Leasing to a Craft Brewery or Brewpub: Toronto Zoning, AGCO Licences and Your Lease

“We brew and sell on site” is one sentence, but in a main-street storefront and in an employment-area unit it describes two different things. Here is what the by-law text allows in each, what the AGCO licence decides after that, and where your lease enters the picture.

Picture one prospective tenant sending the same pitch to two landlords: we brew and sell on site. The first landlord owns a ground-floor storefront on a main street. The second owns a unit in an employment area, with a roll-up door and a floor drain. The sentence is identical. What it means is not.

On the main street, the brewhouse is an accessory to a shop, and the shop has a size ceiling. In the employment area, the brewhouse is the main use and the shop is the accessory, sized as a share of the plant. Then a second layer sits on top of the zoning: the provincial licence the tenant applies for decides whether the beer leaves in cans, gets poured at a bar rail, or comes with a full menu, and several of those licence conditions are really conditions about the premises you are leasing.

I’m Arthur Zhao with AZ Real Estate Partners. This piece walks through the text of Toronto’s zoning by-law for two zones, Ontario’s liquor licensing regulation, and the City’s sewer by-law, so you know what to verify before the lease is signed. It is general information, not legal advice; for a specific deal, bring in a lawyer and confirm zoning with the City.

Part one: what the building allows

Start with the property, because the zone sets the outer box before any licence is considered. I read two zones of Toronto Zoning By-law 569-2013: CR, the commercial residential zone typical of main streets, and E, the employment industrial zone.

A main-street storefront in a CR zone: the brewhouse rides on the shop

In the CR zone, a retail store is a permitted use subject to condition (5), and that condition is where brewing comes in. Clause 40.10.20.100(5) reads: “In the CR zone, a retail store may include a beverage manufacturing use for beer, cider or wine, if the interior floor area of the retail store, including the beverage manufacturing use, does not exceed 400.0 square metres.”

Three things follow from the wording:

• The brewing is part of the retail store, not a stand-alone industrial use. A general manufacturing use does not appear in the CR use lists I read.
• The ceiling is 400.0 m² of interior floor area, and the brewing area counts toward it. A tenant who wants a larger brewhouse behind the same counter is outside this provision.
• The provision covers beer, cider and wine. It says nothing about which liquor licence applies; that is Part two.

An industrial unit in an E zone: the plant is the use, the shop is the share

The E zone permits “All Manufacturing Uses except” a list of 16 exclusions, among them abattoirs, asphalt and cement plants, refineries, explosives factories and large-scale smelting. Brewing is not on that list. Chapter 800 of the by-law defines a manufacturing use as the use of premises for “fabricating, processing, assembling, packaging, producing or making goods or commodities,” which is what a brewery does.

Retail is where the E zone draws its line. Under clause 60.20.20.100(4), a retail store in the E zone (A) must be associated with a permitted manufacturing use on the same lot, and (B) the total interior floor area of all retail stores on the lot may not exceed 20 per cent of the gross floor area of the permitted manufacturing use. Note the words “all retail stores on a lot”: in a multi-unit industrial building, the cap is measured across the lot, so other tenants’ shops can matter.

An eating establishment is also listed in the E zone, with its own conditions. I did not review those conditions for this article, so a tenant who wants a dining room in an E unit needs that use checked separately.

Same pitch, two zones

Where this reading stops

Everything above comes from two zones of By-law 569-2013. I did not read the other zones, any other municipality’s by-law, or site-specific exceptions, and some Toronto lots are still governed by a former municipal zoning by-law rather than 569-2013. For any specific address, the answer that counts is the municipality’s. The zoning box also does not settle the licensing questions below: a space can be zoned for brewing and still be the wrong shape for the licence the tenant needs.

Part two: what the tenant wants to do on the premises

Ontario’s liquor licensing rules are in O. Reg. 746/21 under the Liquor Licence and Control Act, 2019. Take the tenant’s plan one activity at a time. Each step adds a licence or an endorsement, and most of them add a condition about the premises.

Making the beer

A brewery tenant applies to the AGCO for a brewery licence, one of three classes of manufacturer’s licence to sell (s.127). The AGCO’s Beer Manufacturers’ Guide is blunt that this is “NOT a licence to manufacture liquor”: it governs selling. Production licensing outside the AGCO is not covered in this article.

What matters for the landlord is the term production site, defined in s.1 as property used by the holder of a manufacturer’s licence to sell for the fermentation and production of beer. Your unit becomes that production site, and the AGCO guide asks applicants for floor plans showing the complete layout of the manufacturing facility, including equipment and the proposed location of any retail store.

A brewpub works differently. It holds a liquor sales licence with a brew pub endorsement (s.16), and s.55 requires that the beer be manufactured at the licensed premises. The brewhouse and the bar are one licensed space.

Selling it to take away

For a brewery, take-away sales run through a brewery retail store endorsement, which is attached only to brewery licences (s.128(2)). The conditions point straight at the premises:

• To be eligible, the licensee must “exercise substantial ownership and control over the production site on which the retail store is located” (s.129(1)).
• The endorsement lets the brewery sell its beer from a retail store on the production site (s.130(4)).
• With only one retail store, the full brewing process (mashing, lautering, boiling, hop separation, fermentation and packaging) must take place at the production site where that store is located (s.144(1)).
• Beer may only be available to customers between 7 a.m. and 11 p.m. (s.143).

In other words, a shop in your building selling beer brewed somewhere else does not fit this endorsement.

For a brewpub, s.54(d) allows the beer to be sold in accordance with the takeout rules in s.40 of the regulation; the brew pub route has no retail store endorsement.

Pouring it by the glass

A brewery that wants a taproom needs a by-the-glass endorsement. Section 129(2) says the Registrar may only grant it if (a) the Registrar is of the opinion that the sale is primarily aimed at promoting the licensee’s product and either providing an enhanced tourist experience or fulfilling an educational purpose, and (b) where the production site is in a municipality, the municipal council has passed a resolution in support of the endorsement. That second condition means a council decision sits in the tenant’s path, which is worth knowing when you set lease dates.

The space test is in s.130(7)(b): the endorsement covers areas “under the sole control of the licensee and … located on or immediately adjacent to one of the licensee’s production sites.” According to the AGCO Beer Manufacturers’ Guide, the application includes a site plan with the serving area outlined in red, and areas such as public roads, thoroughfares, driveways and parking lots are excluded. Under s.148, only beer the licensee manufactured (or beer transferred from the licensee’s own tied house) may be sold there, and s.147 limits service to 9 a.m. to midnight.

One more detail for landlords: for a temporary extension of a by-the-glass area applied for through the AGCO, the guide says that if the extended area is rented or leased, the applicant must provide a letter of approval from the owner or landlord. (In a municipality, temporary outdoor patios go through the municipality’s own process, per the same guide.)

Running a full restaurant or bar

There are two different structures here, and they look alike from the sidewalk.

A brewery with a tied house. Section 20(2) makes a manufacturer ineligible for a licence to operate a liquor consumption premises, but s.20(5) lifts that for a liquor sales licence that would apply to a tied house, defined in s.1 as the licensed premises of a liquor sales licence holder located at the municipal or property address of a production site. Section 20(6) allows no more than one liquor sales licence per production site.

A brewpub. Here the licence is a liquor sales licence and brewing is the endorsement (s.16, s.17(2)). For the purposes of s.20, a brew pub endorsement holder is not a “manufacturer” (s.20(1)). Section 54 limits where its beer may be sold and consumed; the FAQ below lists them. I did not check the sale hours that apply to this route, so none are given here.

For both, the dining part is also a zoning question (an eating establishment use), separate from the brewing provisions in Part one.

If another operator in your building holds or wants a liquor licence, note s.20(3)(d): a person is not eligible for a liquor consumption premises licence “in respect of premises in which a manufacturer has an interest, whether freehold or leasehold,” directly or indirectly, unless the Registrar decides under s.20(4) that issuing it would not be contrary to the public interest. How that applies to a particular building layout is for the AGCO and the parties’ lawyers; the point is that it can come up.

Sewer discharge

Toronto Municipal Code Chapter 681 (Sewers) defines “industrial” as pertaining to manufacturing, commerce, trade, business and similar activity, as distinguished from domestic or residential. Section 681-2 sets requirements for what may be discharged into sanitary and combined sewers. Under § 681-6, subsection A(1), a discharge otherwise prohibited by the by-law can be authorized by an industrial waste surcharge agreement, which includes conditions for payment of additional costs of the sewage works, restrictions on the discharge and other terms the General Manager (of Toronto Water) considers appropriate.

I did not look into whether brewing wastewater from any given operation exceeds the Chapter 681 requirements; that is Toronto Water’s call on the facts. What a landlord can control is the lease: who is responsible for compliance, who pays any surcharge, and what happens to your building’s connection if the tenant’s discharge is a problem.

Lease clauses that connect to the licence

Organized by clause. These are checkpoints drawn from the rules above, not drafting advice; your lawyer settles the wording.