LANDLORDS HAVE NO DUTY TO MITIGATE DAMAGES FOLLOWING LEASE BREACH

Here’s the scenario:  In month 9 of a 12 month residential lease term, Tenant defaults on his rent payment and abandons the apartment with three months still to go on the lease.  Landlord, in accordance with the lease terms, declares the lease terminated and brings a civil suit seeking monetary damages against tenant – including the value of the three months’ worth of rent Landlord otherwise would have received had Tenant not abandoned the lease.  However, during those three months, Landlord makes absolutely no effort to relet the apartment – in fact, he just shutters it up and lets it sit empty.  The question now raised by Landlord’s suit – and a common question in landlord/tenant disputes involving premature lease termination – is whether or not Landlord had a duty to mitigate his damages suffered as a result of Tenant’s default?  In particular, can a landlord recover damages for lost rent without making at least some minimally reasonable effort to cover some if not all of its losses by obtaining a new tenant to fill the abandoned space?

While the answer to this question differs from state to state, in New York, the answer is fairly clear (more on the hedge below):  absent lease language to the contrary, the residential landlord has no duty to mitigate its damages and may recover the full value of remaining payments owed under the lease for the entire lease term even if the landlord makes no attempt whatsoever to offset, minimize, or cover its losses.

The only reason for characterizing this conclusion as “fairly” clear, is that the New York Court of Appeals has not expressly ruled on the absence of a landlord’s duty to mitigate in a residential leasing context.  In the context of a commercial lease dispute, the Court unequivocally held that there is no such duty to mitigate, stating:

“The law imposes upon a party subjected to injury from breach of contract, the duty of making reasonable exertions to minimize the injury … Leases are not subject to this general rule, however, for, unlike executory contracts, leases have been historically recognized as a present transfer of an estate in real property … Once the lease is executed, the lessee’s obligation to pay rent is fixed according to its terms and a landlord is under no obligation or duty to the tenant to relet, or attempt to relet abandoned premises in order to minimize damages.”

Holy Properties Ltd., L.P.  v. Kenneth Cole Productions, Inc., 87 N.Y.2d 130, 133 (1995).

However, in the years that followed Holy Properties, lower courts across the State issued a variety of conflicting decisions in residential lease cases – some applying Holy Properties despite its commercial context and finding no duty to mitigate, others distinguishing Holy Properties as applicable only to commercial leases and imposing a mitigation duty.  The highest court to address the issue directly, however, has been the Appellate Division, Second Department, which in Rios v. Carrillo, 53 A.D.3d 111 (2d Dept. 2008) expressly held that the ruling in Holy Properties should apply to all leases, residential as well as commercial.  See Rios, 53 AD3d at 113 (citing Holy Properties and stating that the “well-settled law in this state imposes no duty on a residential landlord to mitigate damages”).  The Rios court based its holding on two principles.  First, focusing on the above-quoted paragraph from Holy Properties, the Rios Court held that the Court of Appeals rationale in Holy Properties did not allow for a residential-commercial distinction:

Although Holy Props. involved a commercial lease, the broad language employed and the reliance on real property principles negate the possibility that the Court of Appeals was confining its determination only to commercial leases. There is simply no basis for limiting the broad language of Holy Props.

Rios, 53 AD3d at 113.

The Rios Court then also noted that in both the case at bar and in Holy Properties, the leases at issue contained terms specifically disclaiming a duty to mitigate damages following a lease breach:

Moreover, in Holy Props., the Court of Appeals placed great weight on the fact that the parties’ lease “expressly provided that plaintiff was under no duty to mitigate damages and that upon defendant’s abandonment of the premises or eviction, it would remain liable for all monetary obligations arising under the lease” and therefore concluded that “[if] the lease provides that the tenant shall be liable for rent after eviction, the provision is enforceable”

Id. 

Both Holy Properties and Rios, therefore, are also rooted in the tendency within New York jurisprudence to give maximum effect to the express terms of a lease or other agreement as set forth in the writing agreed to by the parties.

So, despite the fact that New York’s highest court has yet to directly address the issue, there is very likely no duty of a residential landlord to mitigate its damages following a breach of lease.  See Rios, 53 A.D.3d at 114 (“Since the Court of Appeals has not modified its rule in Holy Props., nor has there been any legislative enactment which requires a contrary result, we are constrained to follow what we perceive to be established precedent that a residential landlord is under no duty to mitigate damages where the terms of the lease do not indicate otherwise.”).  The answer to the question posed at the beginning of this discussion, therefore, is that under New York law, following the premature departure of a tenant from a leased residence, the landlord “could have left the property vacant until the lease was up and sued for the rent due and owing.” Hamblin v. Bachman, 23 Misc.3d 1116(A), *3 – *4 (City Court, City of Rochester, 2009) (holding that it was “conclusively resolved” that a residential landlord has no duty to “mitigate losses by undertaking efforts to re-rent premises after a tenant departs prematurely.”).