How To Terminate a Commercial Lease

In Ontario, the rules surrounding the termination of a commercial lease are determined first by the terms of you agreement, and then by the provisions of the Commercial Tenancies Act (CTA). Commercial leases are binding contracts so it is important to review yours carefully with your lawyer. As a tenant, terminating your commercial lease early may trigger penalties including liability for remaining rent, forfeiting security deposits, and potential legal action from your landlord.

However, not all early terminations need to be difficult or litigious if handled well.

Three Ways A Lease Ends

Generally speaking, a commercial lease can end in one of three ways:

1. It expires naturally; in a fixed-term lease, tenants are required to leave by the date outlined with no advanced notice required, unlike with month-to-month leases where the tenant or landlord must provide at least one-month notice to terminate.
2. A mutual agreement; the tenant and landlord reach an agreement in writing to terminate the lease early.
3. A breach of contract; either the tenant fails to uphold the terms of their contract (fails to pay rent, etc.) in which case the landlord must follow the notice requirements outlined under the CTA; or the landlord breaches their contract (persistently fails to maintain the property, illegally locks out the tenant, etc.) in which case the tenant may have legal recourse to terminate the lease and seek financial relief.

Steps to Terminate Your Lease

If you are thinking of terminating your lease early, it is best to follow these steps.

1. Review your lease agreement carefully; when you signed the lease there may have been an early termination clause or break option, as well as clauses related to subletting. At this stage and at all subsequent stages, a lawyer should be involved to help advise you if you have grounds to terminate.
2. Negotiate a mutual termination; reach out to the landlord to discuss what this might look like — it may include the payment of a few months’ rent, or an agreement to sublet to a replacement tenant.
3. Explore subletting options; unless your lease agreement gives your landlord the right to explicitly refuse this option, the CTA generally prevents landlords from withholding consent.
4. Provide appropriate written notice; a lawyer can help you draft an appropriate surrender agreement that can help you avoid further disputes or liability. Give good-faith notice to help the landlord mitigate their losses.

What Not to Do

If you signed a personal guarantee, a landlord will be able to pursue your personal assets if your business goes bankrupt, so be sure to double check your lease agreement. If you abandon the space, you may be found liable for outstanding rent, and if you withhold rent payments in protest during a dispute, a landlord may have legal grounds to seize your assets and lock you out.

What To Do Instead

Keep thorough written records and notify your landlord of any problems in writing to give them an opportunity to remedy them. If you are seeking a court order or dealing with a more serious dispute, it is best to continue paying rent unless advised not to by a lawyer. You may be entitled to financial relief.

Need help ending a commercial lease? Contact our team today to set up a consultation.

* Please note that the information in this article is not intended as legal advice, but rather as a general overview on the subject. If you are seeking legal advice, please consult with a lawyer.