Tenancies and the Common Law (19:XI)

Since a tenancy agreement has elements of both contract and interest in land, privity of contract and privity of estate exists between the parties to the agreement. Covenants relating to either the estate or the agreement are enforceable between such parties. Where either the reversionary (landlord) or the tenant assigns his or her interest, privity of estate only exists between the assignee and the remaining original party. Terms and covenants that run with (touch and concern) the land are enforceable between these parties. One of the more common situations involving a covenant running with the land is where a security deposit is paid to a landlord, and the property is then subsequently sold. After the building is sold to the second landlord, the security deposit obligations carry over to that second person. So a tenant who had lived in the building all along would be able to claim return of his or her security deposit from a new landlord, even though the tenant had originally paid the security deposit to a different person. See s 90 of the RTA regarding covenants that run with the land.

A sub-lessee has neither privity of estate nor contract with the head landlord, but is still bound by all the covenants in the original lease.

Covenants in leases are independent at common law, so that one party’ s breach does not relieve the other party of performance obligations, unless the lease is forfeited. The innocent party in a tenancy breach situation isunder no duty to mitigate damages under the common law of property. However, s 7(2) of the RTA invokes a clear-cut duty to do so in a residential tenancy (see also RTB Policy Guideline 5: Duty to Mitigate). For commercial tenancies (to which the RTA does not apply) the courts have begun to view them as contracts with all attendant rights and obligations, including the duty to mitigate where the plaintiff is seeking damages under contract (as opposed to property) law; see Highway Properties Ltd. v. Kelly, Douglas & Co. Ltd. (1971), 17 DLR (3d) 710 (SCC). However, there appears to be no duty to mitigate where the landlord does not accept the tenant’s repudiation of the lease, and simply sues for rent as it comes due under the principles of property law. Should this situation arise, clients are strongly advised to consult an experienced lawyer.

A. Common Law and Residential Tenancies

Subject to the RTA, the common law respecting landlord and tenant applies (RTA, s 91). 1.General Effects of Breach of the Agreement The common law rules of contract respecting the effect of one party’ s breach of a material term on the other party’ s performance obligations apply to a residential tenancy agreement (RTA, s 91; see also Chapter 10: Consumer Protection). Thus, material terms are dependent, and the innocent party is entitled to withhold performance. However, withholding rent because a landlord has breached a material term is barred by the RTA. A tenant may withhold rent only as permitted by the RTA. Under contract rules, a party may not be able to repudiate a contract due to another’ s breach of a non-material term, but a right of “forfeit” can arise under tenancy common law. Under s 45(3) of the RTA, where the landlord breaches a material term, the tenant may elect to treat the agreement as ended (an Arbitrator may have to decide whether a term is “material”). The landlord may end the tenancy only in accordance with the RTA, because of abandonment, or due to an agreement. The RTA does not abolish the doctrines of privity of estate and contract, but it enables a person having a reversionary interest (i.e. a landlord) and a “person in possession” to enforce against each other all conditions and terms, whether material or not, contained in the tenancy agreement for the possessed rental unit (s 83(4)). See also RTB Policy Guideline 8: Unconscionable and Material Terms. 2.Status of Other Statutes and Legal Doctrines a)Interesse Termini: Tenant Rights before Possession At common law, where an agreement for lease is entered into, or a tenancy agreement executed, and a tenant has not entered and taken possession, that tenant has only an interesse termini, i.e. contractual rights. The tenant may not exercise rights incidental to the possession of property by suing a person in possession of or upon the rental unit for trespass, assigning, or subletting the rental unit. However, s 16 of the RTA provides that property and contractual rights under a residential tenancy agreement take effect at law from the date specified in the tenancy agreement as the commencement of the term of the tenancy agreement. The tenant may obtain an order respecting his or her right to possess or occupy the rental unit. Problems will arise when another tenant has come into possession; the tenant with the earlier commencement date may prevail over the later tenant, but the tenant in possession will probably be allowed to remain in possession. b)Implied Surrender: A bandonment At common law, a lease may be ended by “surrender” due to conduct of the parties, consistent only with a “merging” of the tenancy interest back into the landlord’ s (owner’ s) estate. Surrender occurs, for example, where the tenant abandons and the landlord repossesses and re-rents. Generally, no further rent or compensation for the unexpired portion of the tenancy may be claimed on surrender. However, following Highway Properties Ltd. v. Kelly, Douglas & Co. Ltd.(above), claims for lost rentals are allowed, provided the landlord notifies the tenant that the surrender is accepted subject to rights to claim for lost future rent. Abandonment is cause for ending a tenancy, but regardless of the wording of the tenant’ s notice, or the wording of the acceptance of surrender, or the absence of a notice, abandonment gives rise to the landlord’ s duty to mitigate.