Complications in commercial real estate matters can derail business operations. Disputes may arise, including in relation to commercial leases. For example, where a tenant abandons the lease or does not pay rent, or the landlord evicts the tenant or does not complete property repairs.
This article looks at the recent decision of the Court of Appeal for British Columbia in Anthem Crestpoint Tillicum Holdings Ltd. v. Hudson’s Bay Company ULC Compagnie de la Baie D’Hudson SRI. In this case, a tenant sought to defend itself against the landlord’s claim for unpaid rent by arguing that the landlord had a duty to mitigate its loss or re-let the property to mitigate the tenant’s loss.
Hudson’s Bay Company attempted to assign lease after closing store
In January 2009, Hudson’s Bay Company (the tenant) entered a lease with the landlord in the Tillicum Centre shopping mall in Victoria. The term of the lease runs from 2009 to 2024. The tenant operated a “Home Outfitters” store at the shopping mall, until it closed the store in July 2019.
The lease provided the tenant with the right to assign the lease or sublet the store with the prior approval of the landlord. This approval was not to be unreasonably withheld. The lease also set out a list of prohibited uses, which included any business involving the sale of second-hand goods.
In November 2019, the tenant sought approval to assign the lease to Value Village. The landlord refused to consent, noting that the change of use would breach the landlord’s obligations under the terms of two leases with other tenants.
HBC stopped paying rent, claiming the landlord should have assigned lease or re-let store
As a result of the COVID-19 pandemic, the tenant stopped paying rent in April 2020. In July, the landlord commenced proceedings claiming that the tenant was in breach of contract for failure to pay the rent.
The tenant argued that it should not have to pay rent because the landlord unreasonably refused to assign the lease to Value Village and breached a duty to re-let the premises.
What is repudiation of a contract?
If a party refuses to perform its obligations under a contract, regardless of when performance is supposed to take place, the party repudiates the agreement.
In this circumstance, the other party can elect to either accept the repudiation (by communicating this to the repudiating party within a reasonable time) and bring the contract to an end, or decline to accept it and keep the contract alive.
In the context of a commercial lease, if a landlord commits a breach of a term of the lease that is so fundamental as to amount to a repudiation of the lease, which may include unreasonably withholding consent to an assignment of a lease, the tenant can either elect to:
- disregard the repudiation and keep the lease alive; or
- accept the repudiation and terminate the lease, thereby relieving it of the obligation to continue paying rent.
HBC did not treat the landlord’s failure to consent as a repudiation and accept it
Justice of Appeal Hunter explained that the tenant did not communicate an election to treat the landlord’s failure to consent as a repudiation and accept it. Instead, it continued to pay rent until April 2020, thereby affirming the lease.
His Honour decided that there was no need for further inquiries to determine the purpose of the landlord’s refusal to approve the assignment. Even if it could be characterized as a repudiation of the lease, the tenant did not accept it within a reasonable time. As a result, the lease was still in effect and the tenant continues to be obligated to pay rent.
Landlord had no duty to mitigate
There is a principle that a plaintiff cannot recover damages that could have been avoided by taking reasonable steps available at the time.
Justice of Appeal Hunter explained that had the landlord elected to terminate the lease and sue for damages, it would have had an obligation to mitigate its loss. His Honour said that, because the landlord elected to disregard the tenant’s repudiation of the lease and keep it in effect, it was under no obligation to mitigate its loss.
Landlord did not have to pursue the possibility of re-letting the premises
The tenant also argued that as a matter of good faith contractual performance, the landlord had an obligation to deal with inquiries from prospective tenants and advise it of any expressions of interest. The tenant argued that the landlord had to take active steps to assist them in locating a replacement tenant.
Justice of Appeal Hunter explained that the landlord could have elected to resume possession and re-let the premises, but was also entitled to do nothing and insist on performance of the lease. It is true that discretionary powers, like the ability to approve an assignment, must be exercised in good faith. However, the landlord’s decision to affirm the lease did not engage a discretionary power. In the absence of a provision in the lease to the contrary, failure to re-let was not a defence to the claim for unpaid rent.
The Court of Appeal granted judgment for the landlord in the amount of unpaid rent and said that it could bring further proceedings to claim rent from time to time as it became due under the lease.
Contact Meridian Law Group in Vancouver for Representation in Real Estate Disputes
At Meridian Law Group, we provide skilled representation to commercial landlords and tenants in a variety of lease disputes. Our real estate litigators strive to understand clients’ needs and develop focused legal strategies to quell their concerns. We advocate for clients’ rights and take swift, decisive legal action to protect their legal and financial interests under real estate agreements. We will explore all opportunities for early settlement of a dispute while always positioning you for success in any dispute resolution process, including negotiation, meditation, arbitration, or litigation.
Located in downtown Vancouver, Meridian Law Group proudly represents clients throughout West Vancouver, North Vancouver, Coquitlam, Penticton, Kelowna, Richmond, New Westminster, Burnaby, Surrey, Langley, and White Rock. To arrange a confidential consultation for your real estate dispute, please call 604-687-2277 or reach out online.