Owner Not Required to Mitigate Damages After Tenant's Breach

Facts: A tenant assigned its commercial lease to a party that agreed to assume all of the tenant's obligations under the lease. When the assignee defaulted on rent payments, the owner began looking for other tenants. Despite receiving at least one offer to lease the premises, the space remained vacant for more than a year. The owner sued to collect unpaid rent for the time that the space was empty. After the trial court granted judgment for the owner, without a trial, the assignee appealed, claiming that the owner had failed to mitigate, or lessen, the damages resulting from the breach.

Decision: A North Carolina appeals court ruled that the owner had no duty to mitigate the tenant's damages.

Reasoning: The court said that under North Carolina law, a lease can exempt an owner from having to mitigate its damages if the tenant breaches the lease. In this case, the lease waived this “duty to mitigate” where the owner took possession of the premises without terminating the lease, the court noted. To prevent judgment for the owner without a trial, the court said that the assignee had to present facts “showing that there is a genuine issue for trial.” Since the assignee failed to present evidence that the owner had terminated the lease, the court would not allow the assignee to argue that the owner was required to mitigate its damages.

• Kotis Properties, Inc. v. Casey's, Inc., June 2007.

Lesson Learned: Most jurisdictions require the nonbreaching party to a lease to take reasonable steps to relet a space, to lessen the time that the space remains vacant, and lower the amount of damages a breaching party must pay. In some jurisdictions, certain leases can waive this “duty to mitigate.” That gives owners more leeway in reletting a space after a tenant's breach.