in accordance with the Commercial Tenancies Act, section 28, a month’s notice given no later than the end of the month is sufficient notice. This would make the last day of your occupancy the last day of the next monthly rent period.

Landlord Breach of Lease

If the landlord defaults on the terms in the lease agreement, you can use that as an opportunity towards ending the lease. While in such circumstances, you are still required to pay the rent, it will give you the opportunity to go to court, make your argument, and sue. You can legally argue a few points. 

One legal argument that you can make is that your business was deprived of the essential benefits of the property that were promised under the lease agreement. For instance, if a landlord alters access to the property that affected your business (caused difficulties in accepting deliveries, products, etc.). Because of the landlord’s conduct, you can consider the lease terminated and sue the landlord for damages.  

Second, as a tenant, if your landlord defaults on the lease agreement, you can set off the monetary losses against your landlord. This legal action applies the debt they owe you (the losses they caused you to incur) against the payable rent. Most commercial leases have tenants waiving this right, though, and if there is no provision, a landlord can usually tie you into a lengthy legal dispute should you exercise that right.

Another breach of lease that is legally arguable is the landlord’s interference with your reasonable enjoyment of the property. While the landlord owns the property being rented, all tenants have the implied right that the tenant’s enjoyment of the property is provided for and that the landlord is restricted from violating. This can entitle you to claim damages and can possibly be grounds for terminating the rental agreement in Ontario. 

Sublease Agreement

There is also the option of subleasing the entire  or only a part of the rented property until the lease agreement ends. This allows you, as the primary tenant, to pass on the use of the rented property to another subtenant. You are still directly financially responsible for the remainder of the time on the original lease, and are responsible for the rent and any damage caused by the subtenant. 

The subtenant will then take on the rent payments, paying them to you as you, in turn, pay the rent to the landlord. Should the new tenant wish to move out sooner than the lease allows, you will be responsible for paying the rest of the costs. 

Usually, you as the first tenant must get consent from the landlord before you are allowed to sublease the premises. You will need to draft up a sublease agreement which both you and the new tenant should sign, along with witnesses. Should any legal conflicts arise and mediation is needed, the location of property still determines the governing law for the lease agreement. 

You then become a sublandlord. Subtenants should be given an inspection period to check the premises, and a damage deposit should also be considered. This typically is the same amount as one month’s rent, but can ultimately be set by you.

A subtenant does not need insurance though it is advised that the property itself be insured by you as the sublandlord. How much alteration can be done to the property by the subtenant is also up to you. However, the modifications cannot exceed the terms agreed upon by you and the primary landlord in the original lease. This also applies to the proposed uses for the property.

Assignment Agreement

Another alternative that can help get you out of your business lease is to assign the rented space, also known as a lease transfer or an assignment agreement. As in the case of subleasing, assigning your lease means that a new tenant takes over your tenancy, but it also usually releases you from the benefits of the lease.

The responsibilities of paying rent, overseeing repairs, and other issues, will be assigned completely to the new tenant. The rent does not change and you do not need to make a new agreement with the landlord. Note that unless the landlord releases you from the obligation, you are still liable for damage done by the new tenant. A lease assignment also revokes your right to move back into the property. 

To assign your lease to another tenant, you should consult your landlord with the request in writing first before moving forward as you would with a sublease agreement.

How To Break A Commercial Lease Legally? – Contact OMQ Law

In many cases, the physical location of your business can play a role in its success or become a burden when you have to shut down and sell your business. If you need guidance on getting out of your business lease, you should consult a small business lawyer as your first step of action.