There is a great deal written about what it costs to sign a Toronto office lease. There is almost nothing written about what it costs to leave one. Here is what each exit route actually involves, what the courts have said about simply walking away, and why the conditions for placing unwanted space are better right now than they have been since 2020.
The case that put a number on walking away
The facts are ordinary, which is what makes them useful. A company held a downtown Toronto office lease with several years left to run. It decided it no longer needed the space. It gave the landlord notice that it was repudiating the lease, offered three months’ rent, vacated, and removed its property.
The landlord declined the offer. Rather than accepting the repudiation and terminating, it kept the lease in force — which meant rent kept falling due. It sued. The Ontario Superior Court granted summary judgment for the landlord in the amount of $638,171.40 in outstanding rent, rejecting the tenant’s argument that the landlord should have mitigated its losses and rejecting the tenant’s reliance on a clause it said capped its exposure at two years of rent. The Ontario Court of Appeal upheld that result.
The case is Canada Life Assurance Company v. Aphria Inc. The Supreme Court of Canada granted the tenant leave to appeal and heard the appeal on February 18, 2026. What the Supreme Court does with it is the single most important thing any Toronto business sitting on space it does not want should ask its lawyer about before making a decision.
The gap between “three months’ rent” and “$638,171.40” is the entire subject of this article.
Why “the landlord will just re-rent it” is the wrong assumption
Most tenants assume that if they leave, the landlord has to try to fill the space, and whatever it collects comes off their bill. In residential tenancies that intuition is broadly right. In Ontario commercial leasing it has not been.
The governing authority is the Supreme Court’s 1971 decision in Highway Properties Ltd. v. Kelly, Douglas and Co. Ltd., which set out the options available to a landlord facing a tenant who abandons. One of those options is to do nothing to alter the landlord-and-tenant relationship at all: insist the tenant perform the lease, leave the lease alive, and sue for rent as it comes due.
In the Aphria litigation, the Ontario Court of Appeal held that Ontario and British Columbia appellate courts have consistently followed Highway Properties, with the result that a landlord who elects to keep the lease alive has no duty to mitigate. The Court of Appeal added that it was not for that court to change the law, leaving any change to the Supreme Court or the Legislature. That reasoning is precisely what the Supreme Court was asked to revisit in February.
The practical point for a tenant is the same either way: the decision about whether to re-let your space is the landlord’s, not yours, and you cannot build an exit plan on the assumption that someone else will solve your problem for you. Ask your lawyer where this now stands before you act on anything in this section.
The four ways out, and what each one actually costs
1. An early termination clause. The cleanest route, and the rarest — it only exists if it was negotiated into the lease in the first place, and most commercial leases do not contain generous exit provisions. Where one exists it is typically subject to a penalty payment, and every condition attached to it has to be satisfied exactly or the exit does not work.
2. A negotiated surrender or buyout. You pay the landlord to let you go. There is no standard price; a negotiated termination fee, forfeiting the security deposit, and helping find a replacement tenant are all part of the usual conversation. The critical detail is documentary: a handshake or an exchange of emails is not sufficient. The surrender needs to be a formal deed that expressly releases you from all ongoing obligations. A surrender that is silent on release is not an exit.
3. A sublease. You remain a party to the head lease and remain directly liable to your landlord. If your subtenant defaults or leaves early, the rent is still your problem. You are not getting out — you are getting someone to help you pay, and you are taking on their credit risk to do it.
4. An assignment. The genuinely clean option, because the incoming tenant steps into your obligations. But it is only clean if you get an express written release from the landlord. Without one you may remain liable for unpaid rent or breaches by the assignee. Many leases also contain an “original tenant liability” clause that preserves your liability even after the landlord consents to the assignment. Read for that clause specifically — it is the difference between leaving and appearing to leave.
The consent you need — and when it cannot be refused
Assignment and subletting both require the landlord’s prior written consent. The protection tenants have is section 23(1) of Ontario’s Commercial Tenancies Act, under which that consent cannot be unreasonably withheld — unless the lease expressly contracts out of the protection, which some do.
What counts as unreasonable is fact-specific, but unreasonable delay can qualify, and so can attaching conditions designed to extract a collateral benefit the landlord was not otherwise entitled to — for example, demanding a demolition clause be added as the price of consent.
Two things follow. First, check whether your lease excludes section 23(1) before you assume you have that protection. Second, if consent is being slow-walked, that is not necessarily something you have to absorb.
The costs that only appear on the way out
These are the line items that rarely get attention at signing and reliably get attention at exit:
- Restoration and make-good. Landlords commonly expect the space returned to its original condition. Removing custom drywall, a built-out kitchen or upgraded flooring can run into tens of thousands of dollars. The improvements you paid to install, you may pay again to remove.
- Additional rent that is not fixed. TMI — taxes, maintenance and insurance — is billed on top of base rent and can easily double the monthly payment. It is not a fixed number: property tax increases and higher service costs flow through to you, and under a net lease, structural items such as HVAC replacement, roof repairs or parking lot repaving may be bundled into it. Upflex’s 2026 Toronto guide puts operating cost increases in older buildings at 5–10% per year.
- The security deposit. Commonly three to six months of rent, with no legal cap on commercial deposits in Ontario.
- Personal guarantees. Where the lease is personally guaranteed and the business fails, the landlord may pursue personal assets.
- Professional fees and time. A lawyer’s review of a typical 50-page commercial lease runs roughly $1,500 to $3,500 or more. Commercial lease disputes commonly take one and a half to three years to resolve. And a landlord’s remedies can arrive quickly — unpaid rent can reach the lockout threshold in as little as 16 days.
Now put a number on your own exposure
Before choosing a route, calculate the thing you are actually arguing about: total remaining rent.
Upflex’s 2026 Toronto office guide puts the monthly all-in cost of a traditional Class B downtown lease for a ten-person team at $8,000 to $14,000. For a business with three years left to run, the remaining obligation is therefore roughly $288,000 to $504,000 — which is the range the Aphria judgment of $638,171.40 sits just above.
That number is the ceiling on what you are negotiating against, and it is why landlords are often willing to discuss a surrender fee that looks large in isolation. A six-figure buyout can still be the cheap outcome.
For context on the alternative side of the ledger, the same guide puts coworking dedicated desks for a ten-person team at $5,000 to $9,000 a month and on-demand or hot-desking arrangements at $2,000 to $5,000, against suburban asking rents of $20 to $35 per square foot in North York and Scarborough and a citywide average just above $42.
The window to place your space is better than it has been since 2020
Here is the part that cuts in the tenant’s favour, and it is time-sensitive.
CBRE’s Canada Office Figures for Q3 2026, released October 1, 2026, report 2.0 million sq. ft. of national net absorption, with nine of eleven markets positive and Toronto absorbing over 500,000 sq. ft. Downtown Toronto vacancy fell 90 basis points in the quarter. Most relevant to anyone trying to exit: sublease space fell by 1.3 million sq. ft. nationally in Q3, is down 8.7 million sq. ft. — 50.2% — from its peak three years ago, and now sits below 9.0 million sq. ft. for the first time since Q2 2020.
CBRE Canada’s Research Managing Director, Marc Meehan, framed the quarter bluntly: “It’s time to turn the page on the office recovery,” adding that “we’re seeing the advantage in lease negotiations move from tenants to landlords in more cities.”
For a tenant negotiating a new lease, that is bad news. For a tenant trying to leave one, it is the opposite. Less sublease inventory on the market means fewer competing listings between your space and a prospective subtenant or assignee, and a tightening market means more businesses looking. The conditions for placing unwanted space are the best they have been in roughly five years — and if absorption continues, the leverage keeps shifting toward whoever controls space, which eventually includes the landlord you are negotiating your exit with.
When does each route make sense
Take the early termination clause when you have one and the penalty is less than the remaining term. Read the conditions twice; they are usually strict and often time-barred.
Negotiate a surrender when the landlord has a credible use for the space — a neighbouring tenant who wants to expand, or a redevelopment plan — and when you can afford a lump sum to end the exposure cleanly. Insist on a formal deed with an express release.
Assign when you can find a tenant the landlord will accept and you can secure an express written release. This is the only route that genuinely ends the obligation. Check for an original tenant liability clause first.
Sublet when you cannot get an assignment approved but can cover most of the cost, and when you can tolerate carrying the subtenant’s credit risk for the balance of the term. Treat it as cost reduction, not escape.
Stay and shrink when the exit math does not work — which is common. If the remaining obligation is large and the landlord will not deal, the realistic move is often to keep the lease, sublet or give back part of the space where permitted, and move the part of the team that does not need to be there into something that costs nothing to leave. That is not a defeat; it is the cheapest version of a bad situation.
Bottom Line
Signing an office lease is a negotiation between two parties with roughly matched information. Leaving one is not. The Aphria litigation is instructive precisely because the tenant behaved the way most businesses assume they can — gave notice, offered a few months’ rent, handed back the keys — and ended up with a judgment for $638,171.40 against it.
Three conclusions follow for any Toronto business carrying space it no longer needs. First, calculate the remaining obligation before you do anything else; it is the number every other decision is measured against. Second, do not assume the landlord is obliged to re-let on your behalf, and ask your lawyer where Canada Life v. Aphria now stands before relying on any assumption about mitigation. Third, if you are going to place the space, the market conditions for doing it are the most favourable since 2020 and are a function of a trend that is still moving.
And the structural lesson for the next decision, whenever it comes: the reason exit costs are so asymmetric is that a lease is a multi-year obligation dressed up as a monthly payment. Arrangements that are billed monthly and can be ended on notice carry no exit cost at all, because there is nothing to exit.
If the answer is “shrink rather than leave”
S3PACE is a 20,000-plus-square-foot business and event centre at 205 Placer Court in North York, with free onsite parking and a connected café lounge.
For a business working through the situation above, the useful part is the range of commitment levels in one building: private offices on monthly terms, dedicated desks and hot desks, coworking day passes sold as single days or multi-day bundles, full-day day offices, and conference rooms seating 20 and 10 that book by the half-day or full day, with better value on longer bookings. Common areas and the café lounge are included with a day pass. For companies managing a transition, S3PACE can invoice the company directly for both room bookings and employees’ day passes. Training and seminar rooms, event space, a media studio and virtual office plans providing a business address and mail handling round out the options.
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This article is for general information only and is not legal, financial or real estate advice. Commercial lease rights and obligations depend entirely on the wording of your specific lease and on facts particular to your situation, and the law described here was the subject of an appeal heard by the Supreme Court of Canada on February 18, 2026. Consult a qualified commercial real estate lawyer before taking any step to end, assign or sublet a lease. Figures are drawn from publicly available sources as of October 2026, including reported decisions and commentary on Canada Life Assurance Company v. Aphria Inc. (Supreme Court of Canada file 41665) from Borden Ladner Gervais and Osgoode Hall’s TheCourt.ca; Ontario’s Commercial Tenancies Act; commentary on Ontario commercial lease exits from OMQ Law and other Ontario firms; CBRE’s Canada Office Figures Q3 2026, released October 1, 2026; and Upflex’s 2026 Toronto office space guide. Market cost ranges are third-party market figures for the Toronto area and are not S3PACE rates. S3PACE pricing is quoted on request.
📍 205 Placer Ct, North York, Toronto 📞 416-998-0808 📧 info@s3pace.ca
Written by the S3PACE team.
