When a lessee attempts to repudiate a lease prior to the expiration of its term, the lessor may reject the repudiation and do nothing, in which case the lessee continues to remain liable under the terms of the lease, as there is no obligation for a commercial lessor to mitigate damages. The lessor can also elect to notify the lessee that it is entering the premises and re-letting for the lessee's benefit, in which case the lessee remains liable for any rent deficiency. The lessor also has the option to accept the repudiation, re-enter the premises, and re-let for its own benefit. In that event the lessee is relieved from any further liability under the lease. No further rent accrues because the landlord-tenant relationship no longer exists.
The plaintiffs, landlords, filed suit for an alleged breach of commercial lease. The parties had entered into a 20-year lease where the tenant agreed to build and operate a fast-food restaurant. Due to a community opposition, the tenant never completed the construction and repudiated the lease. The tenant never paid any rent on the lease. The trial court granted summary judgment for the landlords, holding that they were not required to accept the repudiation, and referred the matter for a trial as to damages.
Were the commercial landlords entitled to damages?
Yes, the court awarded damages.
The court determined that the landlords accepted the tenant’s repudiation when they leased to a new tenant. Thus, the landlords were only entitled to accrued rent with interest, the value of the structure for which had already contracted, and attorney’s fees.