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Incremental Change: After 50 years, the Supreme Court is Primed to Reconsider Commercial Landlords’ Remedies

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July 22, 2025Blog Post

Overview

The Supreme Court of Canada (“Supreme Court”) is poised to consider whether commercial landlords have a duty to mitigate their losses following a tenant’s breach. This comes after granting leave to appeal the Court of Appeal for Ontario’s decision in Canada Life Assurance Company v Aphria Inc., 2024 ONCA 882 (“Aphria”).

In Aphria, a commercial tenant attempted to unilaterally terminate a ten-year lease that it no longer needed by serving a notice and vacating the premises. The landlord refused the termination and sued the tenant for rental arrears, and a judgment for future rents as they come due under the lease. The landlord took no steps to find a new tenant.

The tenant argued that both law and policy have developed to a point where commercial landlords should have a duty to mitigate losses when a tenant communicates that it no longer wishes to be bound by a lease (known as “repudiation”). While expressing sympathy for this argument, the motions judge found in favour of the landlord on the basis of the longstanding rule that commercial landlords have no duty to mitigate losses if they insist on the performance of a repudiated lease.^[1]

On appeal, the tenant argued that the law should evolve to recognize a duty to mitigate for commercial landlords. The Court of Appeal for Ontario said that it too was bound by precedent.^[2]

By granting leave, the Supreme Court may be signaling an intention to revisit the remedies available to commercial landlords. While the Supreme Court’s final determination remains to be seen, recent developments in contract law shed some light on where we could be headed.

**Where we started: Highway Properties (1971)**

In Highway Properties v Kelly, Douglas & Co., [1971] S.C.R. 562 (“Highway Properties”), the Supreme Court held that a lease must be assessed in light of the law of contract. The Court said the law at that time recognized three options for a landlord when a tenant repudiates a lease:^[3]

insist on performance of the lease and sue for rent as it comes due;
terminate the lease and sue for unpaid rent to the date of termination; or
keep the lease in force and sublease it on the tenant’s behalf.

Justice Laskin went on to recognize a fourth option: a landlord may terminate the lease and recover expectation damages for the unexpired term (a remedy typically reserved for contracts).^[4]

Today, Highway Properties is still the leading case regarding a commercial landlord’s options. This includes the first option: do nothing but insist on rent when it comes due. For more than 50 years, courts have confirmed that landlords have no duty to mitigate potential losses when the landlord chooses to maintain the lease.^[5]

But much has changed in the law of contract during that time.

Evolution of contract Law since Highway Properties

While no court has directly departed from Highway Properties, recent decisions call into question the traditional notion that a landlord can insist on performance with no duty to mitigate.

1996: the Supreme Court held that specific performance—i.e. insisting on performing the terms of a contract after one party repudiates—is no longer the default remedy in property disputes. Instead, it is reserved for unique properties for which a substitute is not readily available.^[6]
2012: the Supreme Court confirmed that an innocent party to a breach of contract cannot refuse to mitigate solely on the basis that they intend to seek specific performance.^[7] Unless a party can show a substantial and legitimate interest in specific performance, damages are the default remedy.^[8]
2014: the Supreme Court recognized that the duty of good faith is an organizing principle of contract law. It requires parties to have appropriate regard to the legitimate contractual interests of the other party and to exercise their rights under the contract honestly and reasonably and not capriciously or arbitrarily.^[9] This does not, however, require a party to act against their own self-interest.
2021: the Supreme Court extended the duty of good faith to exercises of contractual discretion. Parties must exercise their discretion in a manner consistent with the purposes for which it was granted.^[10]

Following these developments, an argument exists that where the landlord has discretion to terminate the lease, and the tenant signals that it can no longer pay rent, the landlord’s discretion must be exercised consistent with the purposes for which it was granted. On that line of reasoning, it may be further argued that deciding to affirm a lease in such circumstances is arbitrary or capricious if not supported by reasonable interests.

Recent judicial consideration of Highway Properties

Appellate courts in British Columbia^[11] and Ontario^[12] have recently affirmed Highway Properties. The Court of Appeal for Ontario emphasized that it was up to the Supreme Court or legislature to change the law.^[13]

On the other hand, some lower court decisions have recognized uncertainty and contradictions in the law. One Alberta judge was “troubled” by the idea that Highway Properties allows landlords to sit back and allow losses to accumulate, when they could reasonably avoid those losses.^[14]

Where we could be headed

Several considerations point toward the Supreme Court potentially rethinking its 1971 precedent and recognizing a duty for commercial landlords to limit their losses. There are, however, competing interests that the Supreme Court could find weigh in favour of staying the course.

Factors that may influence the Court to reaffirm Highway Properties:

Commercial landlords depend on long term, stable cash flows;
If tenants can legitimately walk away from unfavourable leases, landlords may lose the ability to retain full rents;
Highway Properties protects both tenants and landlords because one party to a lease cannot unilaterally end its obligations;
The good faith doctrine does not require a party to act against their self-interest;
The duty to exercise contractual discretion reasonably only applies to discretion given in the lease itself, not by the common law;
A claim for lost rent is a debt claim, and there is no such thing as “mitigating a debt”;
Any significant change in the law should be made by the legislature.

Factors that may influence the Court to rethink Highway Properties:

Practically, the landlord is often in the best position to find a new tenant;
Tenants should not be forced to adhere to a lease if breaching is more commercially efficient and landlords should not be encouraged to let commercial space sit empty;
Quebec and US courts have recognized a duty to mitigate for commercial landlords as a matter of good faith—this creates inconsistency across the continent;
The duty to mitigate applies to every other type of contract, including equipment leases;
Removing the landlord’s discretion to affirm or terminate the lease after a breach would promote certainty of contract;
As Highway Properties confirmed, a lease is a contract, and specific performance is an exceptional remedy for breach of contract;
The current law allows landlords to “litigate by installment” (i.e. start multiple court actions as their losses accrue).

For now, the law continues to be that landlords do not have to accept tenants’ repudiations, but can instead insist on payment of rent as it comes due. But this may soon change with the Supreme Court’s decision. We will continue to monitor these developments and provide updates.

^[1] The Canada Life Assurance Company et al. v Aphria Inc., 2023 ONSC 6912 at paras. 82-83.

^[2] Aphria at para. 31.

^[3] Highway Properties v Kelly, Douglas & Co., 1971 CanLII 123 (SCC), [1971] S.C.R. 562 at page 570.

^[4] Highway Properties at page 570.

^[5] Anthem Crestpoint Tillicum Holdings Ltd. v Hudson’s Bay Company ULC Compagnie de la Baie D’Hudson SRI, 2022 BCCA 166 [Anthem] at para. 78.

^[6] Semelhago v Paramdevan, 1996 CanLII 209 (SCC), [1996] 2 SCR 415 at paras. 21-22.

^[7] Southcott Estates Inc. v Toronto Catholic District School Board, 2012 SCC 51 (CanLII), [2012] 2 SCR 675. [Southcott] at para. 40.

^[8] Southcott at paras. 36, 40-41.

^[9] Bhasin v Hrynew, 2014 SCC 71 at para. 63.

^[10] Wastech Services Ltd. v Greater Vancouver Sewerage and Drainage District, 2021 SCC 7 at para. 63.

^[11] See e.g. Anthem Crestpoint Tillicum Holdings Ltd. v Hudson’s Bay Company ULC Compagnie de la Baie D’Hudson SRI, 2022 BCCA 166; Centurion Apartment Properties (Scott Road 1) Inc. v. Piquancy Enterprises, Ltd., 2024 BCCA 387.

^[12] Canada Life Assurance Company v Aphria Inc., 2024 ONCA 882.