Landlord Remedies and Duties Following Abandonment: Development from Highway Properties
Notice
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2 issues were left unresolved after Highway Properties: 1) whether a duty to mitigate should be imposed on the landlord; 2) Laskin J. in Highway Properties was unclear about the fourth option for a claim by the landlord: giving notice that the latter would claim damages.
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Not clear: notice in the ordinary K sense (to inform whether accepts repudiation or keep lease alive) or in a particular sense, saying “I will terminate your lease and hold you liable for losing the benefit of the lease over its unexpired term.”
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Later decisions have held that notice is required and that it must be more or less contemporaneous with the termination of the lease.
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The leading case on notice is North Bay TV
North Bay T.V and Audio Ltd v. Nova Electronics Ltd., 1983, ON HC; 552-555– Fourth Category & Notice not requiring contemporaneous
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Facts: 5 year lease – tenant couldn’t make the payments – LL planned to shut down electricity and close premises – tenant removed as many TVs (inventory) as possible – landlord takes this to mean that the tenant is repudiating the lease and changes the locks and shuts the tenant out – no notice given to tenant that LL intended to hold them liable (as in Highway Properties)
Issue: Has notice been given so as to make the lessee liable? (Yes)
Maj (Rutherford J):
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The court finds that notice has been given
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The lessor was entitled to levy distress for unpaid rent against the merchandise in the shop – However, putting new locks forfeited the lease.
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Judge Laskin’s fourth category means that you need notice but notice that a tenant will be held liable for damages need not be perfectly contemporaneous with the taking of possession by the landlord (in this case it was only present in the statement of claim).
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Notice here is starting the proceedings against the tenant (to satisfy #4)
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Retaking possession does not preclude a claim for prospective damages by the landlord.
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The point of compensation is then to place the plaintiff in the situation that he would have been in had the contract been performed.
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It is unclear whether notice in the statement of claim is always sufficient.
Ratio: Notice is necessary but need not be given at the same time as termination (notification is a property requirement).
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When damages are calculated on basis of breach of K, calculation is directed at placing the plaintiff in the same position as he would have been if all the covenants had been performed – arrears of rent up to termination, prospective rent over the unexpired portion of the lease.
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levying distress for unpaid rent against merchandise does not constitute surrender.
Point – this case stands for the idea that there are 2 types of notice: 1 – a letter asking for payment; 2 – you can bring an action (e.g. the statement of claim counts as notice) – therefore the notice does not need to be contemporaneous with the act of accepting the repudiation of the lease…But what is too long, and what does not constitute notification.
-Case was dismissed at COA: Case clearly stands for the proposition that the notice need to be given at the same time as termination. But it is unclear whether notice is always sufficient.
| Mitigation -
Before Highway Properties it was clear that there was no duty to mitigate on the landlord because we are in the realm of property and not contract law
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However, in Highway Properties, Laskin J said that contract law principles could apply to leases so there is uncertainty
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Not imposing a duty to mitigate upon the lessee seems inconsistent with the new contractual treatment of a lease.
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Toronto Housing v. Postal Promotions is the leading case on duty to mitigate in Ontario.
Toronto Housing Co Ltd v. Postal Promotions, 1981, p. 558– Mitigation Duty
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Facts: Landlord is making claims against tenant (PP) in this case. PP terminated the lease and TH re-let the premises for a higher rent than PP was paying – PP is asserting that since it was let on its behalf then it totally mitigates TH’s claim and PP is also entitled to the difference. LL claims for rent that has fallen due.
Issue: Should the increased value on the subsequent lease be considered to mitigate the damages on termination on the original lease? [YES] Is the tenant entitled to the difference? [No]
Maj (Montgomery):
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Tenants are seeking broad interpretation of Highway Property
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This is a situation where a fresh lease was made but it was not agreed what would happen if the rent was higher or lower under the fresh lease.
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PP wants the Court to take a broad approach to Laskin’s statement in Highway Property about leases being contractual and mitigation should therefore apply.
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The landlord is asking for claimed rental payments as they fell due under the lease.
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Apeco v. Windmill: Issue was whether rentals received from a subsequent tenant were in mitigation of damages: Parallel with contracts: Principle that plaintiff cannot recover for any part of its loss which it has successfully avoided by its subsequent action.
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The subsequent transaction with Victor Springs arose out of the consequences of the breach. It therefore, follows that the difference in value of the two leases is to be deducted as a mitigating factor against the landlord’s claim.
Ratio: The rent that the landlord receives can be held to mitigate the damages he can claim for the breach of covenant by a tenant.
COMMENT: tenant has two claims:
1. Court should deduct from rent owed by breaching tenant the extra amount paid by new tenant (adopted)
2. LL re-let on “tenant’s” behalf and tenant in breach wants windfall gains(rejected)
Result:
1. Both tenant and LL have unreasonable positions.
2. LL chooses Highway property option #2, and windfall gains should fall to him. (problematic, b/c option 2 is grounded solely in Property based regime, but the question of mitigation is a contractual basis)
3. Judge takes middle ground – mitigation applies – windfall gains first used to reduce tenants damages, and then accrue to LL. Tenant doesn’t get the benefit of windfall gains in exchange for breaching their contract.
4. CoA upholds the trial decisions.
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Toronto Housing Co v. Postal Promotion, ON CoA; 1982, 562-563– Mitigation
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Facts: Appeal from previous case, Landlord is appealing.
Issue: The appellant’s concerns their right to the increased value of a subsequent lease without the same being applied to the mitigation of damages.
Maj ():
Landlord’s submit that if a landlord elects either the first or second remedy established in Highway, he is under no obligation to mitigate his damages.
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Landlord thinks trial judge erred in interpretation of Apeco.
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Here we do not need to decide whether landlord was under an obligation to mitigate: mitigation did in fact take place.
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The judge in this case said that Highway Properties fully disposed of the issue and the Apeco case was unnecessary.
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The decision by a landlord to mitigate his losses does not limit his choice of remedies – The point is to ensure that the leassor is put in the situation where he would have been had there not been a breach. The LL in this case had been made whole.
Ratio: If the LL mitigates, any damages claimed by the landlord are subtracted from the new rent collected.
Held that contract law applies in this situation despite the SCC saying that it does not
The CA held that the LL mitigated – Piper: based on the principles in Highway properties you arguably have a situation where the LL in this scenario did not mitigate – the court did not follow all of the principles in Highway properties
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CMN – Windmill Place v. Apeco of Canada., 1976, 565-568– Mitigation in a multi unit building; release of fungible space’ K law applies prior to occupancy
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Facts: Tenant entered into an agreement with LL for a portion of warehouse space (before taking possession) – all the spaces were identical – tenant repudiated its agreement to lease industrial space, before it was to come into force. The landlord did its best to try to re-lease the space in difficult market conditions. The Landlord was actually able to re-rent the actual space that was repudiated but was unable to fill the rest of the space
Issue: Could LL recover Damages for re-rented spaces? [YES]
Maj (McKeigan):
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A plaintiff in a contracts case (as this one is) cannot recover for losses he could have avoided but failed to do so unreasonably – e.g. duty to mitigate; and if the plaintiff has successfully mitigated any of the loss, he cannot recover for loss thus avoided.
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If the space to rent is immediately rented, damages are the amount by which the rent in the broken agreement exceeds the new rent. If a LL lost one tenant in a large apartment building, he would suffer no loss if he could immediately lease the vacated space to someone else, provided the rest of his building was not materially vacant.
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However, when the space is part of a vacant complex, re-leasing a small unit does not compensate for an economic loss – The compensation should be for the whole cost of the lease (less a sum to represent the potential for future mitigation). The lessee should be able to predict that under difficult market conditions, the landlord cannot completely mitigate his loss (same as in selling goods). The defaulting party must contemplate that the damages will vary according to the market.
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WP is unlikely to be fully rented in the immediate future – prima facie, the damages should be the present value of the 5 years which the respondent agreed to pay (less amount in mitigation in the hope that the complex may be fully rented by 1980).
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LL couldn’t mitigate his losses until the building was substantially rented
Careful when using this case: An agreement to lease is a contract, here the breach of agreement takes place before possession. Only because it is a multi unit building and on this point there is no distinction between a breached agreement to lease and an abandonment by a tenant for mitigation
Ratio: in a multi unit, mitigation occurs only where the building is largely rented – if not, full future rent owed (minus amount representing the possibility that there will be mitigation in the future).
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Re-cap Regulatory Licenses
Intellectual Property isn’t very property like.
Property is a powerful term that they deploy at different moments, without appealing to CML property doctrine.
Right - legally enforceable, irrevocable
v
Privilege - unenforceable, revocable
Judges draw distinction b/w Rights and privileges, yet CML does not have a robust definition. They are appealing to their shared definition.
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