A Landlord's Duty to Mitigate
 
March 1, 2000
 

Under common law, a landlord had no duty to accept or procure a new tenant in order to mitigate damages resulting from a tenant's abandonment or refusal to occupy its premises. The basis for this traditional view arose from the characterization of a lease as a conveyance of an interest in real property, and not as a contract. In recent years, many states have enacted statutes applicable to residential landlords that impose a duty to mitigate. There is no consistency, however, in the case law regarding a commercial landlord's duty to mitigate damages. The modern trend, followed in several states, is to require commercial landlords to mitigate damages. A recent survey on the law of mitigation indicates that the modern trend requiring mitigation is the law in the following twenty-three states: Arizona, California, Colorado, Hawaii, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Michigan, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Ohio, Oregon, Tennessee, Vermont, Washington, Wisconsin and Wyoming. This modern view treats documents conveying interests in real property as contracts. It is an established principle of contract law that parties to an agreement have a duty to mitigate their damages.

Three Exceptions to Traditional View

Three main exceptions to the traditional view that a landlord has no duty to mitigate, in different variations, are currently recognized by some of the "traditional view" states. The first exception imposes a duty to mitigate once the landlord re-enters the premises following an abandonment by the tenant. However, merely accepting the keys to the premises or keeping the premises in good repair would not be considered a re-entry. Delaware, Florida, Massachusetts, Missouri and Texas are among the states that follow this exception. The second exception imposes a duty to mitigate on a landlord if the lease contains a "re-entry clause," which permits the re-entry of the premises following abandonment of the premises by the tenant. The District of Columbia, as discussed below, is among the jurisdictions that follow this second exception. The third common exception imposes a duty to mitigate on the landlord if the landlord has agreed to do so, either by a provision in the lease or by a later separate agreement. Connecticut and Georgia are states that recognize this third exception to the traditional view.

Even among states that impose the duty to mitigate on landlords, there is no consensus as to when, or how, that duty is met. Further, there is no consensus among the states as to whether the landlord or the tenant has the burden of proof regarding the landlord's efforts to mitigate damages. Typically, the landlord does not need to re-let the premises in order to satisfy the duty to mitigate. Instead, the landlord must exercise reasonable diligence by taking steps such as advertising and engaging the services of a broker.

Landlord's Duty in District of Columbia, Virginia, and Maryland

The District of Columbia follows the traditional common law approach. In the District of Columbia, a landlord has no duty to mitigate its damages after a tenant abandons its premises, provided the lease has no contractual provision reserving the landlord's right to re-enter and re-let while holding the tenant liable for deficiency or loss of rent upon tenant's default. If, however, the lease contains such a clause, then a landlord in the District has a duty to make reasonable efforts to mitigate damages if the landlord re-enters the premises after abandonment. In the 1971 case, Simmons v. Federal Bar Bldg. Corp, 275 A.2d 545 (D.C.App. 1971), the District of Columbia Court of Appeals held that "it has long been the rule in this jurisdiction that in the absence of a contractual provision reserving the landlord's right to re-enter and re-let upon tenant's default while holding the tenant liable for any deficiency or loss of rent, the landlord is under no obligation to mitigate damages before the expiration of the lease even after an abandonment." The lease clause permitting the landlord to re-enter and re-let is construed as the landlord's assumption of a duty to use "reasonable efforts" to re-let.

The most recent District Columbia Court of Appeals case on the subject, Hart v. Vermont Inv. Ltd. Partnership, 667 A.2d 578 (D.C.App. 1995), affirms that D.C. law provides a landlord with three options in the event of a wrongful abandonment in a lease without a re-entry clause. First, the landlord may accept the abandonment, terminate the lease, and terminate the tenant's obligation to pay future rent. The tenant remains liable for any damages specified in the lease as a penalty for its breach. Second, the landlord may re-let the premises and hold the tenant liable for any deficiency in the rent, without acquiescing in the abandonment. The landlord's third option is to allow the premises to remain vacant and to hold the tenant liable for the full rent. Hart also affirms the mitigation exception when the lease contains a re-entry clause as discussed above.

No recent case in the Commonwealth of Virginia has established a duty to mitigate for a commercial landlord. However, certain Virginia cases have held that a landlord has a duty to mitigate damages by accepting or procuring a new tenant in the situation where a lessee fails to occupy or take possession of leased premises. These cases have not imposed such a duty upon the abandonment of premises after a tenant has taken possession.

In James v. Kibler's Admr., 94 Va 165 (1896), the tenant failed to take possession and occupy under the terms of the lease. The court held that the landlord's measure of damages was the difference between what he had received under the violated lease, and what he would have received from the purchaser of the lease at either a private or public sale. The court also remarked that the landlord had a duty to minimize the amount of its damages.

The court in Crowder v. Virginian Bank of Commerce, 127 Va 299 (1920), however, declined to extend the rule from James v. Kibler's Admr. to cover a tenant who had abandoned leased property after having taken possession. The court distinguished James from Crowder on the grounds that it dealt with a refusal to take possession, rather than an abandonment. The court held that upon a tenant's abandonment before the expiration of the term, a landlord will not be required to re-let the premises for the benefit of the tenant, but may, at its election, allow the premises to remain vacant and recover the rent from the tenant for the remainder of the term.

A more recent case, TenBraak v. Waffle Shops, Inc., 542 F.2d 919 (1976) affirms the older cases listed above. The court notes that the "remedies of a landlord in an action against his tenant are generally recognized, in the absence of express statutory or judicial modification, to be the same as the remedies permitted at common law." (id. at 923) The opinion goes on to hold that the law of Virginia allows the lessor certain options when a tenant abandons the premises, the landlord can "re-enter and terminate the lease, it may re-enter for the limited purpose of re-letting the premises without terminating the lease, or it may refuse to re-enter and institute an action for accrued rents."

Maryland courts follow the traditional common law rule more closely than either the District of Columbia or Virginia. There is no duty to mitigate in Maryland for commercial real estate landlords. In Millison v. Clarke, 403 A.2d 384 (Md Ct.Spec.App. 1979), the Court of Special Appeals held that "it is hornbook law in Maryland that a commercial landlord may hold a breaching tenant for the entire amount of the rent due under a lease without seeking to lessen his damages." However, Maryland has enacted a statute that imposes a duty of mitigation on residential landlords.

Both landlords and tenants need to be aware of applicable state law concerning a landlord's duty to mitigate when negotiating the default provisions of a commercial lease. The laws of various states vary significantly and the parties could be exposed to unexpected consequences if they do not draft the remedies provisions with due consideration being given to the applicable law in such jurisdiction on tenants and landlords.

John Kelly is an associate in The Real Estate Group in Holland & Knight's Washington, D.C., office. He can be reached at 202-862-5981, and at jkelly@hklaw.com.