When leasing a commercial property in Ontario, it’s crucial to understand how commercial leases work. Whether you're opening an office, retail store, or industrial facility, the information below outlines the essentials of commercial leasing in Canada.
🔑 Key Facts About Commercial Leases in Canada
Most office, retail, and industrial space is leased—not purchased.
Lease agreements typically start with an Offer to Lease, which outlines the core business terms.
Most commercial leases are fully net, meaning the tenant pays base rent plus a proportionate share of:
Realty taxes
Insurance
Utilities
Maintenance charges
In retail leases, tenants may also owe percentage rent—a portion of their sales.
📋 Things to Consider Before Leasing
1. Determine Your Space Requirements
Think about your current business needs and any future expansion or downsizing.
Leases typically last 5 to 10 years, so consider:
Expansion or contraction rights
First refusal rights for other space in the building
2. Consider Financial Obligations
Ensure your business has sufficient net worth.
If not, the landlord may require:
Indemnity from a related company
Personal or corporate guarantees
🧾 Common Commercial Lease Terms You Should Know
🔄 Incidental Expenses
Additional costs beyond base rent such as:
Property tax
Utilities
Insurance
Maintenance
Common area costs
🧼 Common Area Maintenance (CAM)
Shared expenses between tenants for:
Landscaping
Snow removal
Janitorial services
Property management
🏢 Types of Commercial Lease Structures
Lease TypeDescription
| Gross Rent Lease | You pay one lump sum that includes rent and all expenses. |
| Modified Gross Lease | You and the landlord share certain incidental costs. |
| Net Lease | You pay base rent + one expense (usually property taxes). |
| Double Net Lease (NN) | You pay base rent + property taxes + insurance. |
| Triple Net Lease (NNN) | You pay base rent + all operating and maintenance costs. |
📈 Special Retail Leasing Terms
Percentage Rent Lease
Tenant pays base rent + a percentage of gross sales (usually above a certain threshold).
Common in malls and high-traffic retail locations.
🛠 Lease Terms Related to Improvements
Tenant Improvement Allowance
Landlord-provided funds to help you renovate the leased space.
Typically calculated per square foot.
Tenant Inducements
Incentives like free rent months or help with renovations to attract tenants.
Turnkey Improvements
Renovations completed by the landlord before move-in, based on your needs.
Leasehold Improvements
Renovations you or the landlord make to customize the space.
Usually, these become property of the landlord unless otherwise specified.
💡 Pro Tip: Always consult a commercial real estate lawyer to:
Define what items you can take with you (trade fixtures)
Ensure valuable improvements are excluded from landlord ownership
💰 Financing Leasehold Improvements
If needed, consider a leasehold improvement loan:
Short-term (often amortized over 5–6 years)
May offer a principal holiday (grace period) for the first 6–12 months
May use the improvement as loan collateral to reduce interest
👥 Need Help Navigating Your Commercial Lease?
Before signing any lease, it's wise to:
Work with a commercial real estate agent
Review terms with a commercial real estate lawyer
They can help you negotiate better terms, understand your risks, and ensure the lease fits your long-term business goals.