In a recent decision, the Ontario Superior Court of Justice upheld some important principles of law on the issues of repudiation of contract and mitigation of damages in the context of a commercial lease dispute.

Lebovic Enterprises rented commercial premises in Scarborough to Dixie Lee Canada, and Dixie Lee Food Systems guaranteed the obligations of Dixie Lee Canada under the lease.

Dixie Lee Canada stopped paying rent in May of 2008, and attempted to sublet the property with the consent of Lebovic Enterprises.  Dixie Lee Canada presented several prospective sub-tenants to the landlord, but the landlord withheld consent.  Finally, in November of 2008 Lebovic Enterprises re-entered the premises and terminated the lease. Subsequently, Lebovic was able to rent the property to Tim Hortons at a higher rent.

Lebovic Enterprises then sued Dixie Lee Canada and its guarantor Dixie Lee Food Systems for rent arrears and utilities costs.  Lebovic brought a motion for summary judgment, which the defendants resisted on the grounds that the landlord had unreasonably withheld its consent to the proposed sub-letting and was therefore in breach of the lease.

Mr. Justice Perell concluded that it was not necessary to decide whether or not the landlord had unreasonably withheld consent.  Dixie Lee Canada never asserted that the lease had been terminated by the landlord’s actions, and continued to act as if the lease was in effect.  Termination of a lease by repudiation requires both a breach of the lease that is sufficiently serious so as to amount to repudiation, and acceptance of the repudiation by the innocent party.  A repudiation that has not been accepted is “a thing writ in water”, and has no legal effect.

It was not necessary to determine whether withholding consent to the various proposed sub-tenancies constituted repudiation on the part of landlord; since the tenant never asserted that the landlord’s actions amounted to repudiation, and never purported to accept the alleged repudiation, the lease continued in existence.

The motions judge went on to conclude that there was a triable issue on the question of mitigation of damages.  Citing Toronto Housing Co. Ltd. v. Postal Promotions Ltd. (1982), 39 O.R.(2d) 627 (C. A.), the judge pointed out that when the landlord has in fact mitigated its damages by re-letting the premises at a higher rent, it has to give credit for the higher rent in its claim to recover unpaid rent from the former tenant.

In the result, the court directed the trial of an issue on the question of how much should be credited against the landlord’s claim for rent arrears.

Citation: Lebovic Enterprises Limited v. Dixie Lee of Canada Inc. et al., CanLII – 2010 ONSC 5833 (CanLII)

Richard Hayles, B.A., J.D.

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