A Landlord’s Duty to Mitigate. Part I.

Real Estate, Land Use & Construction Law

A Landlord’s Duty to Mitigate. Part I.

Jan 10, 2012 | Real Estate, Land Use & Construction Law

A Landlord’s Duty to Mitigate in Washington, D.C., Maryland and Virginia

Under common law, a landlord had no duty to accept or procure a new tenant in order to mitigate damages (i.e., take reasonable action to avoid additional injury or loss) resulting from a tenant’s breach of a lease, including with respect to an abandonment or refusal to occupy its premises. The rationale for this traditional view arose from the characterization of a lease as a conveyance of a real property interest, and not as a contract. In recent years, many states have enacted statutes applicable to residential landlords that impose a duty to mitigate damages. There is no clear consistency, however, in the law regarding a commercial landlord’s duty to mitigate damages. The modem trend, followed in approximately half of the states, is to require commercial landlords to mitigate damages. This modern view characterizes the lease as a contract rather than a conveyance of real estate, and it is an established principle of contract law that parties to an agreement have a duty to mitigate their damages. There are certain exceptions to the historical common law view that a landlord has no duty to mitigate, which in different variations, are currently recognized by some of the “traditional view” states. One exception imposes a duty to mitigate once the landlord re-enters the premises following an abandonment by the tenant. There are different standards as to what constitutes re-entry. For example, merely accepting the keys to the premises or keeping the premises in good repair would not typically be considered a re-entry. A second exception imposes a duty to mitigate on a landlord if the lease contains the common “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 exception.

Among the states that impose the duty to mitigate on commercial 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 landlords 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 only exercise reasonable diligence by taking steps such as advertising and engaging the services of a broker.

It is an important reminder to note that in the states that do not impose a duty on a commercial landlord to mitigate damages following a default by tenant, the parties can agree to the contrary in the lease. The default law only comes into play absent clear language in the agreement. Even in some states that do impose a duty to mitigate, the landlord and tenant can usually agree to negate such a duty contractually provided there is no violation of public policy. Commercial landlords and tenants are thus better served by agreeing on the respective rights of each party in the lease document, and it is crucial that the parties negotiating and drafting the lease understand the governing law. The laws of the District of Columbia, Virginia and Maryland relating to the duty to mitigate will be discussed more fully in Parts II, III and IV to follow.

Note that the article that is the basis for this post first appeared in the October, 2011 issue of Commercial Leasing Law & Strategy.


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