Frenchtown Square Partnership v. Lemstone, Inc.

2003-Ohio-3648, 99 Ohio St. 3d 254, 791 N.E.2d 417

 

RULE:

A lessor has a duty to mitigate damages caused by a lessee's breach of a commercial lease if the lessee abandons the leasehold. The lessor's efforts to mitigate must be reasonable, and the reasonableness should be determined by the trial court. Failure to mitigate damages caused by a breach of a commercial lease is an affirmative defense. 

FACTS:

The tenant ceased conducting business at the leased premises and abandoned its store space. For the balance of the lease term the tenant did not pay rent and the landlord did not relet the property. In the instant discretionary appeal, the highest appellate court found that the narrow issue before it was whether the duty to mitigate was applicable to commercial leases. In finding that it was, the highest appellate court found that modern leases were more than simply property-interest transfers; rather, leases possessed contractual qualities that often included a myriad of covenants and duties that arose from a bargained-for relationship. The failure to mitigate damages caused by a breach of a commercial lease was an affirmative defense.

ISSUE:

Does a landlord have a duty to mitigate damages caused by a tenant who breaches a commercial lease and abandons the leasehold?

ANSWER:

Yes.

CONCLUSION:

Under the common law of contracts, mitigation is a fundamental tenet of a damage calculus. Contracts are the mutual exchange of promises, with each party holding an expectation of certain obligations and benefits. Thus, contract law acknowledges that mitigation, otherwise known as the doctrine of avoidable consequences, may justly place an injured party "in as good a position had the contract not been breached at the least cost to the defaulting party."

As what was stated in Dennis,  landlords owe a duty to mitigate their damages caused by a breaching tenant. That rule flows from the premise that modern leases are more than simply property-interest transfers; rather, leases possess contractual qualities that often include myriad covenants and duties and arise from a bargained-for relationship. In a practical sense, lessors and lessees contract for the use of property. Accordingly, barring contrary contract provisions, a duty to mitigate damages applies to all leases.

Thus, the court sees no valid reason to exempt commercial leases from the duty to mitigate.  A lessor has a duty to mitigate damages caused by a lessee's breach of a commercial lease if the lessee abandons the leasehold. The lessor's efforts to mitigate must be reasonable, and the reasonableness should be determined by the trial court. Failure to mitigate damages caused by a breach of a commercial lease is an affirmative defense.

Click here to view the full text case and earn your Daily Research Points.