January 18, 2022 | Christianah
Commercial leases impose various obligations on landlords and tenants. One of such is the tenant’s duty to pay rent, which is an essential element of a commercial lease transaction. What happens when a tenant repudiates an unexpired lease? Will the landlord be able to sue for all or part of the rent due under the unexpired lease? In today’s blog post, we will examine the common law on the landlord’s duty to mitigate losses when a tenant repudiates the lease.
Highway Properties Ltd v. Kelly, Douglas & Co 2 SCR 562 used to be a perennial favourite among landlords. In this case, the tenant repudiated its unexpired lease in a shopping centre. The landlord resumed possession of the property and advised the tenant that it would be liable for damages suffered due to wrongful repudiation. The Supreme Court affirmed that the landlord had several remedies at its disposal in this situation, one of which was to do absolutely nothing to mitigate its loss and instead sue the tenant for consequential damages. Thus, the landlord was permitted to accept the tenant’s repudiation, relet the premises, and sue for damages arising after the period of surrender.
Although Highway Properties has been affirmed in other cases such as 607190 Ontario Inc. v. First Consolidated Holdings Corp. 1992 and Transco Mills Ltd. v. Percan Enterprises Ltd, 1993 CanLII 2876, there have been controversies over the decision in Highway Properties and a shift towards the contemporary view. The contemporary view contends that the landlord in a commercial lease should not have the right to “do nothing” when the tenant repudiates a lease. Instead, the landlord should mitigate its losses and not sue the tenant for losses that it could have otherwise avoided by leasing to a substitute tenant.
Instead of readily entering summary judgment for landlords, courts expect landlords to prove more than just “doing nothing” on their part. For example, in the case of Panther Sports Medicine and Rehabilitation Centres Inc. v. Adrian G. Anderton Professional Corporation, 2019 ABQB 973, the Court cited Southcott Estates Inc. v. Toronto Catholic District School Board, 2012 SCC 51, and suggested that landlords should not be given an “unqualified right to elect specific performance by refusing repudiation, thereby avoiding the ordinary contractual obligation to mitigate their losses.”
Thus, when Panther sued its sublessee, Anderton, for rent from when Anderton vacated the premises to when Panther terminated its head lease, the Court granted Anderson’s application for Panther to disclose its efforts to mitigate its losses ( Panther Sports).
The take home lesson is that landlords should not fold their arms and assume that claiming rent owed under a lease without mitigating its damages is a closed case in its favour. Rather, landlords should be proactive and make an effort to get substitute tenants and record their efforts as it may be helpful in court.
For any questions or advice on confirming your rights under a commercial lease, please don’t hesitate to contact Northview Law at 905-857-4890 or follow this link to book a free consultation.