Owner Didn't Mitigate Damages

Facts: Danada Square, LLC, the operator of a shopping center, sued KFC National Management Company, a former tenant, after a KFC franchisee assumed KFC's original lease but terminated the lease with Danada early. Because KFC remained the guarantor under the original lease, it made the franchisee's rent payments to Danada after the breach. KFC and Danada entered negotiations for a new lease, which broke down after KFC objected to an unreasonable 60-day-out provision. KFC stopped making rent payments.

The trial court ruled that Danada had fulfilled its lease obligations and that KFC was liable for the breach, but it limited the damages Danada could recover to the payments already made by KFC. Danada appealed.

Decision: The appeals court upheld the trial court's ruling.

Reasoning: Danada acted unreasonably in rejecting KFC's offer to enter into a new lease without the 60-day-out provision. The appeals court found that KFC was “ready, willing, and able” to enter into a new lease on the same terms as those in the old lease if the 60-day-out provision were removed.

Generally, if an owner cannot show that it took reasonable steps to mitigate its damages, the damages that it could otherwise recover are reduced, and losses that reasonably could have been avoided are not recoverable. Danada breached its duty to mitigate, because it could have avoided all of its damages if it had been willing to accept KFC's offer.

“Danada cannot compel KFC to bear the costs of its decision when it could have avoided those costs altogether by accepting KFC's offer and dropping the 60-day out,” concluded the appeals court.

• Danada Square, LLC v. KFC National Management Company, June 2009