If a Tenant Agrees to a One-Year Lease But Then Fails to Move-In, Is the Tenant Liable For the One-Year Worth of Rent?
Landlords and Tenants Are Subject to Duties to Mitigate Losses; Accordingly, When a Tenant Fails to Fulfill a Lease Period the Landlord Must Take Steps to Reduce Any Losses Incurred By Attempting to Replace the Tenant That Breaches a Lease. The Breaching Tenant Is Without Liability For Losses Arising From the Failure to Mitigate By the Landlord.
A Helpful Guide For How to Understand the Duty to Mitigate By Taking Steps to Reducing Losses Where Reasonably Possible
Where a landlord causes harm to a tenant or where a tenant causes harm to a landlord, the harmed person is legally required to take reasonable steps to reduce the resulting losses as per the duty to mitigate as is mandated by law.
The requirement to mitigate, meaning the requirement to minimize harm, is prescribed by section 16 of the Residential Tenancies Act, 2006, S.O. 2006, Chapter 17, as well as general principles of the common law including decisions by the Landlord Tenant Board. Specifically, section 16 of the Residential Tenancies Act, 2006 states:
16 When a landlord or a tenant becomes liable to pay any amount as a result of a breach of a tenancy agreement, the person entitled to claim the amount has a duty to take reasonable steps to minimize the person’s losses.
A common circumstance where failure to mitigate allegations arise within a landlord and tenant relationship involves the breach of lease by the tenant such as where as tenant moves out of a rental unit prior to the end of a lease term or fails to move in and occupy the rental unit after agreeing to do so. In these scenarios, a landlord is required to mitigate the loss of rental income by seeking a substitute tenant rather than simply allowing the rental unit to remain unoccupied while attempting to impose liability for the resulting lack of rental income upon the tenant.
In this situation, in accordance to the duty to mitigate, the landlord must take reasonable steps to source a substitute tenant and thereby to minimize the loss suffered by the landlord; and correspondingly, the liability of the tenant. The Landlord Tenant Board addressed this very issue within the case of F.M. v. D.D.A. and S.K., TST-84062-17 (Re), 2017 CanLII 60075 wherein it was said:
10. Section 16 of the Act requires parties to mitigate their losses; in other words, a party who is going to be harmed by the actions of another must take steps to minimize the harm that is caused to them. In this case, the Landlords had a duty to mitigate their vacancy loss by taking reasonable steps to rent the unit for April 1, 2017.
11. At the hearing AV testified that the residential complex has signs outside advertising that there are units available in the building. AV testified that the Landlords also advertised vacancies in the building on an online classifieds website and on S.K website. AV testified that he showed the rental unit to several prospective new tenants in an attempt to obtain a tenant for the unit for April 1, 2017, but that none of the prospective tenants were interested in taking the rental unit on April 1, 2017. AV testified that a new tenant was found for the rental unit for May 1, 2017.
12. At the hearing the Tenant testified that when he initially found the rental unit it was by using an online aggregator program which searches various online classified websites. The Tenant testified that after he told AV that he was no longer interested in the unit the Tenant searched for advertisements of the unit using the same aggregator program but no hits came up. The Tenant testified that he also searched several online classified websites directly and he did not see any advertisements for the rental unit or the residential complex.
13. Based on AV’s testimony, which was largely uncontested, I am satisfied that the Landlords took reasonable steps to rent the unit for April 1, 2017. In order to meet the duty to mitigate its losses, a party is not required to take perfect steps; they are required to take reasonable steps. Advertising the unit on signs outside of the building and advertising the unit on S.K website were reasonable steps. These steps were largely successful in the sense that several prospective tenants came to look at the unit. Unfortunately these steps did not result in renting the unit for April 1, 2017 but the reasonableness of these steps should not be evaluated based on their result. The Tenant contested AV’s testimony that the Landlords advertised on an online classified website; however, even if the Landlords did not do this, they did take other steps, which I find to be reasonable.
Interestingly, as shown above within the F.M. case, the duty to mitigate requires the harmed party to take reasonable steps to minimize losses rather than take perfect steps; and accordingly, the party that caused the harm may still be found liable for losses that were avoidable. Additionally, the party that is required to mitigate by taking reasonable steps to mitigate the harm caused by the other party is also entitled to seek reasonable costs incurred in the effort to mitigate; and accordingly, when a tenant improperly vacates, or fails to occupy, and the landlord is required to take reasonable steps to source a substitute tenant, the tenant may be found liable for advertising, credit checks, leasing agent’s commission, the cost of preparing a new lease including legal costs, among other reasonable expenses incurred by the landlord.
The Residential Tenancies Act, 2006, requires a landlord to take reasonable steps to minimize losses when caused by the improper conduct of a tenant. Equally, a tenant is also required to take reasonable steps to minimize losses when caused by the improper conduct of a landlord. This requirement to minimize losses is known in law as the duty to mitigate.