Commercial lease basics

Which law applies

Commercial tenancies on PEI are not covered by the Residential Tenancy Act. They are governed mainly by the lease itself, the Landlord and Tenant Act, and general contract law. That means the wording matters more. Read every lease, every amendment, and every side letter. A clause that seems minor can shift a large cost.

Term and renewals

Note when each lease ends and what options the tenant has to renew, and at what rent. A building with one tenant and two years left is a different risk from one with several tenants and staggered terms. Options usually favour the tenant. Read how the renewal rent is set, and what notice the tenant must give to use the option.

Rent and costs

Base rent is the start. A net lease passes some or all of the property tax, insurance, and common-area costs to the tenant. A gross lease keeps them with the landlord. Many leases mix the two. Check how costs are shared, how they are reconciled each year, and whether the seller actually billed and collected them.

Clauses that change value

Assignment and subletting: can the tenant sell the business and hand over the lease? Use clauses: is the tenant limited to one use, or protected by an exclusive? Repairs: who pays for the roof, the structure, and the heating? Early termination, relocation, and demolition clauses. Personal guarantees and deposits. Each one changes what the income is worth.

The tenant behind the lease

A long lease with a weak tenant can be worth less than a short one with a strong tenant. Ask how long the tenant has been in the building, whether rent has been paid on time, and whether the business is growing or shrinking. A personal guarantee is only as good as the person giving it. Ask for financial information where the lease allows it.

Confirm with the tenant

Before closing, ask each tenant to confirm in writing their rent, term, deposit, prepaid rent, and any disputes. Lawyers often call this an estoppel certificate. Ask your lawyer whether any lease should be registered, and whether tenants must be notified of the sale.

Checklist

For each commercial lease:

• Signed lease, amendments, and side letters
• Start and end dates, and renewal options
• Base rent, steps, and how renewal rent is set
• Net or gross, and last year’s cost reconciliation
• Assignment, use, exclusive, and repair clauses
• Deposits, prepaid rent, and guarantees
• Tenant’s written confirmation of the key terms

Worked example: same rent, different value

Illustrative example only. The figures are made up to show the method. They are not PEI market data or averages.

Two shops each pay $30,000 a year. Shop A has a net lease with eight years left and a tenant who repays tax, insurance, and common costs. Shop B has a gross lease ending in 14 months, and the landlord pays $9,000 of costs a year. Shop A brings in about $30,000 before reserves. Shop B brings in about $21,000, and may be empty next year.

On paper both rents are $30,000. The leases say they are not the same income, and they should not get the same price.

Sources

Checked October 2026. Rules change; confirm the current position before you rely on it.

• Landlord and Tenant Act (princeedwardisland.ca)
• Residential Tenancy Act (princeedwardisland.ca)
• GST/HST Memorandum 19.4.1, Commercial Real Property – Sales and Rentals, CRA (canada.ca)
• Real Property Tax Act, s.4 (provincial rates) (princeedwardisland.ca)