Siblings Buying a Stratford Storefront Building Catch a Lease Gap

The situation

Khalil, a pharmacist, and his sister Layla, a professional engineer, had been talking for two years about buying a small income property together. Neither wanted to take on a commercial building alone, and both had steady employment income that made qualifying for a joint mortgage straightforward. When a three-storey mixed-use building came up for sale in Stratford — a ground-floor storefront leased to a small business, with two residential apartments above — they moved quickly. The asking price was around $1,050,000, comfortably inside what their combined savings and financing could support.

The listing described the storefront as leased with almost three years left on the term, at a rent of about $3,000 a month. To Khalil and Layla, that lease was a big part of the appeal: it meant income from day one, from a business already established in the space, without the vacancy risk of buying an empty commercial unit and marketing it themselves. Neither of them had owned a commercial or mixed-use property before, so the plan was to let the existing tenant carry the ground floor while they learned the basics of being landlords through the two upstairs apartments, which were smaller and more familiar territory.

They signed an agreement of purchase and sale with a financing condition and a due diligence condition attached, giving them a set window to investigate the property before their offer became binding. That is when they came to us — not to negotiate the deal itself, which they were happy with, but to confirm during the conditional period that the building was actually what the listing said it was.

What the review found

Buying a tenanted commercial property is different from buying a house. Its value to the buyer depends heavily on the lease attached to it — the rent it produces, how long that rent is locked in, and what obligations the landlord is taking on. Ontario's Commercial Tenancies Act governs the relationship between a landlord and a commercial tenant, and when a building sells, the new owner steps into the seller's shoes as landlord, bound by whatever lease is actually in place, not whatever the listing said was in place. So one of the first things we did was request a copy of the actual signed lease from the seller's lawyer, along with an estoppel certificate — a document signed by the tenant confirming the lease terms, the current rent, whether rent is paid up to date, and whether any side agreements exist that aren't in the written lease.

What came back did not match the listing. The written lease on file had actually expired about eight months earlier. The tenant, a small business run by Ifrah, had continued operating on a month-to-month basis after the term ended — a common but informal arrangement sometimes called overholding — and was paying roughly $2,400 a month, not the $3,000 described in the listing. That gap of about $600 a month works out to roughly $7,200 a year in rent the building was not actually producing. On top of that, the security deposit on file hadn't been adjusted since the lease was first signed years earlier, so it no longer matched even the reduced rent being paid, let alone the higher rent the listing implied.

None of this meant the deal was bad. It meant the deal Khalil and Layla thought they were buying — a stable, higher-rent, multi-year lease with a known tenant — was not quite the deal on the table. A month-to-month tenancy can end with proper notice far more easily than a fixed term, which matters both for income stability and for the building's resale value down the line. And the income shortfall would have shown up immediately in their first year of ownership, right when they were carrying a new mortgage and had budgeted around the higher figure.

What we did

1. Verified the gap directly with the tenant. The estoppel certificate gave us a sworn snapshot from Ifrah's side, independent of what the seller or listing agent had said, so there was no dispute later about what the tenant believed the terms to be.
2. Raised the shortfall with the seller's lawyer before the due diligence condition expired. Because the discrepancy surfaced while the deal was still conditional, Khalil and Layla had real leverage — they could walk away cleanly if it wasn't resolved. We used that leverage to negotiate, not to collapse the deal, since the building still worked for them at the right terms.
3. Negotiated a closing credit for the lost income. The seller agreed to credit the buyers roughly $7,200 at closing — the approximate value of a year's rent shortfall — to offset the gap between what was represented and what the tenant was actually paying.
4. Made a signed lease renewal a condition of closing. Rather than close on a month-to-month tenancy and hope the tenant would agree to a new lease afterward, we required the seller to have Ifrah sign a new three-year lease at market rent, with a top-up of the security deposit, before the sale could complete. This meant Khalil and Layla knew exactly what they were inheriting on day one, instead of negotiating with a new tenant as a first-time landlord.
5. Confirmed zoning and permitted use for the mixed building. We obtained written confirmation from the municipality that the ground-floor commercial use and the upstairs residential units were both legally permitted under the property's zoning, so the siblings weren't relying on the seller's word that everything was compliant.
6. Reviewed the HST treatment of the sale. A mixed-use building can trigger different HST treatment for the commercial and residential portions. We confirmed how the purchase price was being allocated between the two uses and made sure the agreement addressed who was responsible for any HST payable, so there was no surprise bill after closing.
7. Drafted a co-ownership agreement between the siblings. Buying jointly as tenants in common, Khalil and Layla needed their own agreement covering ownership shares, how expenses and rental income would be split, who could make day-to-day landlord decisions versus major ones like a future sale, and what would happen if one sibling wanted to exit down the road. This sits alongside the purchase itself and governs how the two of them deal with each other, not just the tenant.

The outcome

The deal closed on schedule. The seller's roughly $7,200 credit offset the rent shortfall Khalil and Layla would otherwise have absorbed in their first year, and Ifrah signed a new three-year lease at the market rent originally advertised, with a properly topped-up security deposit, before the closing date arrived. Khalil and Layla ended up owning a building that actually matched what they thought they were buying at the offer stage — stable commercial income, a known tenant on a known term, and clean title with confirmed zoning.

The residential apartments above needed no changes; their leases had been accurately represented from the start, and it was only the ground-floor commercial space that carried the discrepancy. Because the issue was caught during the conditional period rather than after closing, resolving it cost the siblings nothing beyond the time it took their lawyer to chase down the estoppel certificate and negotiate the credit and lease renewal — a routine part of a small commercial purchase done properly, not a crisis.

A year into ownership, the co-ownership agreement has already done quiet work too: when a decision came up about resurfacing the parking area behind the building, Khalil and Layla had a clear process for approving the expense and splitting the cost, rather than working it out from scratch under pressure.

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