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May 8, 2008

No Mitigation without Termination

By: Barbara Green

Markets change, tenants come and go, but thirty-five years later, the legal resolution of commercial lease disputes continues to rely on the landmark model devised by Justice Laskin (as he then was) in Highway Properties Ltd. v. Kelley, Douglas, and Company Ltd.

Unfortunately, commercial leases occasionally and unavoidably fall apart. But this fact of industry life doesn’t have to cause legal and financial headaches for commercial property owners. As long as their rights and obligations are clearly understood, landlords should be able to avoid the common pitfalls and receive the appropriate compensation and remedies to which they are entitled. Indeed, in the years since Highway Properties, summary judgments in favour of astute landlords have become more and more common.

In law it can be called many things: abandonment, frustration of contract, repudiation, or default; but to landlords it means only one: no more rent. It is trite law of contract that when a party is denied the benefi t of an agreement by the wrongdoing of another, the law will endeavour to put the wronged party in the position he or she would have been in had the breach never occurred. When a commercial tenant defaults, ensuring that the landlord receives the full contracted amount owed for the entire lease period may seem to be a clear application of this principle. However it is often complicated by the landlord’s duty to mitigate, which refers to the obligation of the wronged party to take steps to minimize or to reduce the losses arising from the wrongful conduct. In colloquial terms, one ought not to be reimbursed for drips from the proverbial leaky barrel when one could easily put a cork in it. The law seeks not to reward such parties at the expense of the wrongdoer when a reasonable effort to mitigate on their own would compensate just as adequately. Applied to abandoned commercial leases, the law has defi ned mitigation as a reasonable effort to seek alternative tenants or sub-tenants ‘in the ordinary course of business.’ In other words, no extraordinary effort need be made. Neither still need new tenants actually be found; as long as efforts have been made, appropriate damages ought to be forthcoming.

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