It may not sound common – but it happens often: a commercial landlord owes a tenant money, often for a repair the tenant paid for but is the landlord’s responsibility. Either the landlord is being slow to repay – or refusing to repay the tenant at all.

When this situation arises, many commercial leases don’t have clauses to clarify what happens. Many times, commercial renters will be stuck with huge bills for repairs to a space that are the landlord’s responsibility. We’ve heard from businesses that have waited years to receive payment for thousands of dollars – crunching their cash flow while the landlord shirks responsibility.

Commercial lease agreements in Ontario often tilt in favor of landlords and these types of disputes have one major negative – tenants still must continue paying rent or be evicted, even when the landlord owes them money. We believe this offers Ontario and other Provincial governments an opportunity to create more fairness in commercial lease agreements – and help both parties resolve disputes with a small change to the Commercial Tenancies Act.

Three Ways a Business Could Proceed When a Landlord Owes a Tenant Money:

  1. Seek Legal Advice and Potential Litigation: Businesses can consult a legal expert to understand their rights and potentially pursue legal action against the landlord for breach of contract or non-payment. This can be costly and time-consuming but may be necessary to recover owed amounts.
  2. Negotiate a Settlement: Tenants can attempt to negotiate directly with the landlord for a settlement, perhaps agreeing to rent reductions or other compensatory measures. This approach requires good faith from both parties and may not always be successful.
  3. Withhold Rent: In some US States, tenants might have the option to withhold rent equivalent to the amount owed by the landlord – lucky them! However, this can be risky and could lead to eviction if not handled properly within the limited legal framework.

The Core Issue

At the heart of this issue is the imbalance within the Ontario Commercial Tenancies Act – and any other Tenancy Act (or lack thereof) in Canada. As it stands, landlords can re-enter and repossess premises if rent remains unpaid for fifteen days, regardless of any outstanding financial obligations they may have towards the tenant. Even if they owe their tenant a million bucks, the tenant still has to pay their monthly rent. This creates a precarious situation for tenants, who, despite being owed money, must continue paying rent or face eviction.

Proposed Legislative Changes

The Better Way Alliance is proposing an amendment to Section 18(1) of the Ontario Commercial Tenancies Act. This amendment aims to introduce fairer tenant protections by:

  • Introducing a Balance Offset Clause: This would allow landlords and tenants to agree to reduce the balance owed by the landlord through “free” rent, ensuring agreements are clearly documented.
  • Mandatory Arbitration or Mediation: In disputes regarding withheld rent due to landlord obligations, a compulsory arbitration or mediation process would offer a streamlined, cost-effective resolution method.
  • Protection from Eviction: Tenants would be shielded from eviction or legal action by landlords while dispute resolution is ongoing.

Rationale and Anticipated Benefits

This amendment is designed to correct the current imbalance, ensuring tenants are not penalized for withholding rent under circumstances where the landlord owes them money. It encourages landlords to fulfill their obligations promptly, fostering a more cooperative and fair approach to resolving financial disputes.

The benefits of this change are clear:

  • Reduction in Unfair Evictions: It decreases the risk of unfair evictions and financial strain on tenants.
  • Promotes Fair Resolutions: Encourages a cooperative approach to dispute resolution.
  • Strengthens Market Integrity: Enhances the overall fairness of Ontario’s commercial rental market.

As Ontario’s real estate environment evolves, so must our ability to ensure fairness in lease agreements that supports the longevity of our main streets.

Our proposed amendment to the Ontario Commercial Tenancies Act represents a critical step towards a more equitable commercial leasing system in Ontario. It acknowledges the complex nature of landlord-tenant relationships today and offers a pragmatic solution to an overlooked problem. By adopting these changes, Ontario can ensure that its commercial tenants have the protections they need, while providing landlords with an offset option that helps avoid a potential court case.