Leasing a commercial space is a major decision for any business. Whether you’re launching a new venture or relocating an established one, it’s important to approach the lease with a clear understanding of your rights, responsibilities, and long-term needs. Here’s what you need to know before you sign on the dotted line.
1. Location, Visibility & Zoning
The success of many businesses hinges on location. Look for a space that offers good visibility and foot traffic for your target market. Confirm that the zoning bylaws permit your intended use—don’t assume a retail shop can automatically operate where an office once was. Parking, accessibility, nearby businesses, and the general safety of the area are all crucial factors to evaluate.
2. Lease Term and Renewal Clauses
Commercial leases can range from flexible short-term arrangements to multi-year commitments. Think about your long-term goals. Does the lease include options to renew or extend? Remember: landlords are under no obligation to renew your lease and may raise rent significantly when your term ends. If renewal is important to you, get it in writing.
3. Rent Structure and Additional Costs
Commercial rent is often more complex—and more expensive—than residential rent. Understand what type of lease you’re signing:
- Gross Lease: One flat fee covers everything, including taxes, maintenance, and insurance.
- Net Lease: You pay base rent plus some or all of the operating costs.
- Triple Net (NNN) Lease: You cover rent, taxes, insurance, and maintenance.
- Percentage Lease: Common in retail, where you pay rent plus a percentage of your sales.
Ask detailed questions about Common Area Maintenance (CAM) fees, how they’re calculated, and whether there are caps on increases. Unlike residential leases, commercial leases in Ontario have no rent control.
4. Tenant Improvements (TIs)
Most commercial spaces are delivered in “as-is” condition—often just four walls and concrete floors. If renovations are needed, find out whether the landlord offers a Tenant Improvement Allowance (TIA) to help cover costs. A TIA is typically a set amount per square foot. If no allowance is offered, you may be investing heavily out of pocket to make the space usable.
5. Condition of the Premises
Before signing, inspect the unit thoroughly. This includes HVAC systems, plumbing, electrical, roofing, and any other structural components. Commercial leases generally assume you’re accepting the property “as-is.” If the space requires upgrades or repairs, clarify who is responsible before finalizing the lease. A professional building inspection can be a wise investment—especially for restaurants, clinics, or any business requiring specific features.
6. Deposit Requirements and Guarantees
Most landlords require a security deposit or letter of credit, often equal to 1–3 months’ rent. In Ontario, there’s no legal requirement for deposits in commercial leases, so you can negotiate. Make sure the lease specifies how and when your deposit will be returned. Keep in mind: your deposit does not accrue interest, and you don’t want surprises at the end of your term.
7. Flexibility and Exit Options
What if your business needs change? Review the lease for flexibility. Some include a termination clause, giving you the option to exit early after a certain period. Others allow for subleasing or assigning the lease, but often with landlord approval. If your lease doesn’t provide an exit strategy, breaking it could mean paying the rent for the remaining term—even if you leave early.
8. Legal Review is Essential
Before signing any commercial lease, consult a qualified commercial real estate lawyer. Lease agreements are legally binding and can be complex. An experienced lawyer can help protect your interests, explain your obligations, and negotiate more favourable terms.
Final Thoughts
A commercial lease can either support your business growth or create unexpected burdens. Taking the time to research, plan, and negotiate will save you time, money, and stress in the long run. Don’t rush into a lease—make sure it truly fits your business needs.
Brian Madigan LL.B., Broker