Preserve Right to Default Damages with “No-Mitigation” Clause

When a tenant defaults on its lease, commonly because its business fell through, owners are generally required to try to find a new tenant for the space in a reasonable amount of time. However, the defaulting tenant is on the hook for rent for the remainder of the lease, unless a new tenant fills the vacant space. If that happens, then the defaulting tenant is liable only for unpaid rent for the time between its default and when the new tenant fills the vacant space. The requirement that owners take reasonable steps to find new tenants after prior tenants default helps to lessen the old tenants’ liability and keep the spaces from sitting empty.

But there’s a downside to this requirement. If an owner doesn’t take what the court determines to be reasonable steps to find a new tenant, this failure to mitigate may reduce a defaulting tenant’s liability to the owner. A “no-mitigation” clause protects owners by preventing tenants from using any failure to mitigate on the part of the owner to reduce their own liability.

The bottom line is that you should seriously consider including a no-mitigation clause in your standard lease agreements in order to preserve damages in the event of a tenant’s default. But first check with your attorney to make sure that your state doesn’t require owners to mitigate. Then, state in the lease that you, as the owner, are under no obligation to mitigate your damages.

Not a subscriber? Click here for a free trial issue!