ILLEGAL ABANDONMENT OF LEASED PREMISES BY THE TENANT

It happens more frequently than we would like for a tenant to abandon leased premises before the end of the lease without just cause.  A recent illustration of the problem is depicted in Investissements Eres Ltée -vs- Louha et al., 2014 QCCS 5820; 2016 QCCA 5820.

On June 1, 2011 the parties leased two premises comprising respectively 900 and 2200 square feet at 5180 and 5186 Queen Mary Road, Montreal for a period of 15 years.

On September 18, 2012, the tenants notified the landlord that they intended to vacate the premises on or before December 31. As it turned out, business was not very good and the tenants were struggling to pay the rent.

The landlord replied on September 24, 2012 offering to assist the tenant to sub-let the premises but insisted that the tenants were responsible for their lease obligations and could not legally cancel the lease unilaterally. The tenants did not reply.

On August 29, 2012 the tenants signed a lease with a different landlord for premises in a nearby building. The tenants moved to the new premises on October 23, 2012.

On October 23, 2012 the landlord’s attorneys notified the tenants that the landlord refused to cancel the lease; the tenants would be held responsible for all rent that remained unpaid; the landlord would search for a new tenant to occupy the premises; and unless the rent for October was paid and the obligations under the lease respected, legal proceedings would be instituted against the tenants who, once again, did not rely.

The landlord filed suit claiming, inter alia, unpaid rent and additional rent from December 2012 until September 2014. The landlord declared that since September 2012, it had acted in good faith tried to try minimise its loss but was not able to find a new tenant until October 2014.

The principal question that the Court had to decide was whether the landlord acted in good faith by making a reasonable effort to minimise its loss. Even though the tenant was in flagrant violation of the lease by abandoning the premises prior to the expiry of the term, the law requires the landlord in such circumstances to act in good faith by making reasonable efforts to mitigate the lost rent and/or damages resulting from the tenant’s contractual breach (Articles 6, 7, 1375 and 1479 Civil Code of Quebec).

The landlord was able to prove that it posted a For Rent sign in the window of the premises, by the elevator and on the façade of the building for 2000 to 5000 square feet in January or February 2013. Various inquiries were received but the dates when they were received were not clear, although the Court retained the month of July 2013 as most likely. The landlord also testified that it placed ads on the classified internet site, Kijiji, in the Fall of 2013 without any positive results although it did so believing that it was a useless exercise. The Court also retained from the evidence that the landlord had been aware of the tenants’ financial difficulties and struggle to pay the rent prior to their leaving.

The Court concluded that the landlord did not do enough to promote the success of the tenants’ business and minimise its loss, and that it instead, chose to adopt a hard line with respect to pursuing a positive relationship with the tenants. The Court found the landlord’s efforts to find a new tenant to be too little. In the circumstances, the Court concluded that the tenants should not have to indemnify the landlord for 22 months of rent and reduced their liability to the equivalent of only 14 months of rent.

The Court of Appeal maintained the trial judge’s conclusions. More particularly, while the trial judge did not explicitly declare the landlord to have been in bad faith, the conclusion can be inferred from her finding that the landlord’s attitude was closed and non-receptive to the tenants’ attempts to reduce the rent and the landlord’s attempt to find a new tenant was minimal at best. It appears that according to the Courts, at least in the circumstances of this case, the landlord should have been receptive to a reduction of rent until a new tenant could be found to minimise its loss.

I would respectively differ and argue that a contract is the law between the parties and the result of their free and unbridled consent. To require a landlord to reduce the rent in the context of a tenant’s financial difficulty flies in the face of the foregoing. Furthermore, once the landlord agrees to reduce the rent until a new tenant can be found or the lease ends, whichever comes first, the landlord will presumably incur an irreparable loss equivalent to the aggregate amount of reduced rent. This is not an acceptable outcome in the context of the abandonment of premises without just cause by a tenant in bad faith. By treating the landlord so severely, the Courts are creating an unreasonable imbalance between the rights and obligations of the landlord and tenant and letting off the latter too lightly by reducing the consequence of a flagrant breach of contract and bad faith.

Furthermore, the Courts were critical of the landlord because the For Rent sign that it posted was not tailored specifically to the abandoned premises, but also referred to other vacant space that the landlord was trying to rent. Again, I find the reasoning unconvincing. The landlord posts a generic sign for space to rent which includes, but is not limited to, the abandoned space. This is reasonable and would attract prospective tenants seeking space in the size range of the abandoned space, as well as others, and would cause no prejudice whatsoever to the tenant.

Although the Courts concluded that the landlord did not do enough, it would have been useful had they stated what else they expected the landlord to do in order to be considered to have acted in good faith. Had the landlord retained a real estate broker to market the space, it would arguably have crossed the good faith threshold.