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Landlord and Tenant (Commercial) - Breaking a Lease. Canada Life Assurance Company v. Aphria Inc.
In Canada Life Assurance Company v. Aphria Inc. (Ont CA, 2024) the Ontario Court of Appeal considers the issue of mitigation, as applicable to commercial L&T law (as per Highway Properties (SCC, 1971)]:[1] The main issue on this appeal is whether this court should depart from the Supreme Court’s decision in Highway Properties v. Kelly, Douglas & Co., 1971 CanLII 123 (SCC), [1971] S.C.R. 562 and recognize a duty to mitigate on commercial landlords who reject a repudiation of a lease by the tenant.
[2] In Highway Properties, Laskin J. (as he then was) described the options available to a landlord facing repudiation of a lease by its tenant at p. 570:
The developed case law has recognized three mutually exclusive courses that a landlord may take where a tenant is in fundamental breach of the lease or has repudiated it entirely, as was the case here. He may do nothing to alter the relationship of landlord and tenant, but simply insist on performance of the terms and sue for rent or damages on the footing that the lease remains in force. Second, he may elect to terminate the lease, retaining of course the right to sue for rent accrued due, or for damages to the date of termination for previous breaches of covenant. Third, he may advise the tenant that he proposes to re-let the property on the tenant's account and enter into possession on that basis. Counsel for the appellant, in effect, suggests a fourth alternative, namely, that the landlord may elect to terminate the lease but with notice to the defaulting tenant that damages will be claimed on the footing of a present recovery of damages for losing the benefit of the lease over its unexpired term. One element of such damages would be, of course, the present value of the unpaid future rent for the unexpired period of the lease less the actual rental value of the premises for that period. [Emphasis added.]
[3] This appeal involves the underlined first option. At p. 572 of that decision, Justice Laskin specifically stated that there is no obligation on a landlord to mitigate if it kept the lease in good standing. This is the context in which the main issue on this appeal arises.
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[20] For the following reasons, we conclude that the motion judge did not err in determining that he was bound to follow Highway Properties and that therefore the Landlord did not have a duty to mitigate in this case.
[21] The motion judge observed at para. 1 of his reasons that the Tenant invited him “to disregard a principle arising from a Supreme Court of Canada case which has been applied by the Ontario Court of Appeal and trial courts in Ontario for 50 years.” As a result of the application of the doctrine of stare decisis, he determined that he was bound by: (i) the Supreme Court’s decision in Highway Properties; and (ii) two Court of Appeal decisions applying Highway Properties: Almad Investments and TNG Acquisition.
[22] The motion judge acknowledged that as Highway Properties did not involve the first scenario described by Justice Laskin, the dicta on the first scenario was obiter. The landlord had taken control of the premises and mitigation had occurred. However, applying the principles in R. v. Henry, 2005 SCC 76, [2005] 3 S.C.R. 609, the motion judge reasoned that the statements in Highway Properties were authoritative and binding and not simply persuasive in nature. In our view, this analysis is unassailable. Justice Laskin clearly turned his full attention to the issue of repudiation of a lease and mitigation and dealt with it definitively.
[23] Moreover, this court has treated Highway Properties as such. In Almad Investments, this court stated:In this case, the respondent landlord elected to do nothing to alter the relationship of landlord and tenant but simply insisted on performance of the terms of the lease and sued for rent on the footing that the lease remains in force. In these circumstances, the decision of the Supreme Court of Canada in Highway Properties Limited v. Kelly Douglas & Co. (1971), 1971 CanLII 123 (SCC), 17 D.L.R. (3d) 710 confirms that the landlord has no duty to mitigate. Although the question of a duty on the landlord to mitigate has been the subject of comment, Highway Properties has not been overruled on this point. As the respondent pointed out, the appellant is still entitled to look for a new tenant and sublet the space. [24] The decision of TNG Acquisition also applied the dicta reflected in the first scenario of Highway Properties. There, citing Highway Properties, Gillese J.A. described the courses of action a landlord could take when a tenant repudiated the lease. She wrote at para. 40:The case law makes it clear that the landlord has an election to make when a tenant repudiates. The landlord must make the election in order for the parties to know what consequences flow from the repudiation. If the landlord does nothing, the landlord/tenant relationship remains and the lease continues in force: Highway Properties, at p. 570. [25]In a similar vein, while the Tenant argues that the dicta from these two Ontario Court of Appeal cases are obiter, they are nonetheless clearly authoritative.
[26] The Intervener, BWA, directed the panel to this court’s decision in Canadian Medical Laboratories, a case that was not brought to the attention of the motion judge and which BWA submits supports its position.
[27] We do not accept that this case stands for the proposition advanced by BWA. Its facts did not fall within the first scenario described in Highway Properties which is in issue on this appeal. It involved an offer to lease where at trial the tenant took the position that it was void due to misrepresentation and mistake. The court rejected that argument and treated the lease as having been repudiated and the landlord as having accepted the repudiation when it leased the premises to a third party. We also note that Canadian Medical Laboratories pre-dated TNG Acquisition.
[28] Nor are we persuaded by the appellant’s other arguments that would avoid the application of stare decisis. A duty of mitigation for residential leases is recognized by the provisions of the Residential Tenancies Act, 2006, S.O. 2006, c.17. The appellant submits that a duty of mitigation exists with equipment leases and relies on the Supreme Court’s decision of Keneric Tractor Sales Ltd. v. Langille, 1987 CanLII 29 (SCC), [1987] 2 S.C.R. 440 in that regard. That case concerned a lessor who repossessed equipment following default by the lessee. Following Highway Properties, the Supreme Court held that damages from a breach of a chattel lease should, like a land lease, follow a breach of contract analysis. However, the facts of that case are more analogous with scenario four in Highway Properties and, as the motion judge in the case under appeal noted, Justice Laskin’s statement on scenario one and mitigation in Highway Properties was not subject to direct comment in Keneric. Lastly, good faith, efficient breach and the evolution of real estate law do not serve to displace stare decisis.
[29] We also note that the British Columbia Court of Appeal in Anthem Crestpoint Tillicum Holdings Ltd. v. Hudson’s Bay Company ULC Compagnie de la Baie D’Hudson SRI, 2022 BCCA 166, 92 B.C.L.R. (6th) 298 decided that it was bound by the dictates of Highway Properties.
[30] In our view, there is no compelling basis on which to interfere with the motion judge’s conclusion on the issue of stare decisis. He was bound by authoritative jurisprudence to hold that where a landlord refuses to accept a tenant’s repudiation of a commercial lease and insists on performance, there is no duty on the landlord to mitigate. The motion judge correctly decided that rejection of the principle in Highway Properties would create uncertainty and instability in a manner contrary to the doctrine of stare decisis.
[31] In conclusion, it is not for this court to change this law but for the Supreme Court or the Legislature to do so. We note that the law on mitigation in Quebec is found in the Civil Code and that at least some of the American authority is based on statutory changes. In that regard, it would be open to the Ontario Legislature to amend the Commercial Tenancies Act, R.S.O. 1990, c. L.7 to provide for mitigation as it did with the Residential Tenancies Act, 2006, S.O. 2006, c.17. . Curriculum Services Canada/Services Des Programmes D’Études Canada (Re)
In Curriculum Services Canada/Services Des Programmes D’Études Canada (Re) (Ont CA, 2020) the Court of Appeal, in the course of a landlord's claim for rent over the balance of the lease in the tenant's bankruptcy, summarized the important Highway Properties commercial L&T:(i) The Supreme Court decision in Highway Properties
[69] Highway Properties involved the claim of a landlord for prospective losses following a tenant’s repudiation of an unexpired lease. The tenant had abandoned the premises and the landlord took possession, while asserting a claim for damages for its loss calculated over the unexpired term of the lease. The lower courts had dismissed the landlord’s claim for prospective damages, concluding that the repudiation of the lease by the tenant and the taking of possession by the landlord amounted to a surrender by operation of law, so that the lease ceased to exist. Accordingly, claims for prospective loss could not be supported and only accrued loss could be claimed.
[70] At the time the case was heard, the law recognized three mutually exclusive options available to a landlord on a tenant’s repudiation of a lease: (i) to do nothing and insist on the tenant’s performance of the terms and sue for rent or damages on the footing the lease remains in force; (ii) to elect to terminate the lease, retaining the right to sue for rent accrued due or for damages to the date of termination for prior breaches of covenant; or (iii) to advise the tenant of the landlord’s intention to re-let the property on the tenant’s account and to enter into possession on that basis: see Highway Properties, at p. 570.
[71] In Highway Properties, Laskin J., writing for the court, observed that a lease is both a conveyance and a contract. The termination of the tenant’s estate in the land when its repudiation was accepted by the landlord did not necessarily mean that the tenant’s covenants under the lease came to an end. Laskin J. accepted the proposition that the landlord had a fourth contractual option on repudiation of the lease, which was exercised in that case: to terminate the lease with notice to the tenant that damages will be claimed for the loss of the benefit of the lease over its unexpired term, while repossessing the leased property.
[72] Highway Properties specifically addressed remedies available to a landlord after a tenant’s repudiation of the lease. It did not, however, change the legal effect of a disclaimer or alter the principle in Re Mussens. To treat a disclaimer as a repudiation for damages purposes is to ignore the fundamental distinctions between surrender and disclaimer on the one hand and repudiation on the other.
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