Street v. Mountford (1985) [H.L.] – Court held that you have to look to the substance of the agreement and not the form – just because it is called a license is not determinative. “The only intention which is relevant is the intention demonstrated by the agreement to grant exclusive possession for a term at a rent”.
Rule – lease is a) exclusive possession b) at a fixed term
Read Marketing v. Minister of transportation(1995) p. 529 (B.C. Expropriation Compensation Board)
Facts: another gas station case, land is rented to oil company who in turn licence the land to Read (Plaintiff). BC expropriates land and compensates land owner and tenant (Oil Company). Plaintiff is only entitled to compensation if he has “an estate, interest, right, or title in or on the land”. He wants to be found as a tenant.
Holding: it’s a LICENCE because 1) the word “lease” never mentioned 2) right reserved to change fees at any time (**arbitrariness: leases are meant to sever the tie between landlord and tenant), occupancy costs, entitlement to occupy (not possession), not rent.
Neda Rahimi v. Regional Assessment Commissioner (1997), p. 530, Unreported
Holding: CitesStreet v. Mountford: “if the agreement confers on the occupier exclusive possession, this is prima facia a grant of an interest in land”. Exclusive possession is enough for a lease regardless of the language used.
The Independence of Covenants [531]
Covenants: terms in the lease, in addition to the actual grant, by which parties undertake further duties (e.g. trim the hedge, pay rent). In Falleson v. Spruce Creek Mining, “a lessor cannot re-enter for mere breach of convenant.”
Covenants are independent (Goldhar): a failure to perform does not give rise to a right to terminate the lease
One exception would be if the lease explicitly specified that is was conditional on the performance of a particular covenant- breach of the obligation would enable the landlord to end it.
This (and all) property rules kick in only upon possession.
From Property to Contract? The Law Relating to Abandonment [532]
Introduction
A leasehold relationship can be ended by “surrender”: the yielding of the estate to a person with a higher estate - cannot be unilateral.
Abandonment: unilateral quitting of the premises. It can become surrender with the landlord’s approval/acceptance. What are the effects of the surrender? Lease is treated as absolutely at an end with no future obligations on either side.
In contract law, the landlord would have the duty to mitigate damages in the case of abandonment and could claim damage for breach.
Under the law of estates (n.b. a lease is an estate), the situation is different. The tenant remains liable for the whole term, in spite of abandonment. The landlord need not mitigate damages, though he must avoid retaking possession of the property, or he will be implicitly approving the abandonment.
The landlord cannot sue until the rent actually becomes due.
If contract principles apply, LL has duty to mitigate (LL would have responsibility to mitigate loses and tenant has to pay less money)
If property principles apply, LL has no duty to mitigate (tenant would be liable to fulfill the entire lease and LL would only be liable after that period as set out in the lease finished – you could only collect after each month that the $ was not paid, hassle to collect the $, chances of full recovery is unlikely if tenant leaves – tenant may be impecunious).
Goldhar v. Universal Sections and Moundlings, 1962, ON CoA; p. 534 – Property law governs Leasehold; Surrender by Operation of Law; Steps landlord can take to protect interests. Overrules by Highway
Facts: Tenant (USM) is trying to sublet the unit but could not find anyone to take it over. Then USM tried to argue that the landlord (G) violated the lease by breaking a covenant and refused to pay the rent. Tenant moves out and declare the lease to be null and void. Months later G rented the unit to a new tenant for less than USM lease. G is seeking recovery money for months the unit was empty and the difference between the rent the new tenant is paying and the higher rent that USM refused to pay. The trial judge rejected the claim that G breached the lease and awarded $14k using law of Contract. (LL did logical thing by trying to rent out premises to mitigate its losses)
Issue: Did G break a covenant on the lease? [NO] Is G entitled to the full difference between old and new rents for the years remaining in USM’s original lease? [No. Recovery is only granted for the period from the time when the premises were vacated by the defendant until the time when they were re-let.]
Maj (McGillivray, J.A.): Decides case using Principles of Property law and not Contract law.
In leases, covenants are assumed to be independent – breaking a covenant doesn’t break the lease.
For the lease to end there must be surrender and acceptance of surrender.
Valid surrender may take place by act of the parties or by operation of the law: a surrender by operation of law occurs if the party’s behaviour is inconsistent with the continuation of the lease.
Surrender by Operation of Law takes place if the landlord:
1) by implication: resumes control over the premises (directly or indirectly) through “unequivocal acts”: we are therefore looking to the intention of the landlord; (ie creating the situation where the leasee could not return) OR
2) new lease to a third party before the expiry of the term: intention is less important than the facts There is an exception: if the landlord can be held to have concluded the new lease on behalf of the original lessee, then he has not ended the original lease.
In this case, G did not give notice that she was acting for the lessee.
With regard to recovery the TJ was wrong to apply contract law principles (e.g. duty to mitigate) – the law of property only allows recovery for the unpaid rent during the time the premises remained vacant unless the landlord serves notice that he is letting the premises on behalf of the tenant – therefore in this case the recovery is substantially less than previously awarded.
Rule – Once Leaseholder occupies the property contract principles do not apply to property with respect to damages and the duty to mitigate – The landlord cannot get damages for the difference between the old rent and the new rent as you would be able to do in contract – in property law the landlord can only get damages for the time that the property remains vacant – as you re-rent the property you lose the right to additional damages
The reasoning is based on the principle that a tenant has to have exclusive possession – as soon as the landlord re-rents the property then he is making it impossible for the tenant to have exclusive possession and is accepting that the relationship is over as the tenant desires
Landlord can protect Interests in Leasehold by:
maintaining the premises vacant till the expiry of the lease to recover rent for that period; or,
by serving upon the defendant proper notice that she was re-letting on its behalf, to establish a claim for any loss suffered by the sub-letting.
Ratio: Once a Leasehold is occupied the law of Property applies and leasehold can end with surrender by operation of law. Landlord can takes steps to protect her interests.
Comments:
Highway Properties Ltd. v. Kelley, Douglas, 1971, SCC p. 541– The Four options given to a landlord when a tenant repudiates a lease; Contract & property law
Facts: A supermarket had leased space in a mall with a covenant on the lease for the tenant to continue running a supermarket for the term of the lease – When the mall did not prosper the tenant closed down the supermarket and left, in spite of the terms of its lease – After receiving a clear repudiation from the tenant, the mall informed (notice) the tenant that it would retake possession of the leased property and that it was holding the lessee responsible for all the losses it would be incurring – the mall eventually re-let the premises for less and then tried to sue for compensation.
Issue: Is the landlord entitled to claim damages for the difference between old and new rent? (Yes, appeal allowed)
Maj (Laskin):
Issue raised squarely in this appeal is the correctness of the decision of the court of appeal in Goldhar.
Holding in lower courts was that principles enunciated in Goldharwere applicable: The lease and its covenants ceased to exist with the surrender and that the appellant could recover only for breaches occurring to the date of surrender.
4 Options of Landlord:
Do nothing and insist on performance and sue for damages to the end of the term.
Terminate the lease, retaining the right to sue for rent accrued or for damages to the date of termination.
Advise the client that he proposes to re-let the premise on the tenant’s account and then enter into possession on that basis.
4th Element: That the landlord may elect to terminate the lease but with notice to the defaulting tenant that damages will be claimed on the footing of a present recovery of damages for losing the benefit of the lease over its unexpired term.
Laskin wants to analyze the underpinnings of the third course because they have a decided bearing on whether the additional step proposed by counsel in this case can be taken.
Compares repudiation of a contract to surrender. Surrender results when upon repudiation of a lease, the innocent party does an act inconsistent with the continued existence of that lease.
-In Goldhar case, upon repudiation of the lease, the landlord re-let the premises. The further consequence of this was said to be not only the termination of the estate in the land but also the obliteration of all the terms in the document of the lease. (So basically once the landlord started renting out to someone else they no longer had any relationship with the previous tenant.
Mitigation is involved where there is a re-letting on the tenant’s account.
Limiting principle: Walls v. Atcheson [546]: A landlord upon abandonment or repudiation of a lease by his tenant may qualify his re-entry to make it clear that he is not foregoing his right to insist on continuation of the tenant’s obligation to pay rent.
Buchanan v. Byrnes: (Australia) Landlord was entitled to claim damages over the unexpired term of the lease without surrender. Laskin thinks this approach commends itself by cutting through artificial barriers to relief that have resulted from over extension of the doctrine of surrender in relation to rent.
Does not think it is sensible to pretend that a commercial lease is simply a conveyance and not also a contract.
Ratio:The landlord can claim damages for lost rent regardless of whether he re-rents the property as long as he gives notice to the tenant that he intends to make this claim.
Comments:
LL also concerned about the appearance and future of the mall, as it is starting to look like a ghost town.
Difference b/w option 3 & 4 is that in option 3 the tenant gets to keep windfalls from higher rent, whereas in option 4 the landlord keeps the extra cash from a subsequent higher lease.
