Avoiding Costly Business Disputes: The Role of Clear Contracts and Leases

For businesses across Ontario, success depends on having strong, enforceable agreements in place. Whether you’re signing a service contract or negotiating a commercial lease, unclear wording or missing terms can quickly lead to expensive disputes. At Jeffrey Murray Law, we know that business litigation is usually a sign that something went wrong at the drafting stage. What should have been a straightforward contract can turn into a major liability on your balance sheet.

When disagreements over “what the contract meant” lead to legal fees and court involvement, resources that should fuel growth end up drained by conflict. The best protection is prevention: building contracts that leave no room for costly misinterpretation.

1. The Cost of Ambiguity in Ontario Commercial Contracts

For a contract to be enforceable in Ontario, it must be clear, complete, and legally compliant. When agreements are vague or silent on key issues, the risk of financial loss and litigation skyrockets.

Why ambiguity is dangerous

When contract language is unclear, or creates contradictions when applied to real situations (a problem called “latent ambiguity”), Ontario courts may need to dig into outside evidence to determine intent. This means reviewing emails, testimony, and other records, driving up legal costs.

Courts may also apply the rule of contra proferentum, which means interpreting the vague wording against the party who drafted it. In other words, if you wrote the contract, you could be the one left paying for the drafting mistake.

2. Insurance and Indemnity: Avoiding the “Vague Insurance Trap”

Another frequent source of commercial contract disputes in Ontario involves insurance and indemnity clauses. If the responsibility for coverage is not clear, businesses can face devastating uninsured losses.

A lesson from Ontario case law

In Jakab v. Clean Harbors Canada Inc. (2023 ONCA), the entire dispute turned on the words “make available” in an insurance clause. One party believed this meant the other had to obtain and maintain full coverage. The court disagreed, ruling that it only required sharing whatever insurance was already in place, which turned out to be minimal.

The result: the party that suffered the loss absorbed the full cost of a lost truck, plus the expenses of litigation.

Takeaway: Never rely on vague terms like “make available.” Contracts should use clear, action-oriented language that spells out exactly who must secure specific insurance policies, whether property, commercial general liability, or other coverage.

3. Commercial Lease Disputes: Going Beyond the Commercial Tenancies Act

Commercial leases carry high stakes in Ontario. While they are subject to the Commercial Tenancies Act (CTA), the Act offers only a basic framework. The lease itself almost always determines the rights and obligations of the parties.

Unlike residential tenants, commercial tenants have very few automatic protections under Ontario law. That means important terms must be negotiated and written directly into the lease.

Essential terms to negotiate in Ontario commercial leases

• Renewal Rights: The CTA provides no automatic right of renewal. A lease must include a clear renewal clause, including notice periods and a fair method of calculating rent.
  
• Rent Increases: If the lease is silent, landlords may raise rent without restriction. A well-drafted lease sets out the schedule and limits for increases, based on objective standards.
  
• Repair Obligations: The lease should distinguish between repairs due to normal wear and tear and those caused by tenant negligence.
  

The risk of holding over

Commercial tenants should also be cautious about “holding over”, staying in the premises after the lease has expired. In Ontario, this can trigger a financial penalty of two months’ rent for every extra month you remain.

4. Planning for Disputes: Using Alternative Dispute Resolution (ADR)

Even the most carefully written contract can face performance issues. Smart drafting doesn’t just define obligations; it also plans for what happens if one party fails to perform.

Why ADR matters

Traditional litigation is expensive and time-consuming. To reduce costs and preserve relationships, Ontario businesses should consider Alternative Dispute Resolution (ADR), including mediation and arbitration.

The best practice is to use tiered ADR clauses, which require the parties to first attempt good-faith negotiation, then mediation, before moving to binding arbitration.

Ontario courts will only uphold arbitration clauses that are reasonable and accessible. That means fees must be proportionate to the contract’s value, and the jurisdiction should be local and practical.

Strategic advantage: By setting up ADR in advance, businesses can resolve disputes, especially those under $35,000, without being forced into the lengthy and expensive process of Superior Court litigation.

Protecting Your Business with Clarity

Avoiding commercial contract disputes in Ontario starts with proactive drafting. Clear language, precise risk allocation, and structured exit strategies can save businesses from costly mistakes and unnecessary legal battles.

At Jeffrey Murray Law, we’re here to help Ontario businesses, from Belleville to Prince Edward County, create contracts and leases that protect their interests and prevent disputes before they arise.

The best time to resolve a dispute is before it happens. Contact us today to review or draft your agreements with clarity and confidence.