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To mitigate or not to mitigate, that is the question
January 13, 2012, 1:32 pm
A relatively recent case from the State of New York’s Second Department holds that residential landlords need not mitigate damages by seeking a new tenant when the prior tenant breaks the lease in order to collect unpaid rent – but, in at least some situations, it’s probably still a good idea.
By: John K. Rottaris, Esq. with the help of Lawrence C. Bice.
In 1995, New York State’s highest court, the Court of Appeals, ruled in Holy Properties Ltd. v. Kenneth Cole Productions that a commercial landlord is under no duty to his or her tenant to re-rent or attempt to re-rent the premises when the tenant walks away from the lease. Under Holy Properties, when a tenant breaches a lease, a commercial landlord, in theory at least, may do nothing, allow the premises to sit vacant and still collect full rent from the tenant.
In the years following the Holy Properties case, lower courts split on whether the “no-duty-to-mitigate” rule laid down in Holy Properties also applied in the residential context. In 2008, the Second Department of the Appellate Division answered in the affirmative: a residential landlord who seeks to recover unpaid rent does not have a duty to mitigate when the residential tenant walks away from the lease. Rios v. Carrillo, 53 A.D.3d 111, 114 (2d Dep’t 2008). The Rios decision is binding on trial level courts across New York State.
In Rios, a tenant of a residential apartment entered into a two year lease with the landlord. The lease provided that the tenant remain liable for the rent upon the cancellation of the lease. When the tenant vacated the apartment before the expiration of the lease, the landlord sued to recover the unpaid rent. Initially, the trial level court ruled in favor of the tenant, finding that the landlord failed to prove she seriously attempted to mitigate damages. However, the Rios court reversed on appeal, holding that the landlord was under no duty to mitigate damages and could collect the unpaid rent.
There are only a handful of published decisions involving residential leases and the duty to mitigate since Rios. These cases show that the courts are not applying the Rios rule uniformly. In Frebar Development Corp. v. Posner, (33 Misc.3d 1210(A) (Sup. Ct. New York C’ty 2010)), for example, a tenant, who was a “former practicing attorney,” signed a one year lease at $6,500 a month for a fifth floor Manhattan apartment, but walked away from the lease shortly after signing it, when she learned she was pregnant. The Frebar court strictly applied the Rios rule in favor of the landlords, holding that the landlords had no legal obligation to mitigate damages by re-renting the apartment and that the tenant was liable for all unpaid rent under the lease – $52,000.
However, other courts have not applied Rios as strictly. In Jonassen v. Kirtland (24 Misc.3d 1241(A) at *2 ( City Ct. City of Ithaca 2009)), for example, a tenant signed a 12-month lease for an apartment, prepaid two months rent and a security deposit, but abandoned the apartment after three days when she allegedly suffered headaches from sealant used to install tiles. Unable to afford another apartment, the tenant resorted to living out of her car. The landlords subsequently made no efforts to rent the apartment, which by their admission could have been immediately re-rented at the same or higher rent. The court declined to award the landlord unpaid rent under the lease, beyond the first month’s rent, holding that “a years’ rent for three days occupancy is unconscionable as a matter of law and fact.”
The scarcity of post-Rios cases cautions against making any generalizations. However, at the very least, the cases discussed above and the few other available published decisions demonstrate that while a residential landlord has no duty to mitigate in theory, in practice a landlord who chooses not to mitigate may risk the ability to recover unpaid rent.
Ultimately, how a court applies Rios may depend significantly on the facts of the particular case. When the parties to a residential lease are unsophisticated and/or the tenant breaches the lease because of a defect in the condition of the premises, courts may be more likely to soft pedal Rios, limiting the landlord’s ability to collect all unpaid rent under the lease. Alternatively, when the parties to a residential lease are sophisticated and/or when the tenant breaches the lease for reasons other than the condition of the premises, courts may be more likely to apply Rios strictly against a tenant and allow a landlord to collect the balance of the unpaid rent without attempting to re-rent the premises. Given the uncertainty, the best course of action for residential landlords may be to attempt to re-rent a residential unit when a tenant breaches the lease, rather than relying on the protection of the Rios “no duty to mitigate” rule.
If you have any questions regarding this topic, please call John K. Rottaris or contact John at jrottaris@gross-shuman.com.