Commercial lease guide for small businesses in Canada

Commercial leases are a different world from renting a home. They're governed by provincial commercial tenancy laws (in Ontario, the Commercial Tenancies Act) rather than residential tenancy rules, there's no standard form, and almost everything is negotiable. Here's what small businesses need to understand before signing.

The rent, and what's on top of it

Gross vs net leases

• Gross lease: you pay one amount, and the landlord covers most building costs. Common for small offices and studios.
• Net lease: you pay base rent plus your share of the building's costs, called additional rent.
• Triple net (NNN): you pay base rent plus your share of property taxes, building insurance and maintenance.

TMI

In many Canadian listings, especially in Ontario, you'll often see TMI: taxes, maintenance and insurance. It's usually quoted per square foot per year and added to base rent. Always ask for the current TMI and how it's changed in recent years.

HST

Commercial rent is generally subject to sales tax, while residential rent isn't. The rate depends on the province: for example 13% HST in Ontario, 5% GST in Alberta and British Columbia, and GST plus QST in Quebec. Budget for it.

How rent is quoted

Commercial rent is often quoted per square foot per year. A 1,500 sq ft space at $30/sq ft net is $45,000 a year in base rent, or $3,750 a month, before TMI and HST.

Deposits and guarantees

Unlike residential rentals, commercial landlords can ask for larger deposits, often first and last month's rent, sometimes more. Many also ask for a personal guarantee from the business owner. Try to cap it, limit it to a period of time, or offer a larger deposit instead.

Clauses to read closely

• Term and renewal options. A three to five year term is common. An option to renew protects you if the location works.
• Permitted use. Make sure it covers everything you plan to do, now and later.
• Zoning. Confirm with your municipality that your use is allowed at that address.
• Assignment and subletting. Important if you sell the business or need to move.
• Leasehold improvements. Who pays for the build-out, and whether you must restore the space when you leave.
• Rent-free period and tenant allowance. Common incentives for longer terms.
• Repairs and maintenance. Especially HVAC, roof and plumbing.
• Signage rights, critical for retail.
• Early termination, if any.

Questions to ask before you sign

1. What's the all-in monthly cost including TMI and HST?
2. What's included, and what will I pay separately?
3. Can I see the space at different times of day?
4. What work will the landlord do before I move in?
5. Can I talk to another tenant in the building?

Get advice

A commercial lease is a significant commitment. Have a lawyer who handles commercial leases review it before you sign.

Looking for a space now? Browse offices, retail and studios on Leap.

General information, not legal advice.