How to Negotiate a Commercial Lease as a Small Business in Ontario

Most Ontario small business owners negotiate their first commercial lease without realizing how much room there is to negotiate. A landlord's standard lease is drafted by the landlord's lawyer and weighted heavily in the landlord's favour — it is a starting point, not a take-it-or-leave-it document. Knowing how to negotiate a commercial lease as a small business in Ontario can save you tens of thousands of dollars in rent and protect you from clauses that could threaten your business's survival if circumstances change.

This guide covers what to prioritize, what to push back on, and when to bring in a lawyer.

Step 1: Understand Your Leverage (And How to Build It)

Negotiating leverage in a commercial lease comes from three sources:

1. Your desirability as a tenant: Established credit, a proven operating history, a recognized brand, and strong personal financials all increase your leverage.
2. Market conditions: In a soft leasing market with high vacancies, landlords compete for tenants. In a hot market, they do not need to offer concessions.
3. Your alternatives: If you have two or more locations in play, you have genuine negotiating power. If this is the only space that works and the landlord knows it, you have less.

Build alternatives before you need them. Even if you have a preferred location, keep other options open through the negotiation so you are not negotiating from a position of desperation.

Step 2: Start with the Letter of Intent (LOI)

Before the formal lease is drafted, most commercial tenancies are negotiated through a Letter of Intent (LOI). The LOI is a short document (1–3 pages) that records the agreed-upon business terms:

• Rent and rent escalation
• Term and renewal options
• Tenant improvement allowance and fixturing period
• Permitted use
• Whether a personal guarantee will be required

The LOI is typically stated to be non-binding (except for confidentiality and exclusivity provisions). However, once both parties have agreed to key terms in the LOI and those terms are incorporated into the lease, it is much harder to re-trade them. Get the economics right at the LOI stage.

The Priority Negotiation Points for Ontario Tenants

Rent and Escalation

Do not accept an open-ended annual rent increase ("at the landlord's discretion"). Push for a defined escalation formula — a fixed percentage (e.g., 2–3% per year) or a CPI-tied adjustment. On renewal, push for either a defined renewal rent or a binding mechanism (e.g., arbitration) to set market rent rather than leaving it entirely to negotiation.

Permitted Use

The "permitted use" clause defines what you can legally do in the space. Negotiate a broad permitted use clause — not just your current business description, but a category that covers adjacent activities your business might add. A use clause that is too narrow means you need landlord consent (and potential refusal) every time your business evolves.

Exclusivity

If you are a retailer, food-service operator, or service provider, ask for an exclusivity clause that prevents the landlord from leasing adjacent spaces to direct competitors. Define "direct competitor" specifically — an exclusivity clause that prohibits a "similar business" is often too vague to enforce meaningfully.

Personal Guarantee Limits

As discussed in our companion article on personal guarantees, push for a time-limited, dollar-capped guarantee. After two or three years of on-time payment, request a complete release.

CAM Cap and Exclusions

Controllable CAM costs should be capped at annual increases of 3–5%. Capital expenditures (roof, structure, parking lot repaving) should be explicitly excluded from the CAM pool — these are long-lived improvements that should not be amortized entirely against the current year's tenants.

Restoration Obligations

If you plan significant build-out, get the landlord to acknowledge in writing — at the time you obtain their consent to the work — which improvements will need to be removed at lease end and which can stay. This avoids a costly dispute about restoration obligations years later.

Demolition and Relocation Clauses

If a landlord's standard lease gives them the right to demolish the building or relocate you to another unit, negotiate the removal or significant restriction of these clauses. A retail tenant whose success depends on a specific corner location cannot afford to be relocated on 90 days' notice.

Step 3: Get a Lease Review Before You Sign

Reading the lease carefully is not enough. Commercial leases are long, technical documents full of defined terms that interact with each other in non-obvious ways. What looks like a standard clause can carry serious economic consequences.

A commercial lease review by a lawyer will:

• Identify landlord-friendly clauses that are atypical or particularly onerous
• Flag the clauses with the highest financial risk
• Suggest specific amendments to propose to the landlord
• Make sure the economic terms you agreed to in the LOI are accurately reflected in the formal lease

This is not an area to skip legal review to save money. A five-year commercial lease at $5,000/month is a $300,000 commitment before Additional Rent. Legal fees for a lease review are a small fraction of that exposure.

Step 4: Negotiate Through the Lease, Not After It

Once you have signed the lease, your negotiating power is largely gone. The landlord has the signed document and the balance of power shifts to them. Changes after signing require amendments, and landlords are much less willing to make concessions post-signing.

Act before you sign. If a landlord refuses reasonable amendments and you cannot reach an acceptable lease, walking away may be the right answer — even if it means more searching.

Frequently asked questions