The single most common misunderstanding in commercial leasing is also the most expensive: a business owner compares two spaces by their advertised rent, signs the cheaper one, and discovers months later that it costs considerably more to occupy. The advertised number is only part of the equation.
Understanding how commercial leases are actually structured in Ontario prevents that, and it puts you in a far stronger position when it comes time to negotiate.
The three basic structures
Gross lease. One all-in figure. The landlord pays property taxes, building insurance, and maintenance out of that rent. Simple and predictable for the tenant, which is why it appears more often in smaller office suites. The trade-off is that landlords price in a cushion for rising costs, so gross rent usually looks higher on paper.
Net lease. The tenant pays a base rent plus some of the operating costs separately. There are variations, but the practical distinction is simply which costs sit on which side.
Triple net lease. The most common structure for industrial and retail space in Ontario. The tenant pays base rent plus essentially all operating costs: property taxes, building insurance, and maintenance. Base rent looks low relative to a gross quote, but it is only half the picture.
TMI: the number that catches people out
In Ontario you will see costs quoted as TMI, Taxes, Maintenance, and Insurance. Elsewhere it is often called CAM or additional rent; the concept is the same. This is added to base rent, usually charged monthly as an estimate and reconciled against actual costs at year end.
Two things about TMI deserve real attention before signing:
- It is an estimate, not a cap. If actual costs exceed the estimate, you are typically billed the difference after year end. A surprise reconciliation invoice is a genuinely common source of tenant frustration.
- What it includes varies widely. Property management fees, structural repairs, roof replacement, and parking lot resurfacing may or may not be included, and the differences are significant. Ask for the actual clause, not a verbal summary.
Ask any prospective landlord for TMI figures from the past two or three years. A steady history is reassuring; a sharp jump warrants an explanation. Comparing two spaces on base rent alone, when their TMI differs meaningfully, produces the wrong answer.
Term, renewals, and why they matter more than the rate
Businesses frequently negotiate hard on rate and then accept whatever term is offered. That is backwards. A renewal option gives you the right to extend on pre-agreed terms, without one, a successful business becomes a captive tenant at renewal time, negotiating against a landlord who knows relocating would be disruptive and costly.
Where possible, negotiate the renewal rate mechanism at the outset: a fixed rate, a formula, or “fair market value” with a defined process for resolving disagreement. “To be negotiated” offers almost no protection.
The permitted use clause deserves a careful read
This clause defines what you are allowed to do in the space. Written too narrowly, it can block a reasonable evolution of your business, a café that later wants to sell packaged goods, a service business that wants to add light assembly.
Two related points:
- Municipal zoning must also permit the use. A landlord agreeing to a use does not make it legal. Verify zoning independently before committing.
- In retail, exclusivity matters. An exclusivity clause prevents the landlord from leasing another unit in the plaza to a direct competitor. Without one, nothing stops a similar business opening two doors down.
Inducements are negotiable, and often more valuable than rate
Landlords are frequently more flexible on incentives than on the headline rate, because the rate sets a benchmark for the whole building. Commonly negotiated:
- Fixturing period, rent-free time to build out before opening
- Free rent, a period of abatement early in the term
- Tenant improvement allowance, landlord capital toward your build-out
- Landlord’s work, base building improvements completed before you take possession
A modest rate concession over five years is often worth less than a solid improvement allowance paid up front, when cash is tightest.
Clauses worth flagging to your lawyer
- Personal guarantee. Common for smaller tenants, and it puts personal assets at risk. Negotiate a cap or a sunset after a period of good payment history.
- Assignment and subletting. If you ever sell the business, the buyer needs the lease. An unreasonable restriction here can undermine the value of what you have built.
- Demolition or relocation clauses. These allow a landlord to end or move your tenancy on notice. Not automatically unacceptable, but you need to know it is there.
- Restoration obligations. What condition must the space be returned in? Removing your own improvements at your cost can be a substantial end-of-term bill.
Always have a commercial lease reviewed by a lawyer before signing. These are long documents with long consequences, and the cost of review is trivial against the cost of a clause you did not understand.
Ray Azar represents both tenants and landlords in commercial leasing across Richmond Hill, Markham, Vaughan, and North York. Start a conversation about your space requirements.
General information only, not legal advice. Have any commercial lease reviewed by an Ontario lawyer.