Commercial Leasing Disputes: Common Litigation Issues

Commercial leases are complex contracts governing the relationship between landlords and business tenants. Unlike residential leases, which are heavily regulated by tenant-friendly legislation, commercial leases operate under basic contract law with minimal statutory protection. This creates fertile ground for disputes that can threaten your business operations and financial stability.

The most fundamental commercial lease dispute involves money: specifically, disagreements over what the tenant owes and when.

Base rent disputes seem straightforward but complications arise with rent escalation clauses, percentage rent based on sales revenue, disputes over square footage calculations, and whether improvements or circumstances justify rent adjustments. Tenants sometimes discover they’re paying rent on more square footage than they actually occupy, or that escalation formulas in the lease are being applied incorrectly.

Additional rent and operating costs generate conflict. Commercial tenants typically pay their proportionate share of property taxes, insurance, maintenance, and common area costs. Disputes arise when landlords include inappropriate expenses, fail to provide detailed accounting, calculate proportionate share incorrectly, or charge for capital improvements that should be landlord expenses. Tenants often lack transparency into how these costs are calculated and whether charges are legitimate.

Late payment disputes occur over whether rent was paid on time, whether grace periods apply, the validity of late fees or interest charges, and whether partial payments were accepted. Commercial leases often impose harsh penalties for late payment, and landlords sometimes use technical payment timing issues to claim default.

Responsibility for repairs and maintenance is a major source of conflict because commercial leases allocate these duties differently than residential leases.

Disputes typically involve who must repair structural issues like roofs, foundations, and exterior walls. The lease typically specifies what the landlord maintains versus what falls to the tenant, but these provisions are often ambiguous or contested when expensive repairs become necessary.

Commercial leases specify what business activities are allowed on the premises. Disputes arise when landlords claim tenants are violating permitted use restrictions by conducting activities beyond what the lease allows, or when tenants argue their business naturally evolved and restrictions are being interpreted too narrowly.

Exclusivity clauses create particular conflict. Some tenants negotiate exclusive rights to certain business types in a building or shopping center. When landlords lease to competing businesses, the original tenant may sue for breach of exclusivity. Landlords sometimes interpret these clauses narrowly, arguing the new tenant’s business isn’t truly competing.

Subletting and assignment restrictions generate disputes when tenants want to transfer the lease. Most commercial leases require landlord consent to sublet or assign, but cannot unreasonably withhold consent. Disputes arise over what constitutes “unreasonable” refusal, whether proposed subtenants are suitable, and what conditions the landlord can impose on approving transfers.

End-of-lease disputes are extremely common and often high-stakes because they determine whether your business can continue at its location.

Renewal option disputes occur when tenants believe they properly exercised renewal options but landlords claim notice was late, in the wrong form, or otherwise defective. Commercial leases have strict requirements for exercising renewal rights: specific notice deadlines, required written notice methods, and precise wording. Missing these by even a day can cost you your location.

Holdover tenancy disputes happen when tenants stay beyond lease expiration. Landlords may charge double or triple rent for holdover periods as specified in the lease, or may seek immediate eviction.

Early termination disputes arise when either party wants out before lease expiration. Landlords may claim tenants abandoned the premises, breached the lease, or owe rent for the remaining term. Tenants may argue the landlord’s conduct constituted constructive eviction or that the landlord failed to mitigate damages by re-leasing the space.

Landlord claims of tenant default and resulting eviction proceedings represent the most serious commercial lease disputes.

What constitutes default beyond obvious non-payment includes violating use restrictions, failing to maintain required insurance, not maintaining the premises, subletting without permission, or any breach of lease terms. Commercial landlords often claim default for violations tenants consider minor or technical.

Notice and cure periods cause disputes because most leases require landlords to give notice of default and time to cure before taking action. Arguments arise over whether proper notice was given, whether the cure period was sufficient, and whether the tenant actually corrected the problem.

Remedies and re-entry disputes involve landlords’ rights to lock out tenants, seize property, or re-let the premises. Unlike residential tenancies where strict procedures protect tenants, commercial landlords have broader rights but must still follow lease terms and avoid illegal lockouts.

Before signing, have a lawyer review the lease. Commercial leases aren’t standard forms and terms are negotiable. Understanding your obligations prevents expensive surprises.

Document everything including all communications with the landlord, photographs of property conditions at move-in and move-out, payment records and receipts, and notices given or received.

Address problems early rather than letting disputes fester. Most lease conflicts can be resolved through communication before they escalate to litigation.

Facing a commercial lease dispute? Pinto Shekib LLP handles real estate litigation including commercial landlord-tenant conflicts. Contact us at 416.901.9984 or info@pintoshekib.ca.