What is a Commercial Landlord’s Duty to Mitigate?

Fact scenario: A commercial tenant breaches the lease. There are three years left on the term of the lease. The commercial landlord is therefore damaged in the amount of monthly rent for the 36 months left on the lease. But, the landlord may not be able to hold the tenant liable for all 36 months of rent. The landlord must take reasonable steps to find a new tenant and thereby reduce or “mitigate" the damages. 

What constitutes reasonable steps to find a new tenant? The law holds that the commercial landlord must take steps that would be expected of a reasonable landlord letting out a similar property in the same market conditions. Reid v. Mut. of Omaha Ins. Co., 776 P.2d 896, 907 (Utah 1989). In other words, whether a landlord has taken reasonable steps to find a new tenant will depend on what type of property is being leased, what type of tenant is needed to occupy the property, and what the market conditions are at the time.

For example, if the property vacated is large and requires an anchor tenant, the passage of a significant period of time without filling the space will be viewed differently by a court than a space that is common and relatively easy to fill. In any event, the landlord should keep good records of any and all efforts, even small ones, to find a replacement tenant.

Fortunately for landlords, if the tenant wants to argue that it does not owe the money for the full 36 months (using our example above) the law holds that the tenant is the one who has the responsibility to prove that the landlord failed to take reasonable steps to find a new tenant. Commercial Real Estate Inv., L.C. v. Comcast of Utah II, Inc., 2012 UT 49, ¶ 48. 

In the Comcast case, Comcast, the tenant, left the property before the end of the lease term. It hired a real estate agent to help find a replacement tenant. CRE, the landlord, simply referred prospective replacement tenants to Comcast's real estate agent, but did nothing more. The property sat vacant for several years. Comcast repeatedly argued that CRE failed to mitigate its damages because it did nothing except refer prospective tenants to the real estate agent. However, Comcast offered no evidence on what the landlord could have done to further mitigate its damages. Because it was the tenant’s burden to prove failure to mitigate, the court ruled in favor of the landlord.

This Article provides general information only and should not be considered legal advice. Please consult a professional regarding your specific situation.