Why small businesses need rent control

When large waves of Irish and Italian families immigrated to Canada a hundred years ago, many opted to open small businesses in their communities rather than work in factories and fields. The low cost of real estate in their neighbourhoods meant within a generation they were able to buy the storefronts they initially rented. Since the cost of operating a business in an owned space is considerably lower than that in a rented space, their businesses succeeded, and thousands of new immigrant families were able to create generational wealth and gain a sense of economic independence, all the while contributing to their local economy.

Today, immigrants to Canada remain more likely to open a small business than their native-born counterparts, but that success story doesn’t ring true for them anymore. Across the country, small businesses are grappling with sudden, often unaffordable, rent increases.

A survey from the Canadian Federation of Independent Business last year found that approximately half of businesses were reporting difficulty coping with rising occupancy costs, warning of an affordability crisis amongst small businesses. According to the Toronto Regional Real Estate Board, retail rents in Toronto have risen by 67 per cent since 2020. In the past eight years, industrial rents have doubled in cities like Toronto, Vancouver, and Waterloo.

While some point to limited real estate as the culprit behind alarming commercial rents, the reality is more complex. Often landlords have little incentive to negotiate fairly because they’re willing to forgo rent payments today to hold out for a higher-paying tenant tomorrow, leaving storefronts vacant.

Commercial renters don’t have the same legal protections as residential tenants. Commercial leases are not protected by provincial rent control caps. Most provinces don’t offer affordable dispute resolution: in Ontario, commercial landlords can evict a tenant only 16 days after rent is missed, effectively making it impossible to withhold rent if a landlord has failed to cover unexpected repairs or renovations. This imbalance stifles innovation, displaces local entrepreneurs, and erodes the cultural and economic fabric of our main streets.

The solutions to this problem are practical and proven: Commercial tenants deserve rental protections similar to those granted to residential tenants. Commercial rent control, in conjunction with other government policies and market-based initiatives, would support and safeguard the small business ecosystems that employ so many Canadians.

Rent caps would grant small businesses the stability to plan and invest without the constant fear of unpredictable rent hikes that threaten their long-term viability. In the way that Ontario residential tenants know they can expect their rents to increase approximately 2.5 per cent year over year, with commercial rent control, small businesses could anticipate more predictable costs, allowing them to focus on growth rather than the uncertainty of market increases. That growth is crucial in fostering the wellbeing of local economies and generating jobs.

Standardizing commercial lease agreements is another easy win. Mandating plain language and clear terms would reduce costly misunderstandings and level the playing field for commercial tenants negotiating with corporate landlords. In Ontario, where we live, the province should establish a tribunal under the Commercial Tenancies Act that would offer small businesses a fair, affordable alternative to lengthy court battles. Finally, creating a tax incentive to developers and landlords who offer small, affordable spaces to independent businesses would create an alternative to chain-store neighbourhoods.

Contrary to popular beliefs, these measures are not radical. Countries around the world have implemented similar policies to support local economies. France caps commercial rent increases at 10 per cent between lease terms. Small retail tenants in Australia have access to mediation services for disputes. In New York, tax incentives encourage landlords to lease long-term to local businesses in order to create jobs. California recently adopted progressive legislation that caps rent increases for small brick-and-mortar businesses, while granting tenants additional protections.

Canadian municipalities are now exploring similar protections of their own. Last year Vancouver’s New Westminster city council passed a motion asking the province to explore commercial rent controls to help local businesses. A couple months later, Toronto City Council voted almost unanimously for a motion that requested the province implement commercial rent reform and other legal protections for commercial tenants, drawing from some of our legislative suggestions. Frustratingly, the province has not responded with any comments, leaving renters feeling it is not on the side of small business tenants.

The dangers of not providing commercial rent control are already apparent in our largest cities. Just a decade ago in Toronto, Queen Street West was the heart of Canadian popular culture. Teenagers visiting from around the country begged their parents for a free afternoon to explore Black Market or Steve’s Music. For bands coming from afar, landing a show at the Horseshoe Tavern was the first step to making it big—gracing the same stage as The Rolling Stones, Rush, and Joni Mitchell.

But as rents skyrocketed, the grit that made Queen West iconic disappeared. Independent shops gave way to mall chains selling nostalgia, smothering the very culture they tried to capitalize on. It’s no longer a destination of interest, and the shopping is the same as any large shopping mall. The jobs, community, and wealth those old independent shops created are gone.

Commercial rent protections in cities like Toronto would improve local vibrancy. Penalizing the landlords who keep storefronts vacant would discourage the speculation-driven practices that create unsafe, unfriendly ghost-towns, and give more residents greater opportunities to spend local. According to the Canadian Federation of Independent Business, 66 cents of every dollar spent at a small business recirculates back into the local economy, compared to only 11 cents of every dollar spent at a multinational retailer.

The story being played out daily by small businesses across Canada need not be the case forever–we can write a better one. At BWA, we know many small businesses that weathered the pandemic or were able to re-open in new locations after shuttering. However even more will stay closed permanently without commercial rent control because of the emotional and financial weight of their rent.

Building an economy that prioritizes fairness and stability will strengthen our main streets, empower small manufacturers, and secure Canada’s future as a global leader in small business innovation. By providing tenants a voice in tenant-landlord relationships, we can put more money in their pockets and create a new wave of property purchases by local business owners that create economic and ownership stability in our neighbourhoods.