Ontario Commercial Late Fees: Rules, Enforceability, and Default Interest

Unlike residential tenancies where late fees are completely prohibited, Ontario commercial landlords may charge late fees and default interest — provided these terms are clearly set out in the lease agreement. The Commercial Tenancies Act (CTA) does not restrict late fee provisions, making the lease the governing document.

Disclaimer: This guide provides general legal information for educational purposes only and does not constitute legal advice. Always consult a licensed attorney in Ontario for guidance specific to your situation. Information last verified: March 2026.

Commercial vs. Residential Late Fees

Common Late Fee Provisions

1. Flat Late Fee

A fixed dollar amount charged when rent is late:

• Example: "$500 for any rent payment received after the 5th of the month"
• Simple to administer and understand
• Must be clearly stated in the lease to be enforceable

2. Percentage-Based Late Fee

A percentage of the overdue amount:

• Example: "2% of any rent payment not received by the due date"
• More proportional to the amount owed
• Common range: 1-5% of the overdue amount

3. Default Interest

Ongoing interest charged on unpaid amounts:

• Example: "Interest at the rate of 12% per annum (1% per month) on all overdue amounts"
• Accrues daily until the amount is paid
• Common commercial rates: 8-18% per annum

4. Combined Provisions

Many leases include both a late fee and default interest:

• Late fee for the initial late payment
• Default interest for ongoing non-payment

Enforceability Considerations

The Penalty Doctrine

Canadian courts may invalidate late fee clauses that are considered penalties rather than genuine liquidated damages:

Interest Rate Limits

• The federal Interest Act requires that interest rates expressed as a percentage must be stated as an annual rate
• If the rate is expressed only as a monthly rate (e.g., "2% per month") without also stating the annual equivalent (24%), it may be reduced to 5% per annum by the court
• Always express rates both ways: "2% per month (24% per annum)"

Criminal Interest Rate

• Under the Criminal Code (§347), interest rates exceeding 48% per annum (effective annual rate) are criminal
• This includes all charges, fees, and penalties that function as interest
• Ensure combined late fees and interest do not exceed this threshold

Grace Periods

Commercial leases commonly include (but are not required to have) a grace period:

If no grace period is specified, rent is due on the date stated in the lease and is late the following day.

NSF (Returned Cheque) Charges

For commercial tenancies:

• Landlords may charge a flat NSF fee as specified in the lease
• Common amounts: $50-$250 per returned cheque
• Unlike residential tenancies, there is no restriction to the actual bank charge
• The fee should be reasonable and clearly stated in the lease

Remedies for Persistent Non-Payment

Beyond late fees, commercial landlords have stronger remedies than residential landlords:

1. Demand letter — Formal demand for payment with deadline
2. Default notice — Trigger the lease default provisions
3. Re-entry (lock change) — Available on day 16 of non-payment (CTA remedy)
4. Distress — Seize and sell tenant's property to cover arrears
5. Rent acceleration — Entire remaining lease rent becomes due immediately (if in lease)
6. Court action — Sue for arrears and damages in Superior Court

See our Commercial Eviction Process guide for details.

Best Practices for Ontario Commercial Landlords

1. Include clear late fee provisions — Specify the amount, trigger, and grace period
2. Express interest rates annually — Comply with the Interest Act to avoid rate reduction
3. Keep fees reasonable — Excessive fees risk being struck as penalties
4. Monitor the 48% criminal threshold — Ensure combined charges do not exceed this limit
5. Apply fees consistently — Selective enforcement may waive your rights
6. Document all late payments — Maintain a detailed payment ledger
7. Communicate early — Contact tenants promptly when payments are late

How Landager Helps

Landager automatically tracks rent payment dates, calculates default interest, and flags overdue accounts — so you can take timely action and maintain consistent enforcement of your lease terms.

Back to Ontario Commercial Property Laws Overview.