It happens every day. A commercial tenant’s business fails, and they abandon the property midway through a lease. In this situation, a landlord is not obliged to find a new tenant to mitigate their damages.
Ontario courts have adopted this principle since 1971, when Supreme Court of Canada recited a landlord’s options, in Highway Properties v Kelly, Douglas & Co. [1971] SCR 562.
While not a decisive issue in that case, Justice Laskin stated a landlord’s three basic options. A landlord need not accept a tenant’s repudiation, but may affirm and insist upon their agreement and sue for the full term’s value. Alternatively, a landlord can terminate and sue for arrears to date and other incidentals, or sublease the property while affirming the original lease (in accordance with its terms).
Landlords should beware that this may soon change in 2026 when the Supreme Court hears an appeal from Canada Life Assurance Company et al. v Aphria Inc., 2024 ONCA 882.
In Aphria, a cannabis company gave notice of repudiation and vacated its downtown Toronto premises, providing the landlord with a list of interested potential replacements. The landlord elected to affirm the lease and pursue very substantial damages for the balance of the lease term. The landlord held a guarantee from the tenant’s parent company, and this decision likely made good commercial sense.
The tenant made legal and policy arguments which failed at Superior Court and at the Court of Appeal. Among them were that:
- recognizing a duty to mitigate promotes economic efficiency, as in other commercial contexts (the law should protect innocent parties, but also motivate the productive use of resources);
- newer case law made the situation for commercial tenancies exceptional, and inconsistent with general principles of contract law; and
- Justice Laskin’s remarks in Highway Properties were obiter and not strictly binding law (the premises in that case had already been re-let).
The Court of Appeal acknowledged the rationale for mitigation, that is “based on fairness and common sense,” but affirmed the trial judge’s decision that, even if Justice Laskin’s 1971 comments were not strictly stare decisis, they have been treated as, and become so in Ontario courts since then. As such, they held, it was “not for this court to change this law but for the Supreme Court or the Legislature to do so.”