After a commercial tenant stopped paying rent during the COVID-19 pandemic, the landlord sought summary judgment. The tenant argued that the landlord had failed to mitigate its damages by not attempting to find a replacement tenant or accepting a lease assignment. The Court of Appeal ruled that the landlord was under no obligation to mitigate damages caused by the tenant’s failure to remit rent nor was it under any obligation to find a replacement tenant – Anthem Crestpoint Tillicum Holdings Ltd. v. Hudson’s Bay Company ULC Compagnie de la Baie D’Hudson SRI, 2022 BCCA 166 (CanLII)

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Court of Appeal rules that landlord had no duty to mitigate after tenant stopped paying rent during COVID-19 pandemic

In Anthem Crestpoint Tillicum Holdings Ltd. v. Hudson’s Bay Company ULC Compagnie de la Baie D’Hudson SRI, 2022 BCCA 166 (CanLII), the tenant, Hudson’s Bay Company, and the landlord had entered into a commercial lease agreement for premises in a shopping centre. The term of the lease ran from 2009 to 2024 with a monthly base rent of $58,750.

In July 2019, the tenant ceased operating its business on the rented premises, although it continued to pay rent. In November 2019, the tenant attempted to assign the lease to another business, but the landlord refused to consent to the proposed assignment, which it was entitled to do under the lease because the proposed tenant would be carrying out a business prohibited under the lease.

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Tenant stops paying rent at onset of COVID-19 pandemic

The tenant continued to pay rent until April 2020. After it stopped paying rent, the landlord sought payment, but the tenant advised it in June 2020 that it was suspending payment of rent “until further notice” due to the COVID-19 pandemic.

Although the tenant initially attempted to negotiate an abatement of rent owing “to share some of the pain” of COVID-19 restrictions, the landlord instead offered to discuss a rent deferral and the negotiations broke down.

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Landlord commences action against tenant for unpaid rent

Thus, the landlord filed a Notice of Civil Claim claiming rent arrears from April 1, 2020. It sought summary judgment for unpaid rent.

The tenant opposed the application for summary judgment. While it did not dispute the essential elements of the claim, it asserted that the landlord had failed in its obligation to help locate a replacement tenant and to make reasonable efforts to mitigate losses.

Ultimately, the Chambers Judge ruled that the tenant had raised a genuine issue to be tried and refused to grant summary judgment.

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Court of Appeal allows appeal and enters judgment in favour of landlord for unpaid rent

On appeal, the British Columbia Court of Appeal stated that the central issue on appeal was whether either of the tenant’s assertions, namely that the landlord had unreasonably refused assignment of the lease and had breached its duty to make reasonable efforts to re-let the premises, were capable of providing a defence to the claim for unpaid rent.

The Court began by disposing of the tenant’s first argument, ruling that the landlord’s refusal to consent to the lease assignment, whether reasonable or unreasonable, was not a defence to the unpaid rent claim.

The Court then addressed the tenant’s other argument that the landlord had failed in its duty to mitigate its loss by taking reasonable steps to re-let the premises. The Court rejected this defence, stating it is a well-established principle that there is no duty on a landlord to mitigate loss when the lease is maintained in effect. Thus, the Court ruled that the landlord had no obligation to mitigate any loss arising from the tenant’s failure to pay the rent owed under the lease.

Finally, the Court rejected the tenant’s argument that the landlord had a duty to take active steps to identify a replacement tenant. The Court stated that, absent a provision in the lease to the contrary, there was no basis in law for the assertion that a failure on the part of a landlord to pursue the possibility of re-letting the premises was a defence to the claim for unpaid rent.

As such, the Court found that the Chambers Judge had erred in law by not granting summary judgment, as there were no genuine issues requiring trial because neither of the two theories advanced by the tenant was capable of providing a defence to the landlord’s claim.

In the result, the Court therefore allowed the appeal, set aside the Chambers Judge’s decision and entered judgment for the landlord in the amount of unpaid rent to the date of the judgment.