A Canadian Lease Extension Agreement is a legally binding document that extends the term of an existing residential or commercial lease beyond its original expiration date. Unlike a lease renewal, which creates an entirely new lease agreement, an extension continues the existing tenancy without interruption. This distinction is legally significant in Canadian jurisdictions because an extension preserves the continuity of the original tenancy, including all rights, obligations, and conditions established under the original lease.

For residential tenancies, lease extensions operate within the framework of provincial residential tenancy legislation. In Ontario, the Residential Tenancies Act, 2006 (S.O. 2006, c. 17) provides that when a fixed-term lease expires, the tenancy automatically converts to a month-to-month tenancy on the same terms. The tenant has no obligation to move out when the fixed term ends. However, many landlords and tenants prefer the certainty of a new fixed-term extension rather than a month-to-month arrangement, which either party can terminate with proper notice.

In British Columbia, the Residential Tenancy Act (R.S.B.C. 2002, c. 78) similarly provides for automatic month-to-month conversion. Alberta's Residential Tenancies Act (S.A. 2004, c. R-17.1) follows the same principle. In Quebec, the Civil Code governs lease extensions, and tenants have the right to maintain occupancy under specific notice and renewal provisions.

For commercial tenancies, the legal landscape is fundamentally different. Commercial leases are primarily governed by common law and the terms of the lease itself, with limited statutory protection for tenants. Ontario's Commercial Tenancies Act (R.S.O. 1990, c. L.7) does not provide for automatic renewal or conversion to month-to-month tenancy. If a commercial tenant remains in possession after the lease expires without a written extension, complex questions arise regarding overholding, implied tenancy, and the parties' respective rights. A written lease extension agreement eliminates this uncertainty.

The agreement must clearly reference the original lease, state the new extension term, define the rent during the extension period, and specify any modifications to the original lease terms. For residential leases, any rent increase must comply with the applicable provincial rent increase guideline.

A Lease Extension Agreement is needed when both the landlord and tenant want to continue the tenancy beyond the original fixed term but want more certainty than a month-to-month arrangement provides. For residential tenants, a fixed-term extension provides protection against the landlord exercising termination rights that would be available under a month-to-month tenancy, such as a landlord's own-use application under Ontario RTA s. 48.

For commercial tenants, a lease extension is essential when the original lease is expiring and the tenant wants to remain in the premises. Without a written extension, the commercial tenant has no automatic right to continue occupying the space after the lease expires. A tenant who remains without a written agreement may be treated as an overholding tenant, potentially subject to double rent or immediate eviction under the Commercial Tenancies Act.

Lease extensions are common when the parties want to adjust the rent for market conditions. In rent-controlled residential jurisdictions, the increase must comply with the provincial guideline. For commercial leases, the parties are free to negotiate any rent they agree upon.

The agreement is also needed when specific lease terms need to be updated for the extension period: adding or removing a parking space, changing utility responsibilities, modifying permitted use clauses in commercial leases, updating insurance requirements, or reflecting a change in the landlord entity due to a property sale.

Lenders, particularly in commercial real estate, often require evidence that the tenant has a valid lease extension when the borrower is relying on rental income to service the mortgage. Without a written extension agreement, the lender may consider the lease expired and reduce the appraised value of the property.

For tenants exercising an option to renew contained in the original lease, the lease extension agreement formalizes the exercise of that option and documents the terms of the renewal period. Courts have held that strict compliance with the notice requirements in an option to renew clause is required, making a written agreement critical.

Reference to Original Lease: The extension agreement must clearly identify the original lease by date of execution, property address, and the names of the parties. This establishes which lease is being extended and prevents confusion.

Extension Term: State the start date, end date, and duration of the extension period. The extension typically starts on the day following the expiration of the current lease term. Specify whether the extension is for a fixed term or converts to a periodic tenancy.

Rent During Extension: Clearly state the monthly rent for the extension period. For residential leases in rent-controlled provinces, confirm that the increase complies with the applicable guideline. For commercial leases, state the base rent, any additional rent (property taxes, insurance, maintenance), and any escalation clauses.

Security Deposit: Address whether the existing deposit carries forward, needs to be adjusted, or is replaced. In Ontario, only a last month's rent deposit is permitted for residential tenancies. In BC, the maximum security deposit is 50% of one month's rent. In Alberta, the deposit cannot exceed one month's rent.

Modified Terms: If any terms of the original lease are being changed for the extension period, they must be expressly stated. Common modifications include changes to parking, pet policies, utility responsibilities, insurance requirements, or permitted use.

Right of Further Renewal: If the tenant will have the option to renew beyond the extension term, specify the renewal term length, the notice period required to exercise the option, and how rent will be determined during the further renewal period.

Termination Notice: State the minimum notice period required to terminate the tenancy during the extension term. For residential tenancies, provincial legislation sets minimum notice periods that cannot be reduced by agreement.

Compliance with Provincial Legislation: Include a clause acknowledging that the agreement is subject to the applicable provincial tenancy legislation and that any conflicting provision is void and severable. This protects both parties from inadvertently including unenforceable terms.