A state supreme court has ruled that a commercial landlord has a duty to mitigate damages when a tenant breaks the lease by leaving the property. A bookstore agreed to a ten-year lease in a shopping center. Citing lost profits due to competition from a new bookstore in the same mall, the tenant abandoned its store space with only six months left on the lease. For the rest of the lease term, the tenant paid no rent and the landlord did not rent the space to anyone else. When the landlord sued for the rent due under the lease, the tenant argued that the landlord should have reduced its damages by leasing the space to a new tenant.
A lease is a hybrid under the law, having aspects of property law and contract law. As originally conceived, leases were viewed primarily as transfers of an interest in property. If the tenant abandoned the property, he was seen as simply having given up that interest. The landlord could stand by and do nothing but demand the rent, which was due as a fixed obligation.
On the other hand, when seen mainly as a contract to convey an interest in property, a lease, like any other contract, carries with it the duty to mitigate damages. The injured party is expected to make efforts to avoid the consequences of the breach by the other party. The landlord need not accept just any new tenant, however, and only reasonable efforts are required. In the context of a shopping center, it may well be reasonable for the landlord to hold out for a tenant that will restore the overall balance of stores that existed before one tenant abandoned the premises.
The goal is to put the injured party in as good a position had the contract not been breached, at the least cost to the defaulting party. Some courts also have reasoned that requiring the landlord to mitigate damages encourages the productive use of land and decreases the likelihood of physical damage to the property.
In deciding that the shopping center landlord had been under an obligation to mitigate damages by attempting to re-rent the store space, the court was joining a modern trend that treats leases more as contracts for the use of property than transfers of property. The court also declined to make an exception for commercial leases. It is true that a commercial landlord has a special interest in maintaining the right mix of tenants in a shopping center. That interest is protected, however, not by relieving the landlord of the duty to mitigate damages, but by allowing the landlord to recover not just lost rent, but such other financial losses as may have been caused by the breach of the lease.