My Space, Your Business – When Things Go Wrong in a Commercial Tenancy – Part 1

By Maxim Piva lawyer at Merovitz Potechin LLP on Monday February 10, 2025

Everything doesn’t always go according to plan. Whether you’re a landlord maintaining a building or a tenant trying to operate a business, adequate preparation saves time and money. A carefully-drafted lease under the Ontario Commercial Tenancies Act (the “Act”) can help you anticipate disputes and provide a roadmap to avoid them.

Design Your Deal: The Act’s Permissive Power

The Act is fundamentally permissive, granting both landlords and tenants the flexibility to tailor their lease agreements to meet specific needs. The Act provides a framework and serves as a guide, allowing parties the freedom to structure their lease in a way that suits their unique circumstances. This flexibility allows landlords and tenants to customize most terms of a lease, including rent adjustments, maintenance responsibilities, and specific business requirements.

However, it’s important to note that there are key areas where the Act imposes mandatory provisions to protect the rights of both parties. Understanding these nuances can help you craft a lease that is not only legally sound but aligned with your business goals.

That being said, there are a couple of areas where the parties are not free and the Act may override to offer protection in specific scenarios. For example, the Act will override a negotiated lease to provide the following:

1. Reasonable Notice for Breach: Where tenants fail to live up to the terms of a lease, landlords must provide them with reasonable notice — an opportunity to make things right, either by “curing” or fixing the breach or default,  or by reasonably compensating the landlord in money.
2. Tenant Rights: No matter what a lease might say, tenants or sub-tenants will always retain the right to seek relief from the courts.
3. Distraint Rights: The Act outlines very particular requirements relating to how landlords may seize a tenant’s property for unpaid rent, balancing landlord rights with tenant protections.

So long as a commercial lease sets out certain minimums relating to notice, however, the terms of a commercial lease will be determinative on most issues.

Can Landlords Lock Tenants Out?

Like most legal questions, the short answer is “it depends.” Namely, the landlord’s intentions and the circumstances leading up to the lock change determine the outcome.

Landlords may change locks in two primary scenarios: to terminate the lease or to secure property.

1. To Terminate the Lease

Landlords may “re-enter” and terminate a lease under specific circumstances, including:

Non-Payment of Rent:

• The Act permits landlords to repossess a property if rent remains unpaid for 15 days after it’s due. In such cases, no formal demand for rent is necessary, and landlords may establish possession by changing the locks.

Breach of Lease Terms:

• If tenants violate lease provisions other than rent payment, landlords must provide “reasonable notice” and allow an opportunity to resolve the issue or provide monetary compensation. If no resolution or compensation is forthcoming, the lease may be subject to termination and the landlord may change the locks to retake possession of the premises in a process called “re-entry”.

Illegal Use of the Premises:

• The Act also allows landlords to terminate a lease where a tenant is convicted of certain crimes. For example:
  • Operating a “disorderly house” (e.g. an unlicensed betting establishment) within the leased premises.)
  • Similarly, carrying out a trade or business requiring a license without obtaining or maintaining that license may lead to termination. This includes activities covered under the Municipal Act, 2001 or the City of Toronto Act, 2006.

It may seem like common sense, but tenants must ensure they are abiding by all laws and licensing requirements, or their leases may be forfeit. Sounds simple enough, right?

Process matters. It is critical that landlords terminating a lease strictly adhere to the requirements of the Act. Failure to follow the proper procedures while seeking to protect their rights can result in complex issues; fertile ground for time-consuming and costly litigation. Where problems arise in the termination of a commercial lease, landlords may be faced with both the expense of resolving the issue and facing opportunity costs, stuck unable to lease their space to a new tenant until issues with the previous tenant are resolved.

When considering termination of a lease, it pays to have advice on how to do so properly, in line with the Act, and be informed as to what other options might be available. Terminating the lease may not be the best option.

Coming Up in Part 2

In some cases, landlords may change locks not to terminate a lease but to secure property. In Part 2, we’ll explore how this process works and what happens during distraint.