A Landlord’s Response and Duty to Mitigate Following a Tenant’s Repudiation of Lease

March 18, 2025

Written By Luke Stretch, Michelle Yung and Blake Miller

In November 2024, the British Columbia Court of Appeal (BCCA) released its decision in Centurion Apartment Properties (Scott Road 1) Inc v Piquancy Enterprises Ltd, overturning the lower court’s ruling and setting out principles related to commercial lease enforcement, mitigation and contractual due diligence.

Summary of the Case

Piquancy, as tenant, entered into a ten-year lease with Centurion, as landlord, for a fast-food restaurant premises. The lease expressly stated that the premises lacked venting for grease-laden vapors, and the tenant acknowledged this condition, agreeing that additional equipment might be necessary to comply with venting requirements under municipal bylaws.

After waiving all tenant conditions—including satisfaction with the form of lease, sufficiency and condition of the premises, available services and municipal approvals—Piquancy later discovered that the premises could not practically accommodate proper venting. Following this discovery, Piquancy purported to repudiate the lease on May 31, 2022, refusing to take possession of the premises or pay rent, and argued that the lease was unenforceable due to misrepresentation, mistake or frustration.

Centurion refused to accept this repudiation, instead affirming the lease and seeking to enforce its terms through 2022. Eight months later, Centurion accepted Piquancy’s repudiation and terminated the lease effective February 2023. Centurion then sued Piquancy for the unpaid rent and damages arising from the difference in the lower rent collected under a subsequent lease to a new tenant.

The Supreme Court of British Columbia ruled in favor of Centurion, finding no evidence of misrepresentation by Centurion, and no operation of mistake or frustration that would allow Piquancy to repudiate unilaterally. It did, however, reduce the claimed damages, holding that Centurion unreasonably delayed accepting Piquancy’s repudiation and failed to mitigate its losses. The BCCA overturned this ruling, holding that Centurion was entitled to its full damages and that the trial judge erred in shifting the onus of proving failure to mitigate onto Centurion.

Remedies and Mitigation

The most significant aspect of this case is its discussion of the legal principles governing a landlord’s response to a tenant’s repudiation of a lease and the duty to mitigate damages.

Refusal to Accept Repudiation and Affirmation of Lease

When a tenant repudiates a lease by refusing to take possession or pay rent, a landlord has a choice:

1. Affirm the lease and demand rent, maintaining the contract in full force; or
2. Accept the repudiation and terminate the lease, claiming damages.

Centurion initially chose to affirm the lease, meaning it had no duty to mitigate its losses during this period. The BCCA reaffirmed that so long as a lease remains in effect, the landlord is entitled to rent as a contractual obligation and is not required to mitigate losses. Centurion had no obligation to accept the repudiation, therefore no duty to mitigate. This principle aligns with established case law, including Anthem Crestpoint Tillicum Holdings Ltd v Hudson’s Bay Company ULC, 2022 BCCA 166.

When Does the Duty to Mitigate Arise?

A landlord's duty to mitigate losses arises only when the lease is terminated. Following termination, a landlord must take reasonable steps to minimize its losses, such as securing a new tenant at market rates. The BCCA held that the lower court erred in placing the burden of proof on Centurion to show its mitigation efforts. Instead, the burden was on Piquancy to prove that Centurion failed to act reasonably in mitigating its losses. Since Piquancy presented no evidence on this issue, Centurion was entitled to full damages.

This decision provides several important considerations for commercial landlords and tenants when repudiation occurs.

Lessons For Landlords

1. Understand your rights upon tenant repudiation: a landlord generally is not obligated to accept a tenant repudiation and may instead affirm a lease and collect rent without a duty to mitigate arising. However, once the landlord accepts the repudiation, it must take steps to fulfill the duty to mitigate its losses.
2. Burden of proof for failure to mitigate: if a tenant raises the defence that the landlord failed to mitigate, the burden of proof rests with the tenant to demonstrate that the landlord’s efforts were unreasonable.
3. Be proactive in documenting mitigation efforts: while the burden of proof rests on the tenant, clearly documenting efforts to re-let the premises at market rates will strengthen the position of a landlord faced with the claim of its failure to mitigate.

Lessons For Tenants

1. Due diligence is crucial: Piquancy’s failure to conduct proper due diligence before waiving its tenant conditions left it bound to a ten-year lease of premises which were unsuitable for its intended purposes.
2. Contractual acknowledgements matter: the lease expressly noted the lack of venting, and Piquancy waived conditions with respect to its investigation of the suitability of the premises. Courts will enforce such commercial agreements.
3. Repudiation does not absolve financial obligations: walking away from a lease does not eliminate liability. Until the landlord accepts the tenant’s repudiation, a tenant's obligations, including the payment of rent, continue to accrue.

Conclusion

Commercial leases create long-term relationships, binding together landlord, tenant and premises. Parties must carefully negotiate, review and execute commercial leases with full awareness of their implications. Landlords should be strategic in responding to tenant repudiations, and tenants must ensure they understand lease terms before committing to significant contractual obligations. The BCCA’s decision reinforces established principles on mitigation and affirms the contractual certainty landlords rely upon in commercial leasing arrangements.

If you have any questions about how repudiation may affect your rights under a lease, please reach out to our Commercial Real Estate team.

Authors