Fixturing Periods and Tenant Inducements in Ontario Commercial Leases

Before your business opens its doors, someone has to build out the space — and that costs both time and money. Ontario commercial leases commonly include a fixturing period (sometimes called a demising period) that lets you set up before rent starts running. Landlords also offer tenant inducements — free rent, cash allowances, or landlord-built improvements — to attract desirable tenants and fill vacancies. Understanding how these elements work before you sign is essential: their dollar value often rivals your first-year rent obligation.

What Is a Fixturing Period?

A fixturing period is a window of time at the start of the lease during which the tenant can move in, build out, install equipment, and prepare to open — typically without paying base rent. The tenant usually still pays utilities and any costs specific to their fit-out during this period.

The length of a fixturing period depends on:

• How much construction is required (a simple office repaint versus a full restaurant build-out)
• Market conditions — in a soft market, landlords offer longer periods to attract tenants
• The size and complexity of the space

Typical fixturing periods run from 30 days (minimal fit-out) to four or six months (full restaurant, medical clinic, or specialty retail). In hot markets, landlords compress fixturing periods or eliminate them entirely.

Fixturing Period vs. Rent Commencement: Important Distinction

Be precise about the dates in your lease:

• Possession date / delivery date: When the landlord hands over keys.
• Fixturing period: The window (often measured from the possession date) during which you prepare the space.
• Rent commencement date: When base rent starts running. This is often (but not always) the earlier of: (a) the end of the fixturing period, or (b) the date you open for business.
• Lease commencement date: When the formal lease term begins for the purpose of calculating the term's end date.

Watch for leases that tie lease commencement to possession rather than to rent commencement. If your lease runs five years from the possession date but you have a three-month fixturing period, your effective occupancy period is only four years and nine months — even though you are paying rent for the full five.

The fix: negotiate that the lease term (for purposes of calculating the expiry date and renewal options) begins on the rent commencement date, not the possession date.

What Are Tenant Inducements?

Tenant inducements are concessions a landlord offers to attract or retain a tenant. They have real dollar value and are negotiable. Common inducements include:

1. Free Rent (Rent Abatement)

The landlord waives a set number of months of base rent (and sometimes Additional Rent) at the beginning of the term. Free rent months can be structured as consecutive months at the start, or spread across the first one to two years of the lease.

Watch for clawback provisions: Many landlords include a clause requiring the tenant to repay a prorated share of free rent if the tenant terminates early, defaults, or the business closes. Understand this before treating free rent as found money.

2. Tenant Improvement (TI) Allowance

A TI allowance (or leasehold improvement allowance) is a cash contribution from the landlord toward the cost of building out the space. It may be:

• Paid as a lump sum after the tenant opens or after the landlord approves the completed work
• Drawn down in installments as construction milestones are reached
• Applied directly to construction invoices the landlord pays on the tenant's behalf

TI allowances typically come with conditions: the work must be approved by the landlord in advance, completed by a licensed contractor, and often must not exceed the allowance amount without the tenant absorbing the overrun.

3. Landlord's Work (Turnkey Fit-Out)

Rather than offering a cash allowance, the landlord builds the space to a landlord's work specification — defined in a schedule to the lease — and delivers a ready-to-occupy unit. The tenant then installs their own equipment and signage.

This approach avoids TI-allowance administration but can leave tenants with a generic build-out that does not suit their brand or operations. Get the scope of landlord's work defined precisely in writing before signing.

4. Reduced Rent for Early Years

Sometimes structured as a stepped or blended rent schedule: lower base rent in years one and two, rising to market rate in years three onward. This is common in retail and food-and-beverage leases.

What Happens to Improvements You Build?

Leasehold improvements (fixtures, built-in shelving, plumbing, HVAC upgrades) generally become the landlord's property at lease end unless the lease provides otherwise. At the end of the term, the landlord may:

• Keep the improvements in place (the most common outcome for neutral improvements)
• Require the tenant to restore the space to its original condition (common for heavy fit-outs — restaurant kitchens, exhaust systems, specialized plumbing)

Restoration obligations can be expensive. Know at signing whether your planned improvements will trigger a restoration requirement, and consider negotiating a partial restoration scope.

Frequently asked questions