Attention Landlords and Tenants in Ontario – Ontario Standard Leases Are Coming

Are you a landlord or tenant in Ontario? If you are, or are considering becoming one in the near future, we have a timely post for you today.  Mandatory changes are coming to residential lease agreements in the province, and here is what you need to know.

What is Happening With Residential Leases In Ontario?

Landlords of most private residential units in Ontario must start using the standard lease template for all new leases.

When Is This Starting?

These standard leases must be used in Ontario starting April 30, 2018.

Who Decided This?

The Ontario Liberal Government – through the Ministry of Municipal Affairs/Ministry of Housing.

Where Can I Find a Copy of this Standard Lease?

Visit the Central Forms Repository on the Government of Ontario website to download the form.

What is the Purpose of this Standard Lease?

Three primary reasons are stated:

1. To help landlords and tenants understand their rights.
2. Reduce illegal terms in leases and misunderstandings regarding verbal agreements.
3. Reduce the need for Landlord Tenant Board (LTB) hearings to resolves disputes.

What Else Should I Know About Standard Leases?

In the leases, there are mandatory terms (that must be completed and cannot be altered), there are optional additional terms (which allow for unique terms to be agreed to by landlord/tenant) and general information on rights and responsibilities (Ie. subletting, pets, guests, etc).

What Are Our Thoughts On This Issue?

Whether we like it out not it, this will soon be the law. So we will have to deal with it and adapt. First impression is that it will further swing the pendulum towards tenant rights more so than it already is. But fingers crossed that if it doesn’t work the way it is expected to, or if it causes specific problems related to clauses, etc., the government will listen to feedback from the industry and amend this standard lease to get it right.

What are your thoughts on the Standard Lease? We’d love to hear from your landlord/tenant perspective.

Real Estate & Related Terms Explained: Sublet

You may have heard the term sublet or sublease before, as in “my friend is subletting their space”.  But do you know what that means?  This is an important topic as a Tenant or Landlord in commercial leasing and one that is rarely understood properly, until the situation arises…

What Exactly Is a Sublet?

A sublet occurs when a Tenant no longer needs their space or it no longer suits their needs, but still is responsible for the remainder of the term of the lease they signed. So, instead of letting the space sit dark while continuing to pay, they sublet the space to another Tenant. When some sort of arrangement is agreed to, a sublease agreement is signed by both parties.

How Does a Sublet Work?

After a sublease is signed, the sub-tenant starts to pay rent to the sub-landlord. The Tenant in turn continues to pay rent to the Landlord. Even though the sub-tenant is now occupying the space, the original Tenant is responsible for all the terms under the original lease.

What Else Should I Know About Subletting?

If a Tenant wants to sublet their space, they require a Landlord’s written approval. Landlord’s are not allowed to unreasonably refuse a request for a sublet. Usually your lease agreement will speak to the ability to sublet and any mechanisms that apply. Should you have any issues with subletting, contact your lawyer.

From a sub-tenant perspective, sometimes subleasing space comes with risk, as it doesn’t come with any renewal options. This can put you in a bind when your term runs out. Therefore, when we have strong Tenants considering a sublet space, often times the deal goes back to the Landlord for them to deal with directly (instead of on a sublet basis) on the space so that proper terms can be negotiated for the tenant and then a termination is negotiated between the Landlord and the existing Tenant.

With careful thought and planning, sublets can be pulled off without a hitch. Make sure to hire an experienced commercial realtor to guide you through the process towards a smooth transaction.

Ability to Sublet

Next segment in our Leasing Series…Ability to Sublet.

The area of subletting premises is generally provided for as a standard leasing term in most lease documents. In cases where Tenants wish to relocate out of a particular area or wish to cease business operations, this gives them the opportunity to market the space to other commercial users for the balance of the current term.

Areas to be clearly considered from the Tenant’s perspective are as follows:
1. Ensure your existing lease contains a term allowing a sublet.
2. A Sub Lease cannot be granted for a term exceeding the Head Lease Term.
3. All terms of your Head Lease should be incorporated into the Sub Lease Agreement (most practically, by attaching the Head Lease to the Sub Lease Agreement).
4. Obtain written consent from the Landlord on any Sub Lease Agreement.
5. Approach the deal as if you were the Landlord – particularly with respect to due diligence on the prospective Tenant, security deposits, and monthly payment arrangements.
6. Legal Costs and Real Estate fees will apply.

Landlords typically are not fond of allowing sublet arrangements on their premises, but understand circumstances change and that a Tenant may no longer require premises for which they have an extended lease obligation remaining. Given this reality, the Landlord will ensure that they not only approve of the Sub Lease Agreement itself, but keep the original Tenant clearly in a position of liability with respect to the Sub Lease Agreement.

Tenants looking to sublet may also consider negotiating an early termination settlement with the Landlord to avoid all of the liability issues involved. For instance - if only 2-3 years remain on the term, a termination may be better for both Tenant and Landlord, as such limited lease terms are not as marketable to prospective Tenants. This possibility will be dependent on the strength of your particular market, but certainly worth a discussion.

Again seek out experienced commercial realtors with strong leasing backgrounds, to assist you in working through your sublet requirements and objectives.