Tenant’s Repudiation of Commercial Lease.

Does the Landlord Have a Duty to Mitigate?

By Tonya Mah

A Court of Appeal’s decision released in December, 2024 confirms that a landlord does not have a duty to mitigate when a tenant elects to repudiate a commercial lease.  That is, a landlord can refuse to accept the repudiation and insist the tenant continues to perform the terms of the commercial lease and sue the tenant for rent/damages.

In Canada Life Assurance Company et al. v. Aphria Inc., 2023 ONSC 6912, the Court of Appeal followed the  Highway Properties Ltd. v. Kelly, Douglas and Co. Ltd., 1971 CanLII 123 (SCC), [1971] S.C.R. 562, decision (“Highway Decision”) that commercial landlords do not have a duty to mitigate when the tenant repudiates the commercial lease. 

Facts- the tenant and landlord entered into a 10 year commercial lease, a few years later the tenant served a notice of repudiation on the landlord.  The landlord responded that lease remained in effect, reminded the tenant of its obligations under the lease and did not accept the tenant’s repudiation of the lease.  The tenant replied that the landlord had a duty to mitigate its damages.  The landlord did not take any steps to re-let the premises, rather the landlord reminded the tenant of its ability to sub-lease the premises.  The landlord sued the tenant for rent owing. The tenant claimed that the landlord failed to mitigate its damages and among other things, argued that the Supreme Court has recognized, good faith as an organizing principle of contract law and good faith required the landlord to mitigate its damages.

The motion Judge held that he was bound by the Highway Decision and the landlord did not have a duty to mitigate.  The motion Judge was bound by the Highway Decision in finding 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”.

In this judgement, the Judge separated rent that was due and owing vs future rent.  The landlord was entitled to all past rent owing, but held that the landlord still had an obligation to account for any mitigation that might happen if the premises, or part of it, is re-let.  If re-let, the tenant would not be responsible for the full amount of rent, only the shortfall in rent collected, if any.

The Court of Appeal upheld the motion judge’s decision and stated that it is not for the Court to change the law regarding a commercial landlord’s duty to mitigate, rather it would need to be the Supreme Court or the Legislature to amend the Commercial Tenancies Act.