The fourth and final bulletin in this series on Commercial Leasing & Landlord Remedies highlights another key takeaway from the Highway Properties case – a landlord's duty to mitigate.
Historically, a landlord's remedies were limited when a lease was terminated. Upon termination for a tenant's default, the lease and its covenants ceased to exist and the landlord could recover only for breaches occurring to the date of surrender. However, Highway Properties confirmed that a lease is more than just a construct of property law; it is also a contract and accordingly, the common law rules governing contracts also apply when a lease is terminated.
Using this analysis, the court found that a landlord can sue for damages in respect of the unexpired term of the lease, provided that the landlord gives notice of its intention to do so. Importantly, where a landlord terminates and reserves the right to sue for damages for the unexpired term of the lease, the landlord also has a duty to mitigate its losses. This duty to mitigate may affect the calculation of damages owed.
The duty to mitigate does not import a standard of perfection, but it does require that commercially reasonable steps are taken to reduce the landlord's losses.
While many Canadian cases continue to follow Highway Properties, some commentators suggest that the issue needs to be revisited.
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