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Written for the Six Minute Commercial Leasing Lawyer Program

Landlord Remedies

Sarah J. Turney*

Overview

This paper explores the fundamental principles that every leasing lawyer should know Highway Properties Ltd. v Kelly, Douglas and Co. Ltd. Highway Properties Part II provides an update on case law from the past year, including a summary of the Court of Pickering Square v. Trillium College Inc. 1, which, at the lower court level, provided an important analysis of the application of the Real Property Limitations Act, R.S.O.

Properties

running of the applicable limitation period. Part I - Highway Properties Ltd. v Kelly, Douglas and Co. Ltd. In 1971, Canadian commercial real estate law was transformed by the landmark Supreme Court of Canada Highway Properties decision. In Highway Properties, Justice Bora Laskin

affirmed that a fourth remedy was available for landlords when tenants repudiate a lease.

According to Justice Laskin, landlords have the option to terminate the lease on notice to the surrendering tenant while still reserving the ability to claim for prospective damages. One of the elements of these prospective damages is unpaid future rent for the unexpired term of the lease. Historically, remedies for breach of a commercial lease in Canada were governed by an Ontario Court of Appeal decision, Goldhar v Universal Sections and Mouldings Ltd.3 Goldharndlords only had three options available to recover from defaulting

tenants. First, a landlord could do nothing to alter the landlord and tenant relationship, and elect

to sue the tenant for rent or damages while the lease continues to remain in force. Second, the landlord could terminate the lease, retaining the right to sue for rent due until such termination,

or for damages accrued up to the date of termination for previous breaches of a covenant.

Finally, the landlord could give notice to the tenant that he wishes to re-let the premises on the Highway Properties raised the issue of whether breach of a commercial lease should be

governed under property law or contract law principles. Unlike in contract law, where a

repudiated contract entitles the innocent party to claim for prospective damages, the three

1 Pickering

2 Generally, sections 4 or 17 of the RPLA.

* Sarah J. Turney is a partner at Fasken Martineau DuMoulin LLP. Thank you to Niusha Arbabi (student-

at-law) and Jennifer Parker (student-at-law) for their outstanding work in developing this paper.

3 Goldhar v Universal Sections and Mouldings Ltd., 1962 CanLII 116 (ON CA), [Goldhar].

traditional remedies were governed by property law principles; as long as the lease remains in

effect, the landlord has not yet suffered any loss until rent has accrued and is in arrears.

Therefore, a landlord was not entitled to sue a breaching tenant for prospective damages, such as the remainder of the rent left under an unexpired lease. Further, should the lease be terminated prior to the expiry date, no obligation technically continues to exist as the lease was terminated and the landlord then has a right to re-possess the property. Justice Laskin grounded his decision in the idea that a commercial lease is not simply a conve redress repudiation of covenants should be available to landlords, despite the covenants being associated with an estate in land. As Justice Laskin stated:

I do not think that it must follow that an election to terminate the estate as a result of the

repudiation of a lease should inevitably mean an end to all covenants therein to the point of denying prospective remedial relief in damages.4

Facts:

In Highway Properties, the dispute between the Landlord and Tenant arose from a 1960 lease, under which the Landlord leased a retail location in its shopping centre to the Tenant. Under the fifteen year lease, the Tenant was to use the premises for a grocery store and super market. At issue under the lease was a clause wherein the Tenant covenanted to carry on its business on the premises continuously. Within the year, the Tenant sub-leased the premises to a supermarket sub-tenant. However, by the following year, the shopping centre did not prosper and the sub-tenant closed its business. The Landlord received an assurance from the Tenant in a letter that it would endeavour to sublet its leasehold to fulfill its obligation under the lease for continuous use. However, the Tenant was unsuccessful in finding a new sub-tenant. In May 1963, the Landlord commenced an action asking for a declaration that the lease was binding upon the Tenant, for a decree of specific performance, for a mandatory order and an injunction, as well as for damages. In September 1963, the Tenant brought a counterclaim stating that it repudiated the lease. Following this claimed repudiation, the Landlord advised the Tenant that it would take possession of the premises and attempt to re-let the premises for the unexpired term of the lease. At trial, the trial judge applied the law from the Goldhar case which enunciated that the lease and its covenants ceased to exist with the surrender. Therefore, the Landlord could only recover for the breaches that occurred up to the date of surrender.

Issue:

The issue in this case was whether the Tenant could be held liable for damages suffered by the Landlord as a result of its repudiation, including future rent due after the Landlord retook possession of the premises.

4 Highway Properties Ltd. v Kelly, Douglas and Co. Ltd. [1971] SCR 562 at p. 573, [Highway Properties].

Analysis:

In his decision, Justice Laskin noted that Canadian courts have long recognized the doctrine of anticipatory breach to a contract, and he believed that the court should consider its application to a commercial lease. According to Justic in the fact that instalments of rent are payable for future periods. As such, repudiation of the lease raised the question of whether an immediate remedy covering the loss of such rent and of other advantages extending over the unexpired term of the lease may be pursued, despite the estate in the land being terminated. Justice Laskin noted that under regular contract law, where repudiation occurs, the innocent party has an election to terminate the contract and sue for damages for prospective loss as well as for accrued loss. However, following the doctrine applied in Goldhar repudiation of a lease, the landlord was allowed to re-let the premises but was barred from claiming for prospective losses such as unpaid future rent. The court in Goldhar grounded their

decision in property law principles, holding that although the lease contained contractual

provisions, the lease operated to convey possessory title. Once the landlord reclaimed the

property, there was not only a termination of the estate in the land but also the elimination of all the terms in the document of the lease which granted possessory title. Justice Laskin recognized that Canadian case law has given standing to a limitation on

the operation of surrender, if the landlord, before repossessing, notifies the defaulting tenant that

the landlord is re-possessing with a view to re- was given in the Goldhar case and while Laskin agreed that the letter in the case at hand was not

sufficiently explicit to that end, he believed that the repossession and re-letting was on the

same time mitigated the liability of unpaid rent. Laskin briefly recognized that under present involved where there is a re-5 Justice Laskin then discussed a 1906 High Court of Australia case, Buchanan v Byrnes6

Buchanan

Buchanan, the lease similarly included a covenant by the tenant to carry on the business for which the lease was given, for the full term of the tenancy. In that case, the High Court held that the landlord was entitled to claim damages over the unexpired term of the lease notwithstanding a surrender by the tenant. Speaking on the case, Laskin held: The approach of the High court of Australia commends itself to me, cutting through, as it does,

artificial barriers to relief that have resulted from overextension of the doctrine of surrender in its

at, by electing to terminate, the landlord has limited the damages that he may then claim to the same scale that would result if he had elected to keep the lease alive.7

5 Supra 2, at p. 572.

6 Buchanan v Byrnes (1906), 3 CLR 704.

7 Supra 2, at p. 575-576.

Justice Laskin also noted that this is apparently the majority American view as well,

lending authority to the view that when a lessee abandons a lease, in accordance with the

doctrine of anticipatory breach, the lessor may sue for all of its damages without waiting until the end of the term.8 Highway Properties changed the landscape of Canadian commercial real estate law by importing contractual legal principles into property law issues. Justice Laskin affirmed that a fourth remedy allowing landlords to sue for prospective damages while also re-possessing their leased property from a repudiating tenant was available to landlords. Prior to Highway

Properties

imports a duty of mitigation by the landlord, in accordance with contractual law principles, when there is a re-

Part II Case Law Update

Penretail Management Ltd. v 2380462 Ontario Inc.9

In January 2016, the Ontario ONSC

lease agreement between Penretail Management Ltd., as landlord, and 2380462 Ontario Inc.

Bolton Health-day fixturing period, during which

Bolton Health was to commence construction work in the unit and, at the end of construction and the fixturing period, commence business operations and begin paying rent.10 Bolton Health took no steps to start or finish construction work in the unit and did not commence business or pay rent. 2380460 Ontario Inc., Erin Mills Medical Centre Inc. and Gary Cardoso (collectively with Defendantsdemnity agreements in favour of the landlord.11 There was no dispute that Bolton Health had breached the terms of the lease. The landlord brought a motion for summary judgment against the Defendants for damages owing under the

lease.12 The ONSC found for Penretail on the basis that that there was no genuine issue

requiring trial and that the landlord had given proper notice that it would be terminating the lease and seeking damages.13 The landlord was awarded $567,610.60 in damages. 14 Northridge Property Management Inc. v Champion Products Corp.15 In April 2016, the ONSC heard a case involving Northridge Management Inc. a property management company, as landlord, and Champion Products Corp., a cleaning supply and party supply company, as tenant.16 In 2011, the tenant had signed an offer to lease certain premises

8 Ibid, at p. 576.

9 2016 ONSC 600. [Penretail]

10 Penretail, at paras 1-3.

11 Ibid., at para 2.

12 Ibid., at para 4.

13 Ibid., at para 26.

14 Ibid., at para 41.

15 2016 ONSC 2715. [Northridge]

16 Northridge, at para 1.

from the landlord. The tenant moved into the property in November 2011 and vacated the premises later that same month. The landlord sought damages for breach of contract, as the term of the lease was five years.17 The tenant argued that there was no binding agreement, or in the alternative that there was fundamental breach of the agreement.18 The tenant claimed that the landlord had failed to ensure that the property was fit for the operation of their business.19 The ONSC considered the discussion leading up to the offer to lease and the actual documentation of such discussions and found that although the discussion leading up to the offer was not clear, the offer to lease was comprehensive. The offer to lease contained the term, a description of the premises, the rent, name of the parties, the commencement date, an arbitration tenant was to execute. Accordingly, the offer to lease was held to form a complete agreement. The court also considered the deficiencies the tenant had complained of. The offer to lease e scope of work to be completed by the landlord.20

complaints were in the form of an email and there was evidence that these concerns were

addressed prior to Champion moving out. The issues raised by Champion at trial had not been raised previously and were dismissed as a result.21 $233,146.30, less any rebate for property taxes that the landlord was entitled to with interest calculated at a rate of 12 percent per annum, compounded monthly.22 The landlord had mitigated its losses and re-let the majority of the premises.23 The court relied on Highway Properties in determining that the landlord was correct in its calculation of damages, namely that damages included the present value of the unpaid future rent for the unexpired period, less the actual rental value received through mitigation.24

Boyce v Labelle25

Boyce v Labelle is a motion for summary judgement in respect of a claim for rental arrears and prospective losses during the unexpired portion of a repudiated lease.26 The landlord claimed that the tenant wrongfully repudiated the lease before the end of the term.27 The tenant

claimed that there was inadequate parking for her customers, which, she submitted, was a

material breach of the lease.28

17 Ibid., at para 2.

18 Ibid., at para 3.

19 Ibid., at para 41.

20 Ibid., at para 34.

21 Ibid., at para 49.

22 Ibid., at para 100.

23 Ibid., at para 79.

24 Ibid., at para 81.

25 2016 ONSC 3503. [Boyce]

26 Boyce, at para 1.

27 Ibid., at para 1.

28 Ibid.

The ONSC found that the tenant was not justified in repudiating the lease.29 The landlord had terminated the lease on notice to the tenant that it would be claiming damages for rent arrears and the lost rent arising as a result of the repudiation of the lease. The ONSC held that this notice was sufficient to meet the requirements of Highway Properties.30 The motion was granted in part and the tenant was ordered to pay $22,957.46, representing rent arrears.31 The claim for lost future rent was ordered to proceed to a summary trial.32

Stearman v Powers33

Stearman v. Powers is a case from British Columbia. Randall Stearman, as landlord, and Penny Faith Powers operating as Walkabout Casual Wear, as tenant, had entered into a five-year lease.34 The tenant operated a retail clothing business and had repeatedly complained about a strong odour in the unit that affected her ability to run her business.35 Approximately one year after the lease was signed, the tenant stopped paying rent and vacated the premises. The trial provide quiet enjoyment and awarded the tenant $18,861.60 in damages.36 The British Columbia

Court oBCCA

could not prove any loss of sales or profits due to the odour. Additionally, the BCCA noted that the tenant had made no effort to determine the source of the odour.37

In BCSCHighway

Properties decision. It noted that the tenant returned the keys to the landlord, who then used the keys to show the premises to prospective tenants, and later to repair plumbing, the BCSC held 38
The BCSC found that the landlord had not provided clear notice of his intent to re-let the property as an agent for the tenant nor had he insisted on the tenant continuing to pay rent for the

unexpired term of the lease. Accordingly, he had exercised the second option in Highway

Properties thereby retaining merely the right to claim for rent accrued to the date of termination of the lease.39 The landlord the rent owing giving rise to damages of $62.28.40

29 Ibid., at para 6.

30Ibid., at paras 9-10.

31 Ibid., at 7.

32 Ibid., at para 13.

33 2016 BCSC 263. [Stearman]

34 Stearman, at para 1.

35 Ibid.

36 Ibid., at para 5.

37 Ibid., at para 6.

38 Ibid., at paras 89-90.

39 Ibid., at paras 40-42.

40 Ibid., at paras 93-94.

M. Thompson Holdings Ltd. v Haztech Fire and Safety Services41 SKQB summary judgement motion concerning the breach of a ten-year lease between M. Thompson Holdings Ltd., as landlord, and Haztech Fire and Safety Services Inc., as tenant.42 The tenant advised the landlord that it would be breaching the lease. The landlord responded with a formal demand for outstanding rental arrears. At issue in the action was the calculation of damages arising from the breach.43 The tenant asserted that the landlord had failed to take all reasonable steps to mitigate its loss, even though the landlord had successfully re-let 67.93 percent of the that its landlord had refused certain purchase offers and declined to lease the property to certain tenants.44 The SKQB allowed the application in part, but found that the tenant had not established that the landlord had failed to mitigate its damages. The assessment of damages for future rent owed past November 30, 2015 was referred to court.45

Pickering Square v. Trillium College Inc.

Pickering Square v. Trillium College Inc. contains one of the most comprehensive discussions of the application of the RPLA in recent history. Trillium College Inc. (the

Tenant quotesdbs_dbs29.pdfusesText_35

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