Is Your Damages Mitigation Effort Enough?

It seems unfair, but in some situations where a tenant has breached its lease and is no longer paying rent, the owner must try to mitigate its damages by finding another tenant who will pay rent. But if it’s not spelled out for you, how will you know if your efforts to find a new tenant are enough? A Connecticut case showed that an online ad placed by an owner for vacant space was insufficient to qualify as mitigating its damages.

In that case, after a retail tenant didn't pay its rent, the owner of the space sued it for defaulting on its lease. The tenant didn't dispute the owner's claim that it had breached the lease. Instead, it argued that the owner was obligated to mitigate its damages—that is, take advantage of any reasonable opportunity to reduce or minimize the damage—before it could collect any money from the tenant.

A Connecticut housing court ruled in favor of the tenant. The court pointed out that when a commercial property tenant breaches its lease, the owner has the option to continue or terminate the tenancy. If the owner continues the tenancy, it may sue the tenant to recover the rent due under the terms of the lease, and it's under no duty to mitigate, the court noted. However, if the owner terminates the tenancy and sues the tenant, its claim will be for “breach of contract”—which requires the owner to mitigate.

The duty to mitigate “doesn't require the owner to sacrifice any substantial right of its own or to put the tenant's interests ahead of its own,” stated the court. The owner is simply required to make “reasonable efforts” to minimize damages. The general rule when an owner sues a tenant for breach of contract is that the owner should be “placed in the same position as it would have been in had the tenant not breached its lease,” explained the court. While the tenant is the party that breached the lease and is ultimately responsible for that action, the owner must also try to mitigate by attempting to find a replacement tenant.

In this case, the owner asserted that after the tenant moved out of the space, the owner posted an ad on Craigslist, a free online classified, announcing that the space was available for rent. Because it determined that the owner “posting rental availability on Craigslist was not sufficient to ‘make reasonable efforts to mitigate its damages by actively seeking a new tenant for the premises after terminating the lease,’” the court ruled in favor of the tenant [R&L Business Ventures, LLC v. Showcase Mortgage Services, LLC et al., May 2011].