What to check before you sign a commercial lease

This is legal information, not legal advice. It describes general rules that vary by province and by situation. A licensed lawyer must review your matter before you act on anything here.

Plain-English summary

Commercial leasing is governed largely by the document you sign, not by protective legislation. The consumer-style safeguards that apply to residential tenancies mostly do not exist here. Whatever the lease says is, in general, what governs.

That makes the review before signing far more consequential than in a residential context — and commercial leases are typically long, largely landlord-drafted, and more negotiable than tenants assume.

The rent number is not the cost

Most commercial leases are net leases: the quoted rate is base rent, and you additionally pay a proportionate share of operating costs — property taxes, insurance, maintenance, and common area costs. These are often called additional rent or TMI.

Additional rent can be a substantial fraction of total occupancy cost, and it usually varies year to year. Before signing, it is worth asking:

• What were the actual additional rent figures for the last two or three years?
• Which capital expenditures can be charged through, and over what period?
• Is there a cap on year-over-year increases in controllable costs?

A favourable base rent alongside uncapped additional rent is not necessarily a good deal.

Terms worth reading closely

Permitted use. A narrowly drafted use clause can prevent you from changing your business model in the space, and can make the lease harder to assign later.

Assignment and subletting. You will probably need landlord consent. Push for consent "not to be unreasonably withheld". Critically, check whether you remain liable after assigning — in most commercial leases you do, unless expressly released. Selling your business does not automatically end your exposure.

Renewal rights. A renewal option is only as good as its terms. "At market rate" with no mechanism for resolving disagreement can leave you with little real protection.

Restoration and removal. Some leases require you to return the space to its original condition, removing improvements you paid to install. This can be a significant unbudgeted cost at the end of a term.

Relocation clauses. Some landlords reserve a right to move you within a complex. Check who pays.

Demolition and redevelopment clauses. These can allow early termination on notice. If your business depends on that specific location, this matters a great deal.

The guarantee

Landlords commonly ask a founder to personally guarantee the lease. This is the single most consequential thing many founders sign, because it steps outside the limited liability that incorporation otherwise provides.

If a guarantee is unavoidable, it is worth trying to negotiate limits — a cap on the amount, an expiry after a period of good payment history, or release on assignment. And note that a guarantee generally survives the sale of the business unless it is expressly released in writing.

Key risks to watch

Signing the landlord's first draft. Commercial leases are negotiated documents. First drafts are drafted for the landlord.

Not verifying the space works. Zoning, permitted use, accessibility obligations, and whether your intended fit-out is permitted are all worth confirming before signing, not after.

Overlooking the demised area measurement. How rentable area is measured affects both base and additional rent.

Treating a letter of intent as non-binding. Parts of an LOI can be binding depending on how it is drafted.

When to talk to a lawyer

A commercial lease is usually a multi-year financial commitment, often among the largest a small business makes, and frequently accompanied by a personal guarantee. Reviewing it before signing is one of the clearest cases for getting advice.

At minimum, seek advice on the guarantee, the assignment provisions and the additional rent structure — these three tend to carry the most risk relative to how little attention they typically get.