Ontario Court of Appeal Confirms No Duty to Mitigate Where Commercial Landlord Affirms Lease
On December 9, 2024, the Ontario Court of Appeal released its decision in Canada Life Assurance Company v. Aphria Inc., 2024 ONCA 882, dismissing the tenant’s appeal and confirming that a commercial landlord who rejects a tenant’s repudiation and keeps the lease alive has no duty to mitigate. The decision affirms the longstanding rule from Highway Properties Ltd. v. Kelly, Douglas & Co. and reinforces the stability of commercial leasing law in Ontario.
Background
In 2018, Aphria Inc. entered into a ten-year lease for commercial office space in downtown Toronto. The building was later sold, and the landlords became Canada Life Assurance Company, LG Investment Management, Ltd. as trustee for IG Mackenzie Real Property Fund, and OPTrust Office Inc. In August 2021, Aphria delivered a notice of repudiation and vacated the premises. The landlords refused to accept the repudiation and expressly confirmed that the lease remained in full force and effect. They did not take steps to re-let the space. Rent was paid through November 2021 but ceased thereafter. The landlords commenced an action seeking arrears of rent and judgment for future rent as it came due.
The Tenant’s Position
The tenant advanced two principal arguments:
- it argued that modern contract principles require a commercial landlord to mitigate its damages after repudiation. It invited the courts to revisit the rule in Highway Properties, which allows a landlord to affirm a lease and sue for rent as it becomes due without mitigating;
- the tenant argued that section 19.03 of the lease capped its liability at two years of rent following default.
The Superior Court Decision
On summary judgment, Callaghan J. held that the law in Ontario remains that where a commercial landlord refuses to accept repudiation and elects to keep the lease alive, it has no obligation to mitigate. The court concluded it was bound by Highway Properties and subsequent Ontario appellate authority. The court awarded the landlords $638,171.40 in arrears of rent, plus contractual interest. However, the motion judge declined to grant judgment for all future rent. The court held that while the landlords were entitled to insist on performance, any future claim would need to account for mitigation that might actually occur. In other words, the landlords could sue as rent came due, but a global future award was premature. On the lease interpretation issue, the court held that the two-year cap in section 19.03 applied only where the landlord terminated the lease. Because the landlords elected not to terminate and instead affirmed the lease, the cap did not apply.
The Court of Appeal Decision
The Court of Appeal dismissed the tenant’s appeal in full. On mitigation, the Court confirmed that Highway Properties remains binding authority. Although some of Laskin J.’s discussion in that case was technically obiter, it was authoritative and has been consistently applied in Ontario. The Court emphasized that any change to this principle must come from the Supreme Court of Canada or the Legislature, not from an intermediate appellate court. The Court reaffirmed that a landlord facing repudiation has mutually exclusive options. If the landlord elects to do nothing and insist on performance, the lease continues and there is no duty to mitigate.
On the lease interpretation issue, the Court of Appeal applied the deferential standard of review for contractual interpretation. It agreed that section 19.03, read in context and together with the remainder of the lease, limited damages only where the landlord terminated the lease. Since there was no termination, the two-year limitation did not apply.
Key Takeaways
This decision confirms several important principles for commercial leasing in Ontario:
- A commercial landlord who rejects repudiation and affirms the lease may sue for rent as it becomes due without a duty to mitigate.
- The landlord’s election matters. If the lease is kept alive, traditional mitigation principles applicable to terminated contracts do not apply.
- A rent or damages cap tied to termination will not assist a tenant where the landlord elects not to terminate and instead insists on performance.
The Court of Appeal has made clear that any departure from this framework must come from the Supreme Court of Canada or legislative reform.
For commercial landlords and tenants alike, the decision reinforces predictability in lease enforcement and underscores the significance of election following repudiation.
