Reaffirming Landlord Rights: Canada Life Assurance Company v. Aphria Inc.
The Ontario Court of Appeal (“ONCA”) recently upheld a key principle in commercial lease law: landlords who refuse to accept a tenant’s lease repudiation are not obligated to mitigate their losses. This decision in Canada Life Assurance Company v Aphria Inc. reinforces the Supreme Court of Canada ruling in Highway Properties Ltd. v Kelly, Douglas & Co. Ltd., a case that has shaped commercial leasing law for over fifty years.
What Happened?
Aphria Inc., a commercial tenant, signed a ten-year lease for office space in downtown Toronto. Over time, the property changed ownership, and the landlords—Canada Life Assurance Company, LG Investment Management Ltd., and OPTrust Office Inc.—became the new leaseholders. Several years later, Aphria Inc. vacated the premises and issued a notice of repudiation, asserting that the landlords were required to mitigate their damages by re-leasing the space. The landlords rejected the repudiation and maintained that the lease remained in force, requiring Aphria Inc. to continue paying rent.
Lower Court Ruling
The landlords sought summary judgment for unpaid rent totalling $638,171.40, plus interest and potential future rent. The Motion Judge, Callaghan J., ruled in favour of the landlords, citing Highway Properties to affirm that they had no obligation to mitigate losses in this context. However, Callaghan J denied the landlords’ claim for future rent, noting that while they were not required to mitigate, any future recovery would depend on actual leasing outcomes and could not be pre-determined.
Appeal Decision
On appeal, Aphria Inc. argued that modern contract law principles, such as the duty of good faith and efficient breach, warranted a reconsideration of the duty to mitigate in commercial lease disputes. The Court of Appeal, consisting of Justices Pepall, Nordheimer, and Zarnett, rejected this argument, emphasizing that Highway Properties remains a binding precedent. The Court clarified that any changes to this principle must come from either the Supreme Court of Canada or legislative amendments to Ontario’s Commercial Tenancies Act.
Implications for Commercial Leasing
The ruling in Canada Life underscores the long-standing distinction between commercial leases and general contract law. While contract law typically requires parties to take reasonable steps to minimize their losses, commercial landlords who reject a tenant’s repudiation are not bound by this duty. This remains a critical consideration for both landlords and tenants navigating lease disputes, as it directly impacts financial obligations following a lease repudiation.
Key Takeaways
The Canada Life decision confirms that Ontario courts continue to uphold Highway Properties as the governing standard in commercial leasing. Tenants must carefully assess the financial consequences before attempting to repudiate a lease, as landlords may hold them to their contractual obligations. For landlords, this decision reinforces their legal right to enforce a commercial lease without the obligation to seek replacement tenants.
Until the Supreme Court of Canada or the Ontario Legislature intervenes, commercial landlords can rely on this decision to protect their leasing interests. This case serves as a reminder for all parties involved in commercial leasing to seek legal guidance when facing lease disputes to ensure their rights and obligations are clearly understood.
