Lease Obligations for Commercial Tenant Improvements in Ontario

Your commercial lease governs almost every aspect of your renovation. Before you engage a designer or contractor, read the lease. Specifically, read the sections on alterations, tenant improvements, restoration, insurance, and landlord approval. Ignoring these provisions can result in delays, unexpected costs, and legal disputes.

Landlord Consent

Almost every commercial lease in Ontario requires written landlord consent before the tenant makes any alterations to the premises. This applies to everything beyond cosmetic changes (paint and carpet). The consent process typically requires you to submit:

• Architectural drawings showing the proposed changes
• A list of contractors with WSIB clearance and insurance certificates
• Proof that the contractor carries commercial general liability insurance (typically $2-5 million minimum)
• A construction schedule
• Evidence that all required permits will be obtained

The landlord review can take 1-4 weeks depending on the complexity of the project and the landlord's property management structure. Factor this into your timeline.

TI Allowance Terms

If your lease includes a tenant improvement allowance, the terms governing how that money is disbursed matter:

Disbursement Method

Some landlords reimburse the tenant after construction is complete (you pay up front, they pay you back). Others pay the contractor directly. Some issue progress payments based on completed milestones. Know which method applies before you sign the construction contract because it affects your cash flow.

What Is Covered

Most TI allowances cover hard construction costs only: demolition, framing, drywall, electrical, mechanical, plumbing, flooring, ceiling, paint, and millwork. They typically exclude design fees, permit fees, furniture, technology infrastructure, and signage.

Deadline

Many TI allowances expire if not used within a specified period (often 12-18 months from lease commencement). If your renovation is delayed, you risk losing the allowance entirely.

Documentation

Landlords require documentation to release TI funds: paid invoices, lien waivers from the contractor and subcontractors, a statutory declaration, and sometimes an occupancy certificate from the municipality.

Restoration Clauses

The restoration clause (sometimes called the "surrender" or "yield-up" clause) specifies what condition the space must be in when the lease ends. There are three common scenarios:

1. Restore to original condition. You must remove all improvements and return the space to the condition it was in before your tenancy. This is the most expensive outcome.
2. Restore to base building standard. You remove your improvements but do not need to restore specific previous finishes.
3. Leave improvements in place. The landlord takes ownership of the improvements. This is the best outcome for the tenant.

Negotiate the restoration clause before signing the lease. Removal and restoration of a typical 3,000 sq ft commercial space in the GTA costs $30,000-60,000. Knowing this obligation exists allows you to budget for it or negotiate it away.

Insurance Requirements

Your lease will specify insurance requirements for any construction activity:

• Commercial general liability (CGL): Typically $2-5 million. Your contractor must carry this and name the landlord as additional insured.
• WSIB clearance: Mandatory in Ontario. Your contractor must provide a current clearance certificate.
• Builder's risk insurance: Sometimes required for larger renovations. Covers damage to the work during construction.
• Professional liability: Sometimes required for the design team.

Ensure your contractor can provide all required certificates before work begins. VNG provides current CGL certificates and WSIB clearance on every project.

Liens and Holdback

Under Ontario's Construction Act, the tenant (as the "owner" of the improvement) must hold back 10% of every payment to the contractor for a period of 60 days after substantial completion. This holdback protects against construction liens from subcontractors and suppliers.

If you release the holdback early and a subcontractor files a lien, you become personally liable for the amount that should have been held back. This is a statutory obligation, not optional.

Hours of Work and Building Rules

Most commercial buildings restrict construction activity to specific hours, typically 7am to 5pm on weekdays. Some buildings allow extended hours or weekend work with advance notice and a premium fee. Your lease or the building's rules and regulations will specify these restrictions.

Violating the building's construction hours can result in fines, complaints from other tenants, and forced work stoppages. Your contractor should confirm the permitted hours before starting.

VNG coordinates all landlord approvals, insurance documentation, and building requirements as part of every project. Contact us to discuss your lease terms and renovation scope.