December 2014
PFD | Real estate

The obligation of good faith and commercial leases

By Neda Esmailzadeh

A recent decision by the Superior Court of Québec (Second Placements inc. v. 9067-3856 Québec inc., 2014 QCCS 4079) underscores the importance of the obligation of good faith which governs all aspects of the contractual relations between parties.

In the above matter, the parties were bound by a commercial lease, which had been in effect for several years and expired on February 1, 2015. The tenant left the leased premises without notice in 2011 but continued to pay rent until June 2013, when she unilaterally ceased all rent payments. The lessor had been informed of the tenant's departure in October 2011 but did not take any action to re-let the space. In fact, the law is clear: any claimant, including a lessor, must take all necessary measures to reduce or mitigate any damages. When the tenant stopped paying rent in June 2013, the lessor instituted proceedings to recover the amounts owed under the terms of the lease, specifically for the unpaid rent until February 1, 2015.

The judge ruled that even though the tenant had vacated the rented premises without notice and continued to pay the monthly rent, the lessor had an obligation of good faith to do what was necessary to re-let the commercial space after being informed of the tenant's departure. It should be noted that the tenant had asked terminate the lease but the lessor refused. The judge also concluded that the tenant had not acted in good faith by leaving without notice.

The Honourable Justice André Roy of the Superior Court of Québec wrote:

Translation "The requirements of good faith set out in section 6, 7 and 1375 C.C.Q. apply in all areas, including to leases. The obligation to act in good faith certainly includes the obligation to take action to re-let commercial premises that have been vacated. Consequently, while, strictly speaking, the requirement to mitigate the damage does not apply to the plaintiff, the Court is of the opinion that in the performance of its duty to act in good faith, the plaintiff had the obligation to make reasonable efforts to re-let the vacated spaces."

Therefore, good faith can impose certain requirements beyond contractual provisions on tenants and lessors. Do not hesitate to contact us for more information on the scope of your contractual obligations before you take any action. Also, it is important to note that the ruling has been inscribed for appeal.