Duty to Mitigate Damages Doesn't Require Landlord to Sell Property

July 27, 2023

What Happened: After signing a 10-year lease with a health clinic, a landlord put the property on the market for sale as “net lease investment,” meaning there was a tenant already in place. The tenant then defaulted just three years into the lease. Invoking the acceleration clause, the landlord sued for the seven years of rent remaining. The landlord then declined two below-asking price offers on the property. The tenant claimed that in rejecting the offers, the landlord failed to mitigate its damages.

What Happened: After signing a 10-year lease with a health clinic, a landlord put the property on the market for sale as “net lease investment,” meaning there was a tenant already in place. The tenant then defaulted just three years into the lease. Invoking the acceleration clause, the landlord sued for the seven years of rent remaining. The landlord then declined two below-asking price offers on the property. The tenant claimed that in rejecting the offers, the landlord failed to mitigate its damages. The court agreed and awarded the landlord damages of only five months’ rent.

Ruling: The Colorado appeals reversed, finding that the landlord didn’t have to sell the property to mitigate damages.

Reasoning: The duty to mitigate requires a landlord to make “reasonable efforts” to reduce its damages. But, the court added, requiring a landlord to sell its property in response to a tenant breach “goes far beyond reasonable efforts to reduce damages.” Requiring a sale to mitigate damages would put the landlord in a “catch-22”: By selling the property, the landlord would be giving up its contractual right to rent; by not selling the property, it would be relinquishing its contractual right to rent by failing to mitigate. In addition to being totally unfair, such a rule would put the defaulting tenant’s needs ahead of the non-breaching landlord’s “broader business interests.”   

  • Tremitek, LLC v. Resilience Code, LLC, 2023 Colo. App. LEXIS 897, 2023 COA 54

 

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