Small businesses closing due to massive rent hikes say the future is bleak for independent shops and cafes in Ontario

When COVID lockdowns hit, many Ontario businesses deemed non-essential were forced to close for the better part of two years. While a number of factors continue to hamper their recovery, operators say sky-high rent hikes are forcing them to move or shut down entirely. 

“Our landlord wants a 67 per cent rent increase and an immediate $8,000 top-up on the security deposit, so we’re forced to close our school,” Chris Marti, the owner of the Mississauga-based Do Re Mi for Kids Inc. music school, told INsauga.com. 

When Do Re Mi for Kids began over 20 years ago, Marti operated it out of her home. Once it grew in popularity, she began to look for a new location and found a spot on Sladeview Crescent, close to the Unity Drive and Ridgeway Drive intersection in the city’s Erin Mills neighbourhood. 

Now, more than 10 years and two significant rent hikes later, Marti is moving her school entirely online while she looks for a new brick-and-mortar location outside the city. 

“We found this location 15 years ago and things were going really, really well. Five years ago, our initial lease came due and we renegotiated at market value and there was a 98 per cent increase–it doubled our rent,” she says.  

The newest increase, which she says was given without room for negotiation, comes just four years after she had to adapt her business quickly in the midst of the previous rent hike and pandemic-related restrictions. 

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“They said if we don’t like it, leave,” she says, adding that her landlord, represented by property management company Quadreal, was firm about the first increase in July 2020. 

Marti managed to keep her school afloat by transitioning classes online–a daunting task considering that she, along with many others, had never even heard of Zoom prior to the crisis. 

Post-pandemic, inflation and the escalating cost of living are putting pressure on most small businesses and Marti is no exception. 

“With the current economy, our school isn’t rebuilding as quickly as we’d like,” she says.

Sapna Jain, who co-owns the East India Company Ltd., a Mississauga-based wholesale spice company, says she’s still reeling after being forced to close the long-standing retail store on Cawthra Road last year.

“We weren’t protected at all; they just had to give us a month’s notice. How do you wrap up a business you’ve been running for 40 years that quickly? It was traumatic; I still can’t think about it without crying.” she says. 

Jain, who co-owns the company with her brother, says that while the company’s years of service in the community allowed it to keep its wholesale operations intact, the loss of the retail store was devastating.

Jain says the business had experienced several rent increases throughout its time in the Dundas and Cawthra Road area building, but when the lease came due shortly after the pandemic hit, they were told the rent would double. To mitigate the significant increase, they accepted a month-to-month lease, only to be abruptly informed that the building had been sold to a new large corporation taking over as landlord. Shortly after that, East India was informed that a new tenant would be taking over the space, and they would have to move immediately.

The store, opened by her parents, had served the community for 42 years. 

“We were an institution there,” Jain told INsauga.com.

“A small family business that was well-known in the community. We had generations of customers.”

Small businesses still struggling post-pandemic

“You see a lot of talk informally, but every business owner has a commercial rent story or a neighbour who has been evicted because of a bad contract,” Aaron Binder, a long-time business owner and representative of Better Way Alliance, a group advocating for commercial rent reform, told INsauga.com 

A recent report by BWA, which was formed in 2017 to push for better employment standards in Canada, suggests that nine in 10 small businesses surveyed between 2020 and 2022 list rent as one of their top three expenses. For over half of businesses surveyed, rent accounts for more than 60 per cent of overall expenses.

The report indicates that three-quarters of businesses surveyed have reported a one-time rent increase of 10 per cent or more, with one in six reporting an increase of 50 per cent or more. 

One in 10 have seen their rent double during a single increase, according to the report. 

Binder calls the rental market for small business owners “the Wild West” and says something must be done to level the playing field so that small shops, cafes and home repair companies can negotiate with large corporations that own huge swaths of commercial real estate and can afford to let a store sit empty while waiting for a tenant who can carry heftier monthly costs. 

“We launched a commercial renters’ bill of rights in May. It’s designed to create that stability on main streets and in industrial parks,” Binder says. 

The group’s commercial rent report calls on the province, which governs rental policies, to implement three changes: Create a provincially recognized standard commercial lease, invest in a commercial tenant-landlord board, and implement a reasonable commercial rent increase cap. 

“People who are not small business owners may be shocked to learn there are neither guidelines for fair and predictable rent increases nor set standards for leases and shared costs,” BWA’s report reads, adding that commercial landlords, not bound by the same policies that govern the relationship between residential landlords and tenants, can increase a business’s rent by any amount, evict without due process and pass on unexpected bills for maintenance and insurance. Commercial landlords are also not obligated to carry out routine maintenance.  

The report also says no official mechanism exists to resolve disputes between commercial landlords and tenants.

When asked about the rent increase reported by Do Re Mi for Kids, Quadreal, which manages the music school’s building, said it cannot comment on individual tenant agreements but charges standard rates. 

“Our properties are offered at market rate, and we endeavour to work closely with existing tenants to meet their business needs,” a Quadreal spokesperson said in an email to INsauga.com. 

Both Binder and Marti argue that the term “market rate” can be a bit misleading, as it doesn’t always capture what a typical small business can afford.

“In Mississauga, low vacancy rates and a natural tightness are contributing to sky-rocketing rents. A market rate…is essentially whatever you charge,” Binder says. 

“When rent jumps up so quickly because they’re charging the market rate, that has a deep impact on the community and the types of jobs and the livability of those areas, as well as on Canada’s entrepreneurial spirit.”

Other business owners say that the pandemic aftershocks and other economic challenges are slowing their recovery, and unexpected rent increases make it impossible to operate out of their current storefront–even outside the GTA. 

Krista Mansour, who owns Footprints on Muskoka, a well-known chain of shops selling clothes, shoes, and souvenirs in cottage country, said she was shocked to learn that not only would the rent on her Bracebridge shop be increasing, but she would also be responsible for additional maintenance and insurance costs. 

“We were told we’d be responsible for taxes, property insurance, and maintenance fees on top of an increase in our rent. We’d been in that location for years and everybody was just shocked,” Mansour told INsauga.com.

Mansour said her landlord told her the lease–known in investment circles as a triple net lease—wasn’t particularly uncommon. According to Investopedia, this type of lease requires the tenant to pay all or a portion of the taxes, fees, and maintenance costs a building incurs, as well as for any necessary repairs. In some cases, the overall lease rate might be lower, as the tenant assumes more risk.

The risks were not acceptable to Mansour, especially since her shops rely on seasonal traffic and the building had already been impacted by flooding.

Mansour said she asked for time to consider her options but was ultimately given 60 days to agree or vacate. 

She opted to close her Bracebridge store in July 2023. 

“I had to close the store and it sat empty for eight months,” she says. 

Mass closures are not happening, but advocates say risks are higher for businesses post-pandemic

While numbers from StatsCan do not suggest a mass exodus of small businesses (less than 100 employees) from Mississauga or Ontario, Binder and local entrepreneurs say that additional expenses such as rent hikes hit them harder at a time when they haven’t made back their pandemic losses. 

“Small businesses are dying,” Marti, who runs Do Re Mi for Kids, says, adding that she’s spoken to friends who have had to move their businesses to different cities or retire early due to mounting costs. 

“Small businesses are the backbone of our economy and I just let go of nine people.”

According to StatsCan data supplied by the City of Mississauga, small business activity in the city has been steady since 2018. 

“In general, there was a decline in business counts from 2019 to 2021, and then increases in each year since. In other words, we have seen positive net business growth over the past two years,” a city spokesperson told INsauga.com. 

“The city does not track or have access to comprehensive data on the causes of business closures.”

In Ontario, there were 461,406 small businesses operating in the province in 2018. In 2023, that number grew to 495,668. 

But while the picture isn’t dire, business owners say they don’t feel protected by the province and Binder believes the Ontario government should do more.

“One of the things that’s special about Canada is immigrant entrepreneurship. We need standard leases with simplified language because of language barriers. There are issues reading and writing the agreements,” he says.

Binder also says dispute resolution should also be affordable for businesses, as many owners will walk away rather than take a landlord to court due to significant legal fees. He also says commercial tenants need more tools in their toolbox when it comes to dealing with unfair leasing practices, such as a legal right to withhold rent should a landlord stick them with an unfair charge (such as a repair they’re not responsible for). 

While Binder and some business owners are pushing for reform, others fear that too much government regulation could do more harm than good. 

“It would be unprecedented for Ontario to regulate commercial rents,” Brad Butt, a Mississauga city councillor, told INsauga.com. 

“Do you want the government regulating what you can charge in your business? [Leasing] is part of a business relationship in a fair market, and I’m not sure we want the government to stick its nose in that relationship. You wouldn’t want the government saying you can only charge $5 for a lamp. The free market has generally always been the way we’ve done it.”

That said, Butt, who was also the vice president of the Mississauga Board of Trade before running for council, says he’s heard anecdotal reports of significant rent increases and understands tenants have few avenues for recourse.

“I certainly know from my ward in Streetsville, and I’ve heard from tenants that owners are sometimes asking for considerable income for the rent. This is all market-driven, for the most part, and commercial tenants don’t have the same protection as [residential] tenants have.” 

Having been involved in commercial real estate himself, Butt says landlords should be naturally inclined to work with tenants to avoid potentially costly vacancies and he isn’t sure why some would allow a unit to sit empty due to what might very well be unrealistic expectations for rent. 

He also says that while businesses in the city are staying afloat, most have not fully recovered from COVID-related restrictions. 

“We want to keep as many of these businesses here [as we can]. In Streetsville, I’m focused on how to make these businesses viable in our community. I work with BIA and others to find ways, but I know tenants have had to leave because the owner has decided the rent level they’ve paid in the past is not what the market bears and the tenant says, ‘I can’t afford that, and I have to move. ‘ That is unfortunate for sure.” 

Butt says that while cities cannot control landlord and tenant relationships, they can do other things to attract and maintain small businesses, such as keep property taxes and other costs low. 

“When it comes to commercial and industrial tax rates at the municipal level, they’ve been reasonable and in line with inflation,” Butt says. 

“The commercial and industrial base pays more than residential owners do, but I think we’ve struck the right balance between keeping businesses in our city and not taxing residents out of our city.”

Trevor McPherson, president of the Mississauga Board of Trade, says that while MBOT is not calling on the province to set rates, it does believe some protective policies could be beneficial, including ensuring an adequate supply of commercial space for businesses. 

“While we are not advocating for some form of rent control, there may be policy options to consider that would provide some support to those companies most affected,” he told INsauga.com in an email. 

“Repayment of CEBA loans earlier in the year may also have magnified the issue for some, though I would hesitate to put the blame on this alone. Mississauga also needs to protect commercial and industrial employment lands to keep sufficient supply.”

When asked if the province plans to enact commercial rent policies, Nina Tangri, the Mississauga MPP who is also the associate minister of small business, did not respond by publication time. 

Businesses say they feel helpless

Jain, who co-owns the East India Company Ltd., says that while the company’s years of service in the community allowed it to keep its wholesale operations intact, the loss of the retail store was devastating.

“We had so many customers who said they showed up and we were gone. It was horrible, it was not the way we wanted to go after being there for 42 years,” she says. 

“I grew up there; my brother was in a playpen there. It’s so sad. Commercial landlords can do whatever they want. They can raise your rent however they want. Small business is the heart and soul of our community and when things like this happen, who is going to start a business? We were lucky we could pivot and continue our wholesale business, which is the bulk of what we do, but there are a lot of businesses who have lost theirs entirely.”

Mansour, who operates Footprints on Muskoka, also called the forced closure of her Bracebridge store devastating, telling INsauga that one of the worst feelings was giving long-time customers the impression that her successful business had somehow failed. 

“It was devastating. I’m the busiest store on the street and it really hurt the downtown. I’m a tourist destination. It was an emotional trauma for me; I had a breakdown. That was the store I opened 11 years ago, my first store.” 

Mansour also said that since she prides herself on offering products that tourists and residents can afford, she couldn’t offset her increased costs by raising prices. 

“I cannot be affordable charge $80 for a shoe,” she says. 

Marti also says that with the high cost of living, business owners cannot simply hike their prices. 

“It doesn’t matter how hard you try to be excellent at what you do; if your prices are above industry standard, people will go elsewhere. I can’t just double my prices. You’re in a service industry; you can’t charge more, or you’ll lose your client base.”

Ultimately, business owners such as Binder believe that the lack of regulation won’t just lead to small business suffering, but will also disincentivize large companies from opening businesses in the country. 

“Even large businesses who see rents climbing by 50 per cent every five years, they say Canada isn’t a good place to invest.”