What Causes a Commercial Lease Dispute and What To Do If You Are Facing One
A commercial lease dispute can arise when a landlord and tenant disagree about rent, repairs, operating costs, renewal rights, or how the leased premises can be used. In Ontario, reviewing the lease itself is usually the starting point for understanding the parties’ rights and obligations, alongside the Commercial Tenancies Act and applicable common law.
What is a Commercial Lease Dispute?
A commercial lease dispute is a disagreement between a landlord and a business tenant about rights or obligations connected to a commercial property. The disagreement may involve money, maintenance, the use of the premises, a proposed assignment, renewal of the lease, or an alleged breach of the agreement.
Commercial leasing disputes are different from residential tenancy disputes. The Ontario Commercial Tenancies Act applies to commercial tenancies, but the lease remains central to many disputes. If an agreement does not address an issue clearly, the parties may have to rely on statutory rules, established legal principles, and court decisions to determine the outcome.
What Causes a Commercial Lease Dispute in Ontario?
Some disagreements are caused by events that neither party expected when the lease was signed. Others begin because a lease provision is broad, incomplete, or open to more than one interpretation. In our experience at Gionet Fairley Wood LLP, several areas deserve particular attention when a commercial leasing relationship starts to break down.
Who is Responsible for Commercial Property Repairs?
Repair obligations are a frequent source of disagreement. A tenant may believe the landlord is responsible for a major building failure, while the landlord may point to a lease provision requiring the tenant to maintain or repair the premises.
The dispute can become more complicated when the problem involves the roof, structural components, plumbing, electrical systems, or heating and cooling equipment. The lease should identify which party handles routine maintenance, major repairs, and replacement of expensive equipment. It should also address damage caused by the tenant, its employees, customers, or contractors.
When a significant repair is disputed, we recommend reviewing the entire lease rather than relying on a single maintenance clause. Definitions, schedules, insurance provisions, and other sections can affect the allocation of responsibility.
Why Operating Costs Can Lead to Lease Disputes
A commercial tenant may pay base rent plus additional rent for expenses such as property taxes, insurance, utilities, maintenance, or common area costs. A dispute can develop when the lease uses broad terms such as operating expenses or management fees without explaining what those charges include.
Questions often arise about major repairs, capital improvements, parking lot work, management costs, or other expenses passed on to tenants. The answer of resolution usually depends on the wording of the lease and the nature of the expense.
A useful lease should explain which costs are recoverable, how the tenant’s share is calculated, and how significant capital expenditures are treated. Tenants who receive unexpected charges should review the supporting records and the relevant lease provisions before deciding how to respond.
Renewal Clauses Also Create Commercial Lease Disputes
A renewal option can be one of the most important provisions in a commercial lease because a business may depend on remaining in its existing location. Problems arise when the renewal clause does not provide a workable method for determining the new rent or fails to set out clear requirements for exercising the option.
For example, an agreement that simply says the parties will negotiate the rent later may create uncertainty about whether an enforceable renewal right exists. A better approach is to establish a specific formula, increase, valuation process, or other method for setting the renewal rent. The clause should also identify the notice period and any conditions attached to the option.
Tenants should pay close attention to renewal deadlines. A missed notice period can affect the right to renew even when the tenant has communicated informally that it intends to stay.
What Happens When a Tenant Wants to Assign or Sublet
A business sale, restructuring, or relocation can require a tenant to assign its lease or sublet some or all of the premises. The lease will usually set out the consent process, and Ontario law also places limits on a landlord’s ability to withhold consent in certain circumstances.
A dispute may arise if the landlord objects to the proposed incoming tenant, asks for additional conditions, or refuses consent. A tenant considering the sale of its business should review the assignment provisions before making commitments to a purchaser. A landlord should assess a proposed assignee based on the lease and applicable law rather than assuming consent can be refused for any reason.
How Permitted Use and Exclusivity Affect Commercial Tenants
The permitted-use clause defines what a tenant can do from the premises. This can become an issue when a business expands its services or begins selling products that were not contemplated when the lease was signed.
Exclusivity provisions can create another type of conflict, particularly in shopping plazas and other properties with multiple commercial tenants. A tenant may have negotiated protection against a competing business operating in the same property. If another tenant later opens a similar business, the original tenant may claim that the exclusivity provision has been breached.
The wording is critical. Terms such as competing business, permitted use, and exclusive use should be defined with enough precision to reduce uncertainty about what activities are restricted.
What Should You Do If You Are Facing a Commercial Lease Dispute?
If you are facing a commercial lease dispute, start by having a lawyer review the complete lease and gathering the documents connected to the disagreement. This includes amendments, renewal notices, invoices, payment records, repair requests, inspection reports, photographs, emails, and other communications.
Next, identify the specific issue and the remedy being sought. A dispute about an unpaid operating cost may require a different response from a threatened termination, a contested renewal, or a disagreement over possession of the premises.
Do not assume that withholding rent, changing locks, terminating the lease, or taking another enforcement step is safe simply because you believe the other party has breached the agreement. The Commercial Tenancies Act contains specific remedies and procedures, and the lease may impose additional requirements. Taking action without understanding those rules can create a second dispute on top of the original one.
Can a Commercial Lease Dispute Be Resolved Without Going to Court?
Some commercial lease disputes can be resolved through direct negotiation, mediation, or arbitration rather than a court proceeding. The right approach depends on the lease, the urgency of the situation, the amount at issue, and the outcome each party is seeking.
A negotiated resolution can be useful when the landlord and tenant want to preserve their business relationship or avoid the time and cost associated with going to court. In other situations, court proceedings may be necessary to obtain a remedy or resolve a serious disagreement.
When Should You Speak with a Commercial Litigation Lawyer?
Legal advice should be considered early when a dispute involves a threatened termination, lockout, substantial rent arrears, a disputed renewal option, significant repair costs, an assignment or sublease, or a claim for damages.
At Gionet Fairley Wood LLP, we work with landlords, business owners, and commercial tenants throughout Barrie, Simcoe County, Muskoka, Orillia, and surrounding Ontario communities. We review the lease, the circumstances giving rise to the disagreement, and the available remedies to help clients determine how to proceed.
Why Having a Legal Advocate Is Necessary
Commercial lease disputes can affect more than the immediate disagreement. A dispute over repairs can affect the operation of a business, an argument about additional rent can affect cash flow, and a missed renewal deadline can put a long-established location at risk.
Getting advice before a dispute escalates can help a landlord or tenant understand the lease, assess the strength of its position, and avoid taking a step that creates additional legal exposure.
At Gionet Fairley Wood LLP, our commercial lawyers have the litigation experience to assist with commercial lease disputes in Barrie, Muskoka, Simcoe County, and throughout Ontario. Call us at 705-468-1088 or visit our website to speak with our construction law team.
The information provided in this blog is for general informational purposes only and should not be construed as legal advice. If you have legal questions, we strongly advise you to contact us.