New Ideas for Canada’s Main Streets

Canada’s small businesses create thriving main streets but the real estate market is distorted
against these small players. Even long-time business tenants have zero negotiating power protections
against surprise price increases from their landlords.

The Better Way Alliance is proposing stabilizing market changes
that benefit a growing Canadian economy and local businesses.

OUR PRIORITIES

FEDERAL: Create a Federal Mortgage Guarantor program for small businesses through BDC.

PROVINCIAL: Improve protections for brick and mortar renters by updating Provincial Commercial Tenancy Acts.

MUNICIPAL: Incentivize municipalities to keep a commercial landlord database.

Strengthening Canada’s Main Street Businesses Through Real Estate Ownership


Businesses need homes too. But under current market conditions, business owners often do not qualify for a mortgage, regardless of how long they’ve been successful within their enterprise.  Renting a commercial space comes with many uncertanties like hidden costs, no guarantees of renewal at the end of a lease, and potential rent increases of thousands of dollars a month. 

Creating real estate purchasing opportunities for business owners to buy property can ensure the longevity of already successful brick and mortar enterprises across Canada.

Often as neighbourhoods gentrify, market rental rates skyrocket, pricing long-time businesses out of their neighbourhoods.  However, when the building is owned by the business, square footage costs are tied to a stable mortgage, instead of fluctuating along with real estate speculation. Costs of commercial real estate ownership for small businesses can be considerably lower, allowing the business to flourish for decades.

Developing a pathway for qualified enterprises to purchase their spaces will create stability in these neighbourhoods and could act as a steadying force on commercial real estate markets. For participants, this program could reduce overhead costs and improve spending on innovation, job creation, and future expansion.  Leveraging the BDC’s recent willingness to embrace greater risk to support entrepreneurs has created a ‘right moment’ opportunity to increase access to property ownership for a new group of qualified business owners.


Anticipated Benefits

Stability and Long-term Viability: Ownership provides businesses control over operating costs, offering stability against recent (extreme) rental market fluctuations. This stability supports the maintenance of decent work practices, including safeguarding employee benefits and wages.

  • Small Business Asset Building and Financial Health: Property ownership is a vital asset and would allow new entrants to the real estate marketplace. This acts to bolster the financial health and sustainability of small businesses and greatly increases their chances of long-term success. When businesses are able to project and build assets, they often invest further in their workforce and decent work standards.
  • Community Development and Revitalization: Encouraging ownership contributes to stable, invested local business communities. Business owners who are property owners are more inclined towards neighborhood development and revitalization, fostering community and belonging. Business owners with a stake in the community help build additional resiliency in local economies.

Proposed Action

Develop a pilot program, in partnership with the Business Development Bank of Canada (BDC), to assist qualified small brick and mortar businesses in purchasing commercial real estate.  Businesses that meet particular criteria such as time in business, consistency of rent payments, and other metrics (TBD) could apply to this pilot program.

This initiative could include:

  • Low-end fixed-rate mortgage rates
  • BDC acting as a guarantor for qualified applicants
  • Ensuring the program is accessible to a diverse range of business owners

Both of these options increase access to mortgages for small business owners.  Developing data points and identifying key qualification criteria is critical for this project. 

Bread By Us

For Bread By Us in Ottawa’s Hintonburg neighbourhood, buying their property would mean reducing their monthly rent costs by about 25%.

This would be redirected to renovating the space, hiring a delivery driver, and employee wage increases.

People's Pint Brewery

After investing hundreds of thousands of dollars into their space, the People’s Pint landlord offered a take it or leave it offer of 50% rent increase to renew their lease in 2022.

Moving their equipment would have cost as much as it did to purchase, and the rent increase wasn’t anywhere near viable.  Instead, they called it a day and shut down one of Toronto’s beloved breweries.

Being able to purchase their space would have allowed them to continue operating and control costs.

 

Amending the Commercial Tenancies Act to Adopt Offsets

 Proposed Action: To amend Section 18(1) of the Commercial Tenancies Act to provide clarity and tools for commercial tenants to recover money landlords owe them.

Modify Section 18(1) of the Commercial Tenancies Act to include a provision that prevents landlords from exercising the right to re-enter and repossess the premises in cases where the landlord has an outstanding financial obligation to the tenant, which exceeds or equals the amount of rent due.

Anticipated Benefits

  • Reduces the risk of unfair evictions and financial strain on tenants.
  • Promotes a more cooperative and fair approach to resolving financial disputes between landlords and tenants.
  • Strengthens the overall integrity and fairness of the commercial rental market in Ontario.

Proposed Action

As per Section 18(1) of the Commercial Tenancies Act, a landlord is permitted to re-enter and repossess the premises if the rent remains unpaid for fifteen days, irrespective of any outstanding obligations the landlord may have towards the tenant. This can create a situation where tenants, even those owed significant sums by landlords, are still legally required to continue paying rent or face eviction.

This amendment aims to create a more balanced relationship between landlords and tenants, ensuring tenants are not unfairly penalized for withholding rent under circumstances where the landlord owes them money. It also encourages landlords to fulfill their financial obligations to tenants promptly.

Key Action: Legislative Amendment

  1. Introduce a clause that allows landlords and tenants to agree to reduce the balance owed by a landlord in exchange for “free” rent. This agreement should be clearly stated and documented by the tenant.
  2. Implement a mandatory arbitration or mediation process when disputes arise regarding withheld rent due to outstanding landlord obligations.
  3. Ensure that tenants are protected from eviction or legal action by landlords while the dispute resolution process is ongoing and until a fair settlement is reached.

Standard Commercial Leases

For Brick and Mortar businesses, leases and related fees are one of the biggest costs in their budgets, and by far the most uncertain.  Our Provincial Reforms aim to address inequality in commercial rent contracts and level the playing field.

  • Proposed Action: Add a clause to the Commercial Tenancies Act mandating the use of a standardized lease template for commercial rentals, ensuring clarity and fairness in leasing terms.
  • Rationale: Standard Leases are becoming common in other jurisdictions and represent benefits to landlords, tenants, and potentially reduce usage of Court systems.

A standard lease provides a commercial lease framework, in plain language and math, so both parties entering the lease agreement are more clearly aware of the contents of the contract.  Tenants often desire predictability that is often hard to ascertain in lengthy lease contracts.

Current commercial lease contracts can extend upwards of 70+ pages, representing large legal costs for both landlords and tenants – if they can afford to have the contract reviewed by a lawyer at all. A standard lease provides a simple and basic framework with the capability to add clauses specific to the property and relationship.

This measure simplifies the leasing process, reducing administrative burdens and disputes. Standard Leases provide an easier to understand framework between parties.  Protecting both parties from unfair terms like unforeseen cost burdens and unjustified rent increases.

  • Benefits:
    • For Landlords: Streamlined leasing, fewer disputes, steadier markets.
    • For Tenants: Clear understanding of terms, fair agreements, predictability in costs.

Restricting Unfair Rent Increases in Ontario

Proposed Action: Implement legislation to cap rent increases during lease renewals and renegotiations, and prohibit clauses that enable unchecked “profiteering” or shift undue financial burdens onto tenants.

Rationale: Capping rent increases during these critical periods can benefit both tenants and landlords. For tenants, particularly small businesses, it provides financial predictability and stability, enabling better planning and budgeting. 

For landlords, it ensures steady occupancy and reduces tenant turnover, as businesses are less likely to relocate due to sudden, steep rent increases. This approach fosters a more balanced and sustainable commercial rental market, where both parties can plan for the long term with greater certainty.

Benefits:

  • Promotes equitable and sustainable lease agreements.
  • Enhances financial predictability for businesses, aiding in growth and stability.
  • Encourages long-term tenancies, resulting in consistent rental income for landlords and vibrant, stable local economies.

    Out-of-Court Dispute Resolution

    Proposed Action: To create an accessible, efficient out-of-court dispute resolution mechanism, such as professional mediation, for disputes between Landlords and Tenants under the Commercial Tenancies Act.

    Rationale: Professional mediation is faster and more affordable than lawyers and court costs for businesses & landlords. Out-of-court resolution support would provide a quicker, more cost-effective alternative to litigation, which is time-consuming and financially burdensome for both parties.

    It would ensure that disputes are resolved fairly and efficiently while relying less on Ontario’s burdened court system for resolution.

    Benefits:

    For Landlords: Reduces the time and expenses associated with court proceedings, minimizes disruption to business operations, reduce reputational risk from lawsuits.
    For Businesses: Reduces the time and expenses associated with court proceedings, minimizes disruption to business operations.

      A series of stats showcasing the difficulties facing small businesses that rent brick and mortar spaces in Canada.

      Commercial Landlord Registry

      Introduce a pilot program to establish a municipal commercial landlord registry, aimed at promoting transparency, accountability, and fairness in the commercial rental market. This registry would require landlords to provide detailed information on their commercial properties, including lease terms, rent prices (including historic increases), and vacancy periods.

      Why and How?

      The shifting dynamics of urban commercial real estate, highlighted by increasing rent prices and the displacement of small businesses, necessitate a reevaluation of traditional leasing practices. A municipal commercial landlord registry addresses these challenges by:

      • Enhancing Market Transparency: Offering clear insights into commercial leasing trends, supporting prospective tenants in making informed decisions.
      • Promoting Fair Practices: Encouraging landlords to adhere to equitable leasing standards, thereby protecting small businesses from predatory practices.
      • Facilitating Data-Driven Policy: Providing municipalities with critical data to tailor regulations and support mechanisms for local businesses, ensuring vibrant commercial districts.