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Writer's pictureMylene Feng

A Legal Perspective - Savvy Investments on Commercial vs. Residential Properties




Introduction

Understanding the differences between residential and commercial real estate in Canada is crucial for savvy investors. Residential properties, such as single-family homes, condominiums, and duplexes, cater to individual tenants. In contrast, commercial properties—such as retail spaces, offices, and industrial buildings—typically accommodate multiple tenants in one location. Grasping these distinctions equips you with the knowledge to make informed investment decisions.

 

Investing in Canadian commercial properties is particularly appealing due to their potential for high returns and the fact that they typically require less management. Being exempt from the Landlord and Tenant Board (LTB) makes them a dependable source of passive income. In contrast, residential properties may attract those comfortable with stricter regulations and willing to engage in self-management tasks. Both sectors present significant growth potential and the chance for solid returns on investment.



Governing by Different Legal Frameworks

The Commercial Tenancies Act (CTA) outlines landlords' and tenants' rights and responsibilities. Commercial transactions tend to be more complex than residential ones due to the significant scale and value of properties and the detailed nature of leases and contracts. Navigating this field also requires sophisticated financing and advanced negotiation skills. Being informed and prepared for landlords and tenants is crucial for achieving successful outcomes in real estate ventures. Having your lawyer review the agreement to protect yourself from potential future lawsuits is advisable.


The Residential Tenancies Act (RTA) outlines clear rights and responsibilities for landlords and tenants. Residential real estate transactions are generally standardized. The Ontario government has introduced various regulations to protect homeowners, alongside additional protections for tenants.



Commercial vs. Residential Lease Agreements


Commercial Tenancies Act (CTA)

In Ontario, commercial leases are governed by common law principles and contractual agreements between landlords and tenants. This system allows for flexible negotiations and specific regulations concerning the termination of tenancy. Ontario has no standard commercial lease agreement; landlords can create lease terms tailored to meet the unique needs of both the business and the property.


Residential Tenancies Act (RTA)

The Residential Tenancies Act (RTA) plays a vital role in managing residential leases in Ontario. This important law outlines landlords' and tenants' rights and responsibilities, providing a clear framework for resolving disputes. Understanding the RTA empowers both parties, ensuring fair treatment and fostering harmony in rental agreements. The RTA offers strong protections for tenants, covering regulations regarding rent increases, eviction procedures, security deposits, and maintenance standards.



Critical Considerations for Landlords Before Renting   Residential Properties


Security of Tenure

In Ontario, landlords cannot terminate a rental agreement without a valid reason, per the RTA.

 

Setting the Rent

Landlords can set a new rent when a unit is vacant, which must comply with rent control rules and reflect market value. The RTA regulates this process and ensures landlords and tenants understand their rights and responsibilities.

 

 

Tenant Screening

Landlords can screen tenants through income verification and credit checks but should gather broader information to avoid discrimination claims.

 

Discrimination

The Ontario Human Rights Code guarantees equal treatment in accommodation. For more information, see OHRC's Policies and Renters' Rights.


Rental Deposits  

Landlords can require a deposit of up to one month's rent, which, if accepted, applies to the last month of the tenancy.

 

Interest on Deposits  

Annual interest must be paid on rent deposits based on the rent increase guideline.

 

Deposit Top-up

Landlords may deduct necessary amounts from interest due to updated deposits; unpaid interest can be deducted from future rent.

 

Receipts

Landlords must provide and keep receipts for payment requests, especially cash transactions.

 

 

Rent and Rent Increases


The Commercial Tenancies Act (CTA) does not regulate rent increases in commercial properties, allowing landlords to raise rents without legal limits. However, considerate landlords recognize the importance of maintaining a positive tenant-landlord relationship and will consider current business and market conditions when adjusting rent. To protect yourself as a commercial tenant, ensure that your rental agreement specifies any potential yearly rent increases. This proactive approach will help you budget effectively and promote a fair rental experience.



The Residential Tenancy Act (RTA) s. 110-111 cover the regulations surrounding rent increases. Landlords can raise the rent for a residential unit only after 12 months since the last increase or the start of the tenancy. They must provide written notice using the correct form at least 90 days before the increase occurs. These forms can be obtained from the Landlord and Tenant Board (LTB).

 

If the notice is not provided or the increase appears unjustified, tenants have the right to dispute it at the Board within 12 months. For 2025, the rent increase guideline is set at 2.5%, the maximum allowable increase without Board approval.



The Guideline does not apply to


  • New buildings, additions, and most new basement apartments were occupied for the first time after November 15, 2018.

  • Rental units during tenancy turnover (when the landlord and new tenant agree on rent).

  • Community housing units.

  • Long-term care homes.

  • Commercial properties.

  • Social housing follows the Residential Tenancies Act but has different rules for rent control and increase notices.



Eviction Procedures


Residential Eviction

The Residential Tenancies Act (RTA) sets out fair procedures for eviction. Landlords must provide valid reasons for evicting tenants, such as non-payment of rent or lease violations. To protect their rights, tenants can challenge eviction notices through the Landlord and Tenant Board (LTB).

 

However, some tenants may misuse this process to delay their eviction while awaiting their LTB hearing. Many people previously represented themselves at the LTB, but the eviction application process has become more complicated. This complexity has increased the number of individuals seeking legal representation, driving up costs for tenants and landlords while creating more hearing delays.

 

Getting help with paperwork is often more important than attending court when seeking legal assistance. Mistakes in your paperwork can void your application, forcing you to resubmit it and leading to longer delays, higher costs, and a more significant loss of rental income. The LTB is a tribunal typically less formal than courts, allowing individuals to represent themselves without incurring legal fees.



Commercial Eviction

Lease agreements and standard legal rules govern the eviction process for commercial tenants. These rules confirm that landlords can terminate contracts due to non-payment of rent, lease violations, or lease expiration. Disputes may be resolved through arbitration, litigation, or negotiation, demonstrating a commitment to achieving fair outcomes. According to CTA s.59, if a tenant continues to occupy the space after being requested to leave, they may incur a penalty of two months' rent for each month they remain and any additional costs. The landlord can also apply to the Ontario Superior Court of Justice for a writ of possession (an eviction order).

 

Under the Commercial Tenancies Act, s.18(1), landlords can re-enter after 15 days of non-payment of rent, change the locks, evict a tenant, and seize and sell any property within the premises. 



Conclusion


Investing in real estate requires careful consideration, especially when deciding between residential and commercial properties. Residential properties are generally easier to manage and have more straightforward lease agreements, but they come with emotional attachments, stricter rules and complicated eviction processes. In contrast, commercial properties can offer higher income potential, attract professional tenants, and provide long-term stability. Landlords have better control when dealing with lease agreements. However, they also demand more expertise and a more significant initial investment.

 

Ultimately, your choice should align with your investment goals, risk tolerance, and personal preferences. Regardless of your path, thorough research and professional advice are crucial before making any decisions.

 

Our team of lawyers is dedicated to helping you navigate the complexities of real estate and business matters. We provide comprehensive support for various commercial leasing and contract issues. Whether you're a landlord looking to protect your interests or a tenant seeking clarity, we guide you every step of the way— from drafting precise contracts to efficiently resolving disputes.

 

We have successfully assisted landlords and tenants with their issues at the LTB for residential properties. Contact us online or call 613-981-6138 for personalized assistance and to schedule your consultation today. We offer a 30-minute free consultation.


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