Can You Break a Commercial Lease in Canada?

Business circumstances change. A location may stop making financial sense, a company may outgrow its premises, a business may be sold, partners may separate, or the tenant may simply need to reduce its operating costs.

The difficulty is that signing a five- or ten-year commercial lease generally means committing to that term. A commercial tenant cannot usually end the lease simply because the business no longer needs the space.

I’m Raz Toor, the founder of Falcon Law PC. We regularly review and negotiate commercial leases for business owners, buyers and sellers of businesses, franchisees, healthcare practices, restaurants and other commercial tenants. One thing I try to identify early is not only how the tenant gets into the premises, but how the tenant can eventually get out.

Commercial leasing law varies across Canada. This article focuses primarily on Ontario and some of the options a business tenant may have when it needs to leave commercial premises before the lease expires.

Can You Simply Break a Commercial Lease?

Usually, no.

A fixed-term commercial lease is a contract. If the tenant agreed to occupy the premises and pay rent for a specified period, simply moving out does not necessarily bring those contractual obligations to an end.

Ontario’s own guidance on commercial tenancies notes that a tenant seeking to terminate a fixed-term lease early may remain responsible for rent for the balance of the term unless the lease contains a right to terminate early.

That does not mean the tenant has no options. It means the first step should be reviewing the lease and deciding which exit strategy is actually available.

Start With the Lease

Before negotiating with the landlord or stopping rent payments, I would review the entire lease, including amendments, extensions and guarantee documents.

In particular, I would look for provisions dealing with:

• the remaining term;
• early termination or break rights;
• assignment;
• subleasing;
• sale or transfer of the tenant’s business;
• changes of corporate control;
• landlord consent requirements;
• personal guarantees and indemnities;
• default and termination;
• continuous operation requirements;
• restoration obligations;
• leasehold improvements;
• security deposits;
• relocation or demolition provisions; and
• any obligation to pay the landlord’s legal or administrative costs.

The exit strategy can be very different depending on what those provisions say.

Option 1: Negotiate an Early Surrender With the Landlord

In many cases, the cleanest solution is a negotiated surrender.

The landlord and tenant agree to terminate the lease on a specified date and document what each party must do before the relationship ends.

A landlord does not necessarily have to agree. Its willingness may depend on the rental market, the remaining lease term, the tenant’s financial condition, and whether another tenant is available.

A negotiated surrender may involve:

• a lump-sum termination payment;
• payment of several months of rent;
• forfeiture or application of the security deposit;
• payment of the landlord’s leasing commissions or legal fees;
• removal of fixtures or leasehold improvements;
• restoration of the premises;
• a specified move-out date;
• resolution of outstanding additional rent or operating costs; and
• mutual releases.

From the tenant’s perspective, the important objective is usually certainty. If the tenant is paying to exit the lease, the documentation should make clear that the agreed payment actually ends the future lease obligations rather than simply paying down part of an ongoing liability.

Option 2: Use an Early Termination or Break Clause

Some commercial leases give the tenant an express right to terminate before the scheduled expiry date.

A break clause may only become available after a certain number of years and may require:

• advance written notice;
• payment of a termination fee;
• payment of all outstanding rent;
• repayment of landlord incentives;
• compliance with restoration obligations; or
• the tenant not being in default when the right is exercised.

These provisions should be followed carefully. A tenant should not assume that a general email telling the landlord it plans to leave is enough to exercise a contractual termination right.

Notice requirements, deadlines and delivery methods in commercial leases can be technical.

Option 3: Assign the Lease

An assignment can be particularly useful where the tenant is selling its business or another business is prepared to take over the premises.

With an assignment, the incoming tenant generally takes over the existing tenant’s interest in the lease.

However, the existing tenant should not automatically assume that an assignment completely eliminates its exposure.

The lease and assignment documents need to be reviewed to determine whether the outgoing tenant and any guarantors are actually released. A landlord may consent to an assignment while expressly preserving the original tenant’s liability.

That distinction can become extremely important several years later if the assignee defaults.

Can a Landlord Refuse an Assignment?

The lease comes first.

Section 23 of Ontario’s Commercial Tenancies Act provides that where a lease prohibits assignment or subletting without landlord consent, the consent is generally deemed not to be unreasonably withheld unless the lease expressly provides otherwise.

That final qualification matters.

Sophisticated commercial leases sometimes expressly give the landlord broader discretion. Other leases specifically state that consent cannot be unreasonably withheld, delayed or conditioned.

Where the statutory reasonableness requirement applies and consent is refused or neglected, the Act provides a mechanism through which the tenant or proposed assignee may ask the Superior Court of Justice to determine whether consent was unreasonably withheld.

This is another reason I would review the actual assignment provision before telling a landlord that it is legally required to approve a proposed replacement tenant.

Option 4: Sublease the Premises

A sublease is different from an assignment.

Under a sublease, the original tenant generally remains the tenant under the head lease but grants another party the right to occupy all or part of the premises for a period of time.

This can make sense where:

• the business has excess space;
• the tenant temporarily does not need the premises;
• the tenant wants to retain its lease for the future;
• only part of the premises is no longer required; or
• an assignment is not commercially desirable.

The major disadvantage is that the original tenant normally remains responsible to the landlord under the head lease.

If the subtenant stops paying, damages the premises or breaches the sublease, the head landlord may still look to the original tenant for performance of the head lease.

Option 5: Transfer the Lease as Part of a Business Sale

This is one of the situations we encounter most frequently.

A business owner may be ready to sell the business but still have several years remaining on the commercial lease.

In an asset purchase, the buyer will commonly need either:

• an assignment of the existing lease;
• a new lease directly with the landlord; or
• another occupancy arrangement acceptable to the buyer and landlord.

Landlord consent may therefore become a condition of the business acquisition.

In a share purchase, the tenant corporation remains the same legal entity, but the lease may contain a change-of-control provision requiring the landlord’s consent to the sale of the corporation.

This is why we regularly review commercial leasing issues alongside our business purchase and sale transactions.

Do Not Assume That Selling the Business Releases the Personal Guarantee

This issue deserves separate attention.

Many small and mid-sized commercial leases require the business owner to personally guarantee the tenant corporation’s obligations.

Selling the business or assigning the lease does not necessarily release that guarantee.

If the landlord’s consent document simply approves the assignment without releasing the guarantor, the former business owner may remain exposed if the new tenant later defaults.

For a seller, I would therefore want the landlord’s consent, assignment documentation and guarantee reviewed together rather than assuming the liability ends because ownership of the business changed.

Can a Tenant Just Stop Paying Rent and Leave?

That is usually a high-risk strategy.

Abandoning the premises may constitute a serious breach or repudiation of the lease, but it does not necessarily mean the tenant has successfully terminated its financial obligations.

A commercial landlord faced with a tenant’s repudiation can have different remedies depending on how the landlord responds, the wording of the lease, and the circumstances.

Canadian commercial leasing law has long recognized that the landlord’s election matters. A landlord may, depending on the circumstances, keep the lease alive and pursue amounts as they become due, terminate and pursue accrued claims, or accept the repudiation and pursue damages associated with the loss of the remaining lease term.

The legal consequences can therefore be substantially greater than simply losing the last month’s rent or security deposit.

Before a tenant intentionally defaults as an exit strategy, I would strongly recommend understanding the potential damages and guarantee exposure.

What if the Landlord Is in Breach?

Sometimes the tenant wants out because of something the landlord has allegedly done or failed to do.

Examples can include disputes over:

• access to the premises;
• repairs or maintenance;
• HVAC or building systems;
• interference with the tenant’s use;
• construction delays;
• exclusive-use rights;
• operating costs;
• landlord work; or
• other contractual obligations.

A serious landlord breach can potentially give the tenant contractual or common-law remedies, but a tenant should be careful before declaring that the lease is terminated on its own.

Whether a breach is serious enough to justify termination can be a significant legal question. If the tenant leaves and a court later determines that termination was not justified, the tenant may itself be treated as having repudiated the lease.

The lease’s notice and cure provisions should therefore be reviewed before taking that position.

What About Damage, Destruction or the Premises Becoming Unusable?

Commercial leases commonly contain specific provisions dealing with casualty, destruction and situations where the premises cannot reasonably be occupied.

Depending on the lease and extent of the damage, these provisions may address:

• rent abatement;
• the landlord’s restoration obligations;
• the period allowed for repairs;
• whether the tenant must continue operating; and
• when either party can terminate the lease.

Tenants should review these provisions rather than assuming that temporary inability to use the space automatically ends the lease.

What Happens to Leasehold Improvements?

Leaving the premises can create another unexpected expense: restoration.

A lease may require the tenant at the end of the term to remove:

• signage;
• equipment;
• fixtures;
• wiring or cabling;
• specialized improvements; or
• alterations installed during the tenancy.

The tenant may also be required to restore the premises to a particular condition.

For a heavily improved restaurant, clinic, pharmacy, fitness facility or industrial space, those costs can be significant.

Restoration should therefore form part of any negotiated lease surrender.

What We Have Been Seeing in Commercial Lease Matters in 2026

Our recent work has reinforced why exit and transfer rights should be considered when the lease is first negotiated rather than only when the tenant wants to leave.

In one Ontario pharmacy acquisition, we reviewed the existing head lease and renewal documents as part of the purchase of the operating business. The transaction required coordination between the business acquisition, franchisor, occupancy arrangements and the purchaser’s ability to continue operating from the existing location.

We have also worked on a restaurant acquisition where the buyer’s ability to take over the premises required the lease assignment and landlord-consent process to be addressed alongside the purchase of the business.

In a separate healthcare leasing matter, we reviewed a substantial commercial lease involving build-out obligations, permitted-use restrictions, defaults, insurance requirements and other long-term commitments affecting a new clinic location.

None of those matters began as a simple question of “how do I break my lease,” but they illustrate why I pay close attention to assignment, transfer, guarantee and termination provisions when reviewing commercial leases. Those provisions often determine how much flexibility the business owner has years later.

The examples above have been anonymized and certain details have been generalized to protect client confidentiality.

Questions I Would Ask a Tenant Who Wants Out of a Commercial Lease

Before recommending a strategy, I would want to know:

• How much time remains on the lease?
• What are the current base rent and additional rent obligations?
• Is there an early termination clause?
• Can the lease be assigned?
• Can the premises be subleased?
• What discretion does the landlord have over consent?
• Is there a personal guarantee?
• Would the guarantor be released on an assignment?
• Is the tenant selling the business?
• Is there a potential replacement tenant?
• Is the landlord already marketing the premises?
• Does the tenant owe any rent or additional rent?
• Are there restoration obligations?
• Has the landlord breached any obligations?
• Does the tenant have leverage that could support a negotiated surrender?

Once those questions are answered, the available options usually become much clearer.

Try to Solve the Commercial Problem Before Creating a Legal One

In many lease-exit matters, the best solution is commercial rather than adversarial.

If the tenant can bring the landlord a financially credible replacement tenant, offer a reasonable termination payment, help facilitate re-leasing, or align the exit with another transaction, there may be room to negotiate.

By contrast, abandoning the premises without a plan can turn a difficult business situation into a lease claim involving future rent, damages, legal costs and personal guarantees.

The earlier the tenant addresses the issue, the more options it usually has.

How Falcon Law PC Can Help

Falcon Law PC assists commercial landlords, tenants, business owners and investors with commercial lease reviews, negotiations, assignments, subleases, amendments, renewals, landlord consents and lease-exit issues across Ontario.

We also regularly deal with leases as part of business purchases and sales, franchise transactions, healthcare practices, restaurants and other commercial transactions.

You can learn more about our Ontario commercial lease legal services.

If you are considering leaving commercial premises before the end of your lease, I generally recommend reviewing the lease before notifying the landlord, stopping payment or committing to another location. Understanding your assignment rights, guarantee exposure and potential exit costs can materially affect the strategy.

This article is intended for general informational purposes only and does not constitute legal advice. Commercial lease rights and remedies depend on the wording of the particular lease, the conduct of the parties, applicable provincial law and the circumstances of the tenancy.