|
In June 2025, the Supreme Court of Canada (“SCC”) granted leave to appeal [41665] the Court of Appeal for Ontario’s (“The Court”) decision in Canada Life Assurance Company v Aphria Inc., 2024 ONCA 882 [Aphria]. The Court's decision reaffirms that when a commercial landlord does not accept a tenant's repudiation of a lease and insists the lease remain in full effect, the landlord has no duty to mitigate the resulting damages. This decision adheres to the binding authority of Highway Properties Ltd v Kelly, Douglas and Co Ltd., 1971 SCR 562 [Highway Properties], where the SCC outlined four actions a landlord can take in response to a tenant's fundamental breach.
However, by re-examining commercial lease law, as it stands in the modern age, an interesting question arises: should the principles of contract law—centered around reasonableness, efficiency, and good faith—overtake the property-based rationale that currently governs landlord-tenant relationships?
The Court's answer was a cautious reliance on previous judicial authority, but raises the possibility for an SCC decision that fundamentally shifts the nature of commercial relationships towards a contemporary approach.
Facts
Aphria Inc., (“Aphria”) is a wholly owned subsidiary of Tilray. In 2018, Aphria entered into a 10-year commercial lease for office space in downtown Toronto. In 2019, the building was sold to new landlords: Canada Life Assurance Company, LG Investment Management Ltd., and OPTrust Office Inc. (the “Landlords”), who took on the preexisting lease (Aphria, para 5).
In 2021, Aphria vacated the office space and served a notice of repudiation to the Landlords who responded, stating they did not accept the repudiation and that the lease remained in full effect. The Landlords took no actions to re-let the office; instead, as rent was due, they asserted Aphria was obligated to pay the ongoing balance (Aphria, para 6).
During this time, Aphria’s broker attempted to source replacement tenants, but the Landlords declined to pursue them. Rather, the Landlords advised Aphria they had no obligation to re-let the space but if Aphria wanted to mitigate its losses, they could attempt to sublet. When Aphria did not pay rent, the Landlords commenced an action against Aphria for “the rent owing of $638,171.40 plus interest and for future rent as it came due” (Aphria, para 7). Aphria responded with a cross-motion for summary judgment, noting that pursuant to s. 19.03 of the Lease, lost rent would only be owed for two years from any default. The Landlords’ response was that since they did not accept the repudiation and were thus maintaining the lease’s existence, s. 19.03 was inapplicable. This exclusion operated only where a lease had been terminated; in this case, it had not.
The motion judge granted summary judgment in favour of the Landlords. He held that he was bound by Highway Properties and subsequent Ontario decisions establishing that when landlords maintain leases after repudiation, they have no duty to mitigate efforts. The motion judge also declined to award future rent, noting that mitigation might occur later. Finally, he found that s. 19.03 only applied where a landlord had terminated the lease, which was not done here (Aphria, paras 7–9).
The Court of Appeal Decision
At appeal, Aphria argued the motion judge erred by (1) failing to recognize a modern duty to mitigate for commercial landlords and (2) misinterpreting s. 19.03 of the lease.
On appeal, the Court unanimously dismissed Aphria’s claim. Writing jointly, Pepall, Nordheimer, and Zarnett JJ.A. held that the motion judge was correct to apply Highway Properties as binding jurisprudence and that no duty to mitigate arises where a landlord does not accept a repudiation and insists the lease continue.
“Duty to Mitigate” Stare Decisis
The Court held that Highway Properties remains the binding authority, notwithstanding that Laskin J.’s relevant statements in the case were technically obiter, they were nonetheless authoritative. As such, for over fifty years, appellate courts across Canada have treated Highway Properties as binding authority, in cases ranging from Machula v Tramer, 1971 CanLII 757 (SK KB) to OPB Realty Inc v PC Hearing Corporation, 2024 ONSC 2268. In its holding, the Court ruled that “the motion judge correctly decided that rejection of the principle in Highway Properties would create uncertainty and instability in a manner contrary to the doctrine of stare decisis” (Aphria, para 30).
The Court also dismissed Aphria’s subsidiary arguments, which applied legal reasoning borrowed from different areas of the law, such as residential tenancies, in an attempt to avoid the application of stare decisis. It found that references to other areas of law in which mitigation duties exist were not enough to distinguish Highway Properties from the present situation, or warrant revisiting the binding authority. The statutory obligation to mitigate in the residential tenancy context stems from the Residential Tenancies Act, 2006, S.O. 2006, c. 17 and not from a common law approach. As such, any similar mitigation duty developed in the commercial context would necessitate legislative action. Similarly, developments in contract law, such as the doctrines of good faith or efficient breach, cannot relieve one from Supreme Court stare decisis application. These holdings indicate the Court’s approach to maintaining doctrinal stability and a reasoned respect for its role within the hierarchy of cases.
Interpretation of Lease Clauses
Turning to s. 19.03 of the lease, the motion judge’s interpretation that the two-year rent cap applied only where the lease had been terminated was corroborated by both text and context. Reading the clause in conjunction with ss. 12.04, 19.06, and 20.10 of the lease led to the Court finding no basis to disturb the motion judge’s finding. Rather, the Court held that limiting a landlord’s recovery while the lease remained in force “would not make commercial sense” (Aphria, para 37). As such, the Court found no palpable and overriding error.
Analysis
Aphria stands as a clear reaffirmation of Highway Properties and, with it, the continuing tension between property and contract reasoning in Canadian leasing law. The Court acknowledges that modern contract law may point in a different direction than the past and emphasize a cultural shift towards good faith negotiations and the efficient breach. Judicial institutional parameters, however, do not currently encompass such evolution.
The Conceptual Divide: Property Law vs Contract Law
The foundational point of this analysis is grounded in the landmark decision of Highway Properties. Laskin J.’s four scenarios for landlords responding to tenant repudiation includes the now famous “first option”: a landlord may refuse to accept repudiation, maintain the lease and sue for rent as it becomes due. Laskin J. held that the landlord owed no duty to mitigate. The reasoning is consistent with the property law-based perception of a lease as a continued estate in land. Under this perception, rent is merely an incident of ownership as opposed to a contractual promise, meaning the tenant’s obligation is viewed as an obligation of ownership.
Alternatively, the “fourth option”—where a landlord terminates a lease but sues for damages—treats the lease as a contractual bargain and thus, the landlord can receive rent for the present value of the lost length of time, minus mitigating efforts (Highway Properties, 571).
Aphria falls squarely under the first option. By upholding that a duty to mitigate did not arise so long as the lease was alive, the Court implicitly upheld the property-based ideology that any future rights and responsibilities, such as paying rent, became operative regardless of occupancy. This position, while doctrinally and jurisprudentially sound, increasingly distances from the modern approaches to ongoing contractual and commercial relationships. Rather than viewing leases as inherently static property conveyances, a shift towards “good faith” in Canadian common law negotiations effectively creates an environment that views such dynamics as reciprocal economic exchanges and ongoing relationships.
Stare Decisis as a Structural Value
Beyond doctrine, Aphria acknowledges stare decisis as a structural value of commercial law. The predictability of applying certain, longstanding law is substantive beyond procedural realms This predictability shapes how parties allocate risk, price contracts, and engage in commercial relationships. Per the Court, the binding authority established through Highway Properties respects and protects the reliance interests that are deeply embedded in commercial practice, and therefore, establishes trust in such relationships. In contrast, the Court noted that a rejection of jurisprudence would “create uncertainty and instability in a manner contrary to the doctrine of stare decisis” (Aphria, para 30).
Significantly, however, the Courts’ careful use of language does not explicitly discount the legal basis for a “good faith argument.” By implying that legislative or Supreme Court access could reframe the rule later down the line, the Court acknowledges the possibility of future modernization of law, while maintaining the current structural value of stare decisis.
Institutional Boundaries and Incrementalism
Finally, the ruling reflects both the institutional boundaries and potential for incrementalism in common law development. Where legal reform would alter the macro-structure of private relationships across a field of law, appellate courts typically cede such developments to higher or legislative authority. In this sense, Aphria resembles decisions in other areas of private law—such as the evolution of good faith in Bhasin v Hrynew, 2014 SCC 71 and its progeny. Major conceptual and cultural shifts are not barred from the judicial space, but rather, are best left developed from Supreme Court deliberation rather than intermediate appellate courts.
Thus, the Court’s holding reflects a form of judicial humility: the Court sees the appeal behind Aphria’s arguments but accepts that change may lie outside its own jurisdiction.
The Broader Implications
The practical implications for Aphria’s holding, however, run deep. For landlords, the decision confirms that rejecting repudiation and keeping a lease alive remains a secure strategy. For tenants, it highlights the need to negotiate comprehensive mitigation and terminations clauses when negotiating leases. Finally, for law makers and legal scholars, Aphria reopens a conversation about whether the Highway Properties framework—crafted in an era defined by more formalistic approaches to commercial law—still reflects the realities of modern property and contract law.
The current Aphria decision does not silence this discussion but rather draws an institutional line. Courts uphold and apply laws as they stand; while legislatures and higher courts determine when they should change. Aphria acknowledges how the tension between property and contract law remains unsettled in contemporary Canadian law, particularly in a post-Bhasin landscape.
Conclusion
In all, Aphria reaffirms that in Ontario, a landlord who chooses not to accept a repudiating tenant and instead seeks continued performance from that tenant has no duty to mitigate. This holding preserves stability in commercial leasing realms for now, while the SCC’s granting of leave for appeal may indicate modernization down the line.
The continued evolution of Canadian private law signals that good faith and reasonableness are no longer peripheral ideals but integral expectations in commercial dealings. A future adjustment of commercial tenancies law that contemplates such principles would not destabilize certainty. Rather, it would strengthen and uphold the longevity of commercial relationships by upholding principles of good faith negotiations and reciprocal fairness.
As such, Aphria provides an opportunity for the SCC to endorse a contemporarily sound nexus between property formalism and contractual fairness. Whether such modernization comes from the Supreme Court, remains to be seen.