Defaulting on an Equipment Lease in Ontario: What Happens Next

Cash flow problems happen to otherwise sound businesses, and equipment lease payments are often among the first things to slip when money gets tight. Understanding what actually happens when a payment is missed — and what a lessor can and can't do about it — helps you respond deliberately instead of reactively. The consequences depend heavily on the specific lease you signed, since Ontario law leaves most of this to the contract rather than imposing a single standard process.

This article walks through what typically happens after a missed payment, what a lessor's remedies usually look like, and what options exist before things escalate.

What Counts as Default

Most commercial equipment leases define default broadly, and a missed payment is only one trigger. Depending on the specific lease, default can also include:

• Letting required insurance on the equipment lapse.
• Relocating, subleasing, or otherwise dealing with the equipment without the lessor's consent.
• The business becoming insolvent, filing for bankruptcy protection, or having a receiver appointed.
• Breaching any other material term of the lease.

Because this is entirely a matter of the lease's own wording, the first step after any missed payment or other problem is to actually re-read the default clause in your specific agreement — not assume it works like a lease you've had before.

The Typical Sequence After a Missed Payment

1. Notice from the lessor. Many (but not all) leases require some form of notice before formal default remedies kick in — though some leases allow the lessor to act immediately, with no grace period, especially after repeated missed payments.
2. A cure period, if the lease provides one. Some leases give the lessee a defined window to catch up on missed payments before further action; others do not, and treat the missed payment as an immediate default.
3. Acceleration. Many commercial leases include an acceleration clause allowing the lessor to demand the entire remaining balance owed under the lease — not just the missed payment — once a default occurs.
4. Repossession. The lessor may exercise a right to repossess the equipment, per the lease terms. Because the lessor typically retains legal ownership throughout an equipment lease, this is usually more straightforward for the lessor than repossessing equipment the lessee actually owns.
5. A shortfall claim. If the equipment is repossessed and later sold or re-leased by the lessor, and its value doesn't cover what's owed, many leases entitle the lessor to pursue the business (and any personal guarantor) for the remaining shortfall.

This sequence can compress dramatically depending on the lease — some agreements move straight from a single missed payment to acceleration and repossession with minimal notice, which is exactly why the default clause deserves careful attention before signing, not just after a problem starts.

What You Actually Risk

• Losing the equipment, which may be essential to keep operating.
• Still owing money after losing it, if the lease includes acceleration and the eventual resale or re-lease value doesn't cover the balance.
• Personal exposure, if you (or another individual) signed a personal guarantee — a very common requirement for small-business equipment leases — since the lessor can then pursue the guarantor directly for any shortfall.
• Damage to the business's credit profile, affecting future financing or leasing.
• Related defaults elsewhere. Some financing agreements include cross-default clauses, meaning a default on one obligation can trigger default on others (for example, a bank loan) even if payments on those are current.

What to Do If You're Falling Behind

• [ ] Re-read your lease's default clause first, so you know exactly what triggers action and what notice (if any) you're entitled to.
• [ ] Contact the lessor before missing a payment, if possible. Many leasing companies would rather restructure or temporarily adjust payments than repossess and resell equipment at a loss — but this depends entirely on the lessor's willingness, not a legal right.
• [ ] Check for a personal guarantee and understand exactly what it exposes you to individually, separate from the corporation's liability.
• [ ] Don't ignore a default notice. Responding — even to negotiate — is almost always better than silence, which tends to accelerate the lessor's next steps.
• [ ] Get legal advice early, especially if acceleration or repossession is being threatened, or if the business is facing broader financial difficulty involving multiple creditors.

When It Becomes a Dispute

If a lessor's claimed shortfall, repossession process, or interpretation of the lease seems wrong or excessive, that can become a legitimate dispute — for example, over whether proper notice was given, whether the resale of repossessed equipment was handled reasonably, or whether a personal guarantee's scope is being read too broadly. These disputes are resolved based on the specific lease wording and the facts, and may ultimately require litigation if they can't be negotiated; see our Litigation page for more on how contract disputes like this are handled.

Frequently asked questions