Commercial Lease Default and Landlord Remedies in Ontario (Not the RTA)

If you have been searching for information about what happens when a tenant defaults in Ontario, make sure you are reading about the right law. The Residential Tenancies Act (RTA) — which governs apartments, houses, and most other residential premises — does not apply to commercial tenancies. Commercial tenant defaults are governed by Ontario's Commercial Tenancies Act and the terms of the lease itself, and the landlord's remedies are considerably more powerful than in the residential context.

This article explains what a commercial lease default is, what landlords can do about it, and what tenants should do if they see trouble coming.

What Counts as a Default?

A default under a commercial lease is any breach by the tenant of their obligations under the lease. Defaults fall into two main categories:

Monetary Default

Failure to pay rent (base rent, Additional Rent, or any other monetary obligation) by the due date. This is the most common default. Many leases specify a grace period (e.g., five business days) for late payment before the landlord can act — some provide no grace period at all.

Non-Monetary Default

Breach of any non-payment obligation: unauthorized assignment or subletting, failure to maintain required insurance, conducting business outside the permitted use, unauthorized alterations, failure to maintain the premises, or breach of any other lease covenant.

Non-monetary defaults typically require the landlord to give the tenant written notice of the breach and a reasonable period to remedy it (a cure period) before exercising serious remedies.

Landlord Remedy 1: Distress

Distress (also called distraint) is a powerful and distinctive commercial-law remedy available to Ontario landlords under the Commercial Tenancies Act. It allows the landlord to seize the tenant's personal property located on the premises and sell it to recover unpaid rent — without going to court first.

Key points about distress:

• It applies to rent (not other monetary defaults, typically).
• The landlord (or their appointed bailiff) can enter the premises and seize the tenant's goods.
• There are rules about the timing, manner of seizure, and types of property that can (and cannot) be seized (certain tools of the trade, for example, have limited protection).
• The tenant usually has a short window to redeem (pay the arrears) and recover their goods before a sale occurs.
• Distress can be exercised even if the tenant has not vacated.

Warning for tenants: If you receive notice of distress or a landlord's agent appears at your business, do not obstruct them. Get legal help immediately — the window to pay arrears and stop a sale is short.

Landlord Remedy 2: Termination and Re-Entry

A landlord may choose to terminate the lease and re-enter the premises when the tenant has defaulted. In Ontario, the landlord's right of re-entry is typically exercised by:

1. Sending written notice of the default and (for non-monetary defaults) a demand to remedy within a stated cure period.
2. Re-entering the premises — changing locks, posting notices — if the default is not remedied.

A landlord who re-enters and terminates is accepting the surrender of the lease. At that point, distress for ongoing rent is no longer available (because the tenancy has ended), but the landlord retains the right to sue for:

• Arrears that accumulated before termination
• Damages for the loss of the benefit of the lease (subject to the duty to mitigate)

The Duty to Mitigate

Ontario landlords have a duty to take reasonable steps to re-lease the space after termination — they cannot simply let it sit empty and bill the ex-tenant for the full remaining term. The tenant can raise failure to mitigate as a partial defence to a damages claim. In practice, the landlord must actively market the space and give credit for any rent recovered from a replacement tenant.

Landlord Remedy 3: Suing for Arrears Without Terminating

A landlord can choose not to terminate the lease and instead sue the defaulting tenant for unpaid rent while keeping the lease alive. This approach makes sense when the lease has significant remaining value (long term, favorable rent above market) and the landlord believes the tenant can pay.

However, leaving the lease in place while suing for arrears is a legal election. The landlord cannot simultaneously treat the lease as terminated (by re-entering) and as subsisting (by suing for ongoing rent). Getting this wrong can limit the landlord's remedies.

What About Bankruptcy or Insolvency?

When a commercial tenant goes bankrupt or files for protection under the Bankruptcy and Insolvency Act or the Companies' Creditors Arrangement Act, federal insolvency law overrides the commercial tenancy regime. The landlord's right to distrain is suspended; the landlord becomes an unsecured creditor for most rent arrears. The trustee or monitor may disclaim (reject) the lease or attempt to assign it to a buyer.

This is a specialized area. Both landlords and tenants facing insolvency situations need advice quickly.

What Tenants Should Do If They Fall Behind

If you are a commercial tenant facing financial difficulty:

1. Communicate early. Landlords generally prefer a negotiated solution over vacating a space and losing months of rent while re-leasing. A rent deferral agreement, payment plan, or lease amendment is often achievable.
2. Do not ignore notices. A notice of default or distress warrant triggers time limits. Missing the response window can mean losing your goods, your space, or both.
3. Get legal advice immediately. The Commercial Tenancies Act remedy of distress is swift; a lawyer can advise on your options before the situation becomes irreversible.
4. Document everything. Keep records of payments made, communications with the landlord, and the state of the premises.

Frequently asked questions