Commercial Lease Agreement in Canada: 5 Mistakes That Make It Unenforceable (2026)

A commercial lease in Canada is unenforceable when it lacks a written record, states an uncertain rent or term, omits a Personal Property Security Act (PPSA) waiver, fails to identify the parties with precision, or contains assignment restrictions that breach Competition Act rules. Each of these errors has caused Canadian courts to void or refuse to enforce leases that looked complete on their face.

Commercial tenancies in Canada are not governed by a single federal statute. Residential tenancy legislation — Ontario's Residential Tenancies Act, 2006, British Columbia's Residential Tenancy Act, RSBC 2002 — does not apply. Instead, commercial leases operate under provincial property and contract law, the Statute of Frauds in Ontario and several other provinces, and the common law of contract. That patchwork means the same document might be enforceable in Alberta but void in Ontario.

Mistake 1: No written lease when the term exceeds three years

Ontario's Statute of Frauds, RSO 1990, c S.19, s.4 requires that any lease for a term longer than three years be evidenced by a signed writing to be enforceable. British Columbia's equivalent, the Law and Equity Act, RSBC 1996, c 253, s.59, sets the same threshold. A verbal agreement for a five-year commercial tenancy is not just hard to prove — the statute bars courts from enforcing it at all.

The practical danger is that many small business owners agree on terms verbally or by email chain and move into the premises before the lease is signed. If the landlord later seeks to enforce rent obligations, or the tenant wants to claim breach of quiet enjoyment, neither party can rely on a contract that should exist in writing. Even in Alberta, which abolished its Statute of Frauds for most contracts, a commercial lease without a written record creates serious evidentiary problems in disputes before the Court of King's Bench.

Short-term leases — under three years in Ontario and BC — can technically exist verbally, but relying on that is reckless for either party. A signed document is always the baseline.

Mistake 2: Uncertain rent or term

Courts in Canada require commercial lease terms to be certain enough to be performed. A rent clause that reads "market rate to be agreed annually" is not a fixed obligation — it is an agreement to agree, which courts applying Canadian contract law have consistently refused to enforce. May and Butcher v The King [1934] 2 KB 17, adopted in Canadian courts, draws the line between a binding obligation and an incomplete agreement.

The problem appears in two forms. First, a base-rent figure that is indexed to a formula without specifying how disputes about the index are resolved. Second, a term that provides for renewal "at a mutually acceptable rent" — language that creates no enforceable renewal right at all. Ontario courts have refused to enforce renewal options where the rent on renewal was left for future negotiation, treating such clauses as unenforceable agreements to agree rather than binding contractual commitments.

The fix is simple but requires deliberate drafting: state the base rent as a dollar figure per square foot or per month, specify the commencement date, state the expiry date as a calendar date rather than a duration, and where there is a renewal option, either fix the renewal rent or tie it to a defined mechanism such as a CPI formula with a clear calculation methodology.

Mistake 3: No PPSA landlord's waiver

The Personal Property Security Act governs secured lending against business assets in every Canadian province. A lender financing a tenant's equipment, inventory, or receivables will register a PPSA security interest against those assets. Without a landlord's waiver, the landlord's claim to distrain on (seize) the tenant's goods for unpaid rent — still available in some provinces under the Commercial Tenancies Act — can conflict directly with the secured lender's priority claim.

Institutional landlords in Ontario and BC include a PPSA waiver clause as a standard term because tenants' lenders will demand it as a condition of financing. A landlord who refuses a PPSA waiver may find the tenant cannot secure equipment financing, which undermines the tenant's ability to operate and pay rent. More importantly from the landlord's side, a lease that omits this clause will need to be amended before any institutional tenant signs — and an amendment executed after the tenant has already financed equipment creates a priority dispute.

The waiver typically provides that the landlord will not assert any distress or lien rights against goods subject to a registered PPSA security interest, and that the lender may enter the premises to remove secured collateral on reasonable notice. Drafting the scope carefully matters: an overly broad waiver can prevent the landlord from recovering against assets the tenant actually owns free of any security interest.

Mistake 4: Parties described so vaguely that assignment is unclear

A commercial lease signed by "ABC Enterprises" when the actual tenant is "ABC Enterprises Inc." — a numbered corporation incorporated under the Canada Business Corporations Act, RSC 1985, c C-44 — creates an identity gap. If the tenant defaults, the landlord's ability to pursue the corporation (which has limited liability) rather than any individual depends on the exact legal name being on the lease.

More commonly, the mistake runs the other way: a lease names a principal personally rather than their corporation, which means personal liability continues even after the business is sold or wound up. The Business Corporations Act, SBC 2002, c 57, s.87 (BC) and the Business Corporations Act, RSO 1990, c B.16 (Ontario) both limit personal liability where the corporate form is properly maintained — but only if the lease itself reflects the corporate entity as tenant.

Guarantor provisions compound this problem. A director or officer who signs a personal guarantee without the guarantee being expressly included in the lease document, or signed as a separate deed with independent consideration, may successfully argue the guarantee is unenforceable. Courts in Ontario have dismissed guarantee claims where the guarantee was signed on the same day as the lease but was described only in passing in the lease body without an attached, signed guarantee form.

Mistake 5: Assignment restrictions that go beyond what the law permits

Most commercial leases restrict assignment without the landlord's consent. That is standard and enforceable. The problem arises when the restriction is drafted so broadly that it prevents a tenant from selling their business as a going concern, or when the landlord's right to withhold consent is stated to be absolute and unconditional.

Canadian common law implies, in most provinces, that landlord consent to a reasonable assignment request cannot be unreasonably withheld — even where the lease states consent may be withheld in the landlord's "sole discretion." Ontario courts have consistently held that a landlord's refusal to consent to a commercially reasonable assignment can expose the landlord to damages, including the difference between the market rent and the rent the proposed assignee was prepared to pay.

A related issue arises under the Competition Act, RSC 1985, c C-34, s.77, which prohibits exclusive dealing arrangements. A lease provision that prevents a tenant from assigning to a competitor of the landlord's other tenants can attract scrutiny under the Act if the landlord controls enough commercial real estate in a market to raise market-foreclosure concerns.

Drafting the assignment clause to specify objective criteria for consent — creditworthiness, use compatibility, no material change to permitted use — is far more defensible than a blanket prohibition.

What a sound commercial lease in Canada actually needs

Beyond avoiding these five errors, a free Canadian commercial lease agreement template should cover the permitted use clause with precision (a use clause drafted as "retail" is not the same as "retail sale of women's clothing"), the repair and maintenance allocation (distinguishing structural repairs from routine maintenance is a perennial dispute source), and the subordination and non-disturbance provisions that protect the tenant if the landlord's mortgage lender takes over the property.

Operating cost definitions in gross leases — what is included, what is excluded, and the tenant's audit rights — have generated substantial commercial tenancy litigation in Ontario. Where a lease is silent on the tenant's right to audit operating cost statements, Ontario courts have generally implied a right to reasonable verification, but landlords can and do draft clauses that narrow those audit rights significantly.

The forms-legal.com template library covers these provisions in a format that can be adapted to the specific province, though any commercial lease covering a substantial business operation should be reviewed by a solicitor familiar with the applicable provincial commercial tenancy legislation before execution.

The practical checklist before you sign

Before executing a commercial lease in Canada, run through these checks. The term and rent must be stated as exact numbers, not formulas requiring future agreement. The legal name of the tenant entity must match the name on the PPSA registration and the business licence. If the landlord holds other commercial properties in the same market, the assignment clause should have defined consent criteria rather than an absolute prohibition. The PPSA waiver must be included if the tenant plans to finance any equipment after signing. For any term exceeding three years, the lease must be signed and witnessed before the tenant takes possession.

Getting these five points wrong is not merely a theoretical risk. Each one corresponds to a line of decided Canadian cases where courts declined to enforce agreements that parties believed were binding. The cost of that outcome — a tenant occupying premises with no enforceable right to remain, or a landlord unable to collect rent under a document signed in good faith — far exceeds the time required to draft the lease correctly at the start.