Buying A Storefront Building, Discovering A Locked-In Lease

The situation

Abena had spent a decade working as a personal support worker, and Kofi worked as a landscaper, running his own small crew through the warmer months. Between them they had built up savings and steady, if unglamorous, incomes, and they were tired of renting. Rather than buy a condo like most first-time buyers they knew, they went looking for something that could work harder for them: a small mixed-use building with a storefront on the ground floor and a residential unit above, in the roughly $280,000 to $450,000 range they could actually afford in Scarborough. The idea was simple. They would live upstairs, and the rent from the ground-floor commercial unit would cover a meaningful share of the mortgage, while the residential portion gave them a home of their own for the first time.

They found a building that fit — an older two-storey property with a small storefront already leased to a tenant named Chantal, who ran a tailoring and alterations business out of the space. The listing described the tenancy as month-to-month, paying what the seller called a fair market rent, which suited Abena and Kofi's plan: if the numbers worked as a rental for now, they could always look at converting the storefront to their own use later, once Kofi's business had grown enough to justify moving his office off the kitchen table. They agreed on a purchase price of about $410,000 and came to Treadstone Law once the agreement was signed, conditional on financing and a standard review of title. Neither of them had bought a property with a tenant in it before, and they assumed the process would be much like buying a house that happened to have an extra source of income attached.

What the review found

Buying a residential home and buying a small building with an existing business tenant are not the same transaction, and the gap between them showed up almost immediately. Our team requested the actual lease documents rather than relying on the seller's description of the tenancy, and asked the seller's lawyer for an estoppel certificate — a signed statement from the tenant confirming the real terms of the lease, the rent actually being paid, the term remaining, and any deposits held.

What came back did not match the listing. Chantal's lease was not month-to-month. It was a five-year commercial lease with roughly four years still remaining, and it included a further five-year renewal option at the same fixed rent, exercisable at Chantal's sole discretion. The rent itself was set at about $1,400 a month — well under what similar storefront space in the area was renting for, which our team estimated at closer to $1,900 based on the numbers the seller's own agent had used to market the building. The lease also showed Chantal had prepaid a modest deposit equal to one month's rent, held by the seller, which under a standard adjustment would need to be credited to the buyers on closing since they would be stepping into the landlord's shoes.

None of this made the building a bad purchase. It made it a different purchase than the one Abena and Kofi thought they were agreeing to. A storefront tenant locked in below market for up to nine years combined (the current term plus the renewal option) changes both the income the building would generate and how soon, if ever, the couple could take back the space for themselves. That was worth knowing before they closed, not after.

What we did

1. Obtained the estoppel certificate before any conditions were waived. Rather than accept the seller's summary of the tenancy, we insisted on written confirmation directly from the tenant, signed and dated, covering rent, term, renewal rights, and deposits — the only reliable way to know what a buyer is actually acquiring.
2. Explained how the tenancy would bind the new owners. Under the Commercial Tenancies Act, a landlord's interest in a lease passes automatically to a new owner on closing — there is no separate assignment for the buyer to sign or refuse. Abena and Kofi would become Chantal's landlord the moment title transferred, on the exact terms already in place, whether or not those terms matched what they had been told.
3. Quantified the gap and took it back to the negotiating table. Using the difference between the actual contracted rent and the market rent the listing had implied, over the years remaining on the lease and option, our team worked with Abena and Kofi to put a number on what the mismatch was actually costing them, and raised it with the seller's lawyer as a material discrepancy from what had been represented.
4. Sorted out the HST treatment of a mixed-use purchase. Because part of the building was used commercially and part residentially, the price had to be apportioned between an exempt residential portion and a taxable commercial portion for HST purposes, with the buyers self-assessing tax on the commercial share as registrants rather than paying it to the seller directly. This is a step that has no equivalent in an ordinary house purchase and is easy to miss if a deal is treated as a simple resale.
5. Adjusted the closing statement for the tenant's deposit. The prepaid rent Chantal had already paid the seller was credited to Abena and Kofi on closing, since they would owe it back to her (in the form of applying it against a future month's rent) once they became her landlord.

The outcome

The seller's lawyer did not dispute the estoppel certificate — it came from the tenant, not from Abena and Kofi, and its terms were plainly at odds with the listing. After a round of negotiation, the parties agreed to reduce the purchase price by about $22,000, from $410,000 to roughly $388,000, to reflect the below-market rent locked in for years to come. Combined with the deposit credit of about $1,400 already owed to the buyers, the adjustment brought real money back to Abena and Kofi at closing rather than leaving them to absorb a tenancy that was worth less than advertised.

It was not everything they had hoped for. They had gone into the deal picturing a possible path to reclaiming the storefront for their own use within a few years; instead, they closed knowing Chantal's business would likely remain there for most of a decade, between the current term and her renewal option. What they gained was a fair price for the building they were actually buying, not the one described to them, and rental income from day one that, even at the lower rent, still offset a real share of their mortgage. The deal closed on schedule, roughly six weeks after the discrepancy came to light, with both sides accepting a result neither had started out expecting.

A year or so on, Abena and Kofi's plan looks different than the one they drew up before the estoppel certificate came back, but it is still a workable one. Chantal's rent, along with Kofi's landscaping income and Abena's shifts, covers the mortgage comfortably, and they have adjusted their own timeline for using the storefront rather than losing the building altogether over a disclosure gap that, once caught, was still fixable at the negotiating table.

What you can learn from this