Understanding the Commercial Landlord’s Duty to Mitigate Damages

  1. Business Law
  2. Understanding the Commercial Landlord’s Duty to Mitigate Damages
duty to mitigate damages
Business Law, Landlord Tenant, Real Estate

Under a commercial lease, if a tenant stops paying rent or abandons the commercial property, the landlord can sue the tenant for damages. Available damages include all unpaid rent that is due through the end of the lease term. However, the landlord’s ability to claim these damages is subject to a duty to mitigate damages or to make a reasonable effort to relet the commercial property to a new tenant.

Duty to Mitigate Damages

The duty to mitigate damages under Arizona law requires the landlord to make reasonable efforts to find a replacement tenant. By reletting the premises to a new tenant, damages will stop accruing, or at least the potential damages will decrease. Under this concept, a landlord cannot simultaneously collect unpaid rent owed for the remainder of the lease term as damages from the original tenant and monthly rent from a new tenant. Therefore, once the landlord relets the property to a new tenant, the original tenant’s rent owed under the lease stops accruing.

When the case goes to court, the landlord must be able to explain to the judge what steps they have taken to meet the duty to mitigate damages or relet the property to a new tenant at a fair market rental value. The landlord cannot allow the property to remain empty and unpaid rent to continue to accrue each month and then sue the tenant for the full amount of unpaid rent under the lease. Instead, the landlord must affirmatively take reasonable measures to mitigate those damages.

Landlord’s Duty to Mitigate Damages Must Be “Reasonable”

Whether a landlord’s efforts at mitigation are “reasonable” depends on the circumstances. Generally, reasonable efforts at reletting a commercial property and finding a replacement tenant include activities such as advertising the property for rent by posting signs or advertisements online, listing the property on commonly used real estate databases, holding showings of the property, advising local realtors of the vacancy, and listing the property in trade or other relevant publications.

For instance, if the commercial rental market is generally poor, many commercial properties sit empty, and the landlord has advertised the property for rent but has been unable to attract a new tenant for even a discounted rental rate, a judge may find that the landlord has made reasonable efforts to relet the property. In that case, the judge may award the landlord the full amount of unpaid rent under the remainder of the lease as damages.

On the other hand, in a robust rental market, where the landlord fails to advertise the rental or show the property to prospective tenants over several months, the judge may find that the landlord failed to mitigate damages as required. In this instance, the judge may refuse to award the landlord the full amount of unpaid rent under the lease.

With that said, the landlord is not required to immediately relet the property to the first tenant who is willing to rent the property. For example, suppose a new tenant is willing to rent the property but only at half the rent the previous tenant paid. In that case, it may not be reasonable for the landlord to relet the property at that rental rate. Instead, it may make good business sense to wait a few months and see if another tenant is willing to rent the property at a rental rate closer to the rental rate under the original lease.

Condition of the Property After Tenant Leaves

Another issue that may arise is the condition of the property after the current tenant leaves. If the tenant has caused substantial damage to the premises or leaves behind a great deal of property or trash, the landlord may need time to make repairs or restore the property to a presentable condition before attempting to relet it. However, a tenant who abandons the property or otherwise defaults on the lease is not an opportunity to completely remodel the property while allowing damages to accrue under the lease. Keeping the property empty for a protracted period while remodeling will likely make it appear that the landlord has failed to mitigate damages.

Contact the Experienced Attorneys at Provident Law Today

Provident Law® is a real estate and business law firm providing legal representation and counsel in residential and commercial real estate litigation, real estate transactions, business law, and other legal matters. The real estate attorneys of Provident Law® represent the interests of individual and business clients in Buckeye, Fountain Hills, Gilbert, Paradise Valley, Phoenix, Scottsdale, and the surrounding areas. You can contact the offices of Provident Law® today at (480) 388-3343 or online.

Previous Post
Beware of Title Fraud
Next Post
5 New Arizona Laws that Affect Owners and Residents of HOA Communities