TenantNet Forum

Where tenants can seek help and help others



Landlord's Duty to Mitigate Damages

Basic Reference Documents

Moderator: TenantNet

Landlord's Duty to Mitigate Damages

Postby TenantNet » Fri Sep 07, 2012 10:10 am

LANDLORD-TENANT: MITIGATING DAMAGES
Landlord's Duty May Depend on Where You Live
New York Law Journal, December 4, 2001
by Warren A. Estis and William J. Robbins

Where a tenant has abandoned the premises, and assuming the court finds there was no legal justification for doing so, does a landlord have a duty to mitigate damages? This is an issue which may be particularly relevant post-Sept. 11, when some tenants with leases for premises near ground zero may seek to abandon those premises.

The law is clear that in a commercial lease, the landlord has no duty to mitigate damages where the tenant has abandoned the premises. This means that a commercial landlord can refuse to re-rent the premises and can sit idly by while damages pile up on the tenant during the remainder of the lease.

This rule originated in feudal times. According to English common law, a lease (whether for commercial or residential property) was deemed to be a contract of sale of a vested interest in real estate. Rent was deemed to be the purchase price, to be paid in regular installments. Once the tenant "bought" the property, he was obligated to pay the full purchase price, even if he no longer intended to use the premises.{[1]}†

'Holy Properties'

The New York Court of Appeals reaffirmed this doctrine in a 1995 decision in Holy Properties, Ltd. v. Kenneth Cole Productions, Inc.{[2]}† In that case, the tenant had entered into a written lease for premises in a commercial office building for a ten year lease term. After approximately seven years, following a change of owners and an alleged deterioration in the level and quality of building services, the tenant vacated the premises. The new owner then commenced a summary eviction proceeding and obtained a judgment and warrant of eviction. Subsequently, the new owner instituted a Supreme Court action seeking rent arrears and damages.

At trial, the tenant asserted, as an affirmative defense, that the landlord had failed to mitigate damages by deliberately failing to show or offer the premises to prospective replacement tenants. The Supreme Court entered judgment for the landlord, holding that the tenant had breached the lease without cause and that the landlord had no duty to mitigate damages. The Appellate Division affirmed.

The Court of Appeals affirmed the order of the Appellate Division, holding that:

"Once the tenant abandoned the premises prior to the expiration of the lease, . . . the landlord was within its rights under New York law to do nothing and collect the full rent due under the lease."{[3]}†

In support of that holding, the Court cited three Court of Appeals decisions from the 19th century, namely, Becar v. Flues,{[4]}† Underhill v. Collins,{[5]}† and Matter of Havenor.{[6]}†

In Holy Properties, the Court of Appeals explained the theory behind the no-mitigation rule as follows:

"The law imposes upon a party subjected to injury from breach of contract, the duty of making reasonable exertions to minimize the injury . . . Leases are not subject to this general rule, however, for, unlike executory contracts, leases have been historically recognized as a present transfer of an estate in real property . . . Once the lease is executed, the lessee's obligation to pay rent is fixed according to its terms and a landlord is under no obligation or duty to the tenant to relet, or attempt to relet abandoned premises in order to minimize damages."{[7]}†

The Court of Appeals "decline[d]" to "reject this settled law and adopt the contract rationale recognized by some courts in this State and elsewhere" because:

"Parties who engage in transactions based on prevailing law must be able to rely on the stability of such precedents. In business transactions, particularly, the certainty of settled rules is often more important than whether the established rule is better than another or even whether it is the 'correct' rule . . . . This is perhaps true in real property more than any other area of the law, where established precedents are not lightly to be set aside."{[8]}†

Where a residential lease is involved, however, the duty to mitigate issue is more clouded. There is a 1997 Appellate Term, First Department decision, in Whitehouse Estates, Inc. v. Post,{[9]}† which applied the no mitigation rule in a residential context. In that case, the court quoted the no mitigation rule as set forth in Holy Properties. The court conceded that "a commercial tenancy was the subject of the litigation in Holy Properties, but nevertheless, in the context of the residential tenancy before it, applied the "settled higher authority which relieves a landlord of any obligation to mitigate damages where the tenant has abandoned the premises prior to the expiration of the lease term."

In Whitehouse Estates, the Appellate Term, First Department specified two grounds for applying the no mitigation rule in a residential context. The court pointed out that it had not been referred "to any case decided by the Appellate Division expressly adopting a duty to mitigate in residential cases." The court also stated that:

"[N]either the language nor reasoning employed in the [Holy Properties] decision signals an intent on the part of the Court of Appeals to abrogate the no-mitigation rule in the context of residential landlord and tenant relationships."{[10]}†

The Appellate Term, First Department in Whitehouse Estates did not expand upon its comment concerning the language and reasoning of Holy Properties, except (i) to state in a footnote that the case of Becar v. Flues, cited with approval by the Court of Appeals in Holy Properties, involved a residential lease, and (ii) to cite the case of Duda v. Thompson.{[11]}†

Duda v. Thompson is a Supreme Court, Westchester County case (Donovan, J.), decided approximately eight months after Holy Properties, in which the court concluded that a residential landlord was under no duty to mitigate damages. The court rejected the tenant's argument that, with respect to the issue of mitigation, there should be a distinction between commercial and residential leases.

The Duda v. Thompson court stated that it was "apply[ing] Holy Properties as it more plainly reads, without distinction as to the lack of mitigation obligation based on the character of the lease itself." Justice Donovan noted "the obvious approval by the Court of Appeals [in Holy Properties] of its own Becar v. Flues residential lease holding" and commented that "the high court itself [in Holy Properties] makes no such distinction between the two types of leases." He also reasoned that:

"[T]he stated legal theory underpinning the holding [in Holy Properties] i.e., that leases, unlike contracts, constitute present transfers of estates solidifying the obligation to pay the full rent, would be vastly contradicted by attempting to continue any such distinction [between residential and commercial leases]."{[12]}†

'Paragon'

It does not appear that any other appellate courts have followed Whitehouse Estates in holding that the no mitigation rule applies in a residential context. In fact, Whitehouse Estates is contradicted by Appellate Term authority from the Second Department that pre-dates it. In a 1983 decision in Paragon Industries, Inc. v. Williams,{[13]}† the Appellate Term, 2nd and 11th Judicial Districts, expressly held that a residential landlord has a duty to mitigate damages:

"[T]his court . . . has not previously had occasion to pass upon the issue of the landlord's duty to mitigate. We now hold that a landlord has such a duty."{[14]}†

The court characterized its holding as part of the trend of modernizing traditional concepts of landlord and tenant law.

In a 1987 decision in Syndicate Building Corp. v. Lorber,{[15]}† the Appellate Division, First Department cited Paragon Industries in support of the statement that courts in New York have "imposed the duty to mitigate damages upon residential landlords." The Syndicate Building Corp. case involved a commercial lease and, therefore, the Appellate Division, First Department did not have to reach the issue of whether it agreed with Paragon Industries in imposing such a duty on residential landlords. In any event, however, the Appellate Division in Syndicate Building Corp. did not express disagreement with Paragon Industries and, indeed, contrasted the cases imposing a mitigation duty on residential landlords with "the contrary [being] true in the context of commercial leases."

Just as Paragon Industries is countervailing Appellate Term authority to Whitehouse Estates, so, too, there is Supreme Court authority contrasting to Duda v. Thompson. In a 1997 decision in Kabushi Kaysha Iwasa Tekkojo v Comico Entertainment, Inc.,{[16]}† the Supreme Court, New York County (Greenfield, J.) expressly took issue with Duda v. Thompson. Justice Greenfield commented that the Court of Appeals holding in Holy Properties:

"[D]eals only with a commercial lease which expressly provided that the landlord was under no duty to mitigate damages. The decision does not purport to overrule the many cases requiring a landlord of residential premises to make a showing of good faith to minimize damages."{[17]}†

In an earlier column discussing Holy Properties shortly after that Court of Appeals decision was issued, we similarly expressed the view that "the Holy Properties holding is properly read as only applying to commercial leases."{[18]}†

In a 1986 decision in Goldman v. Orange County Chapter, New York State Association for Retarded Children, Inc.,{[19]}† the Appellate Division, Second Department, commented that whether or not a residential landlord has a requirement to mitigate damages "is subject to question."

Fifteen years later, it would seem that the same comment could still be made. There is no Court of Appeals decision, and there does not appear to be any Appellate Division authority, expressly holding whether a residential landlord does or does not have a duty to mitigate. There are conflicting Appellate Term decisions.

To the extent that the nature of the lease (i.e., commercial versus residential) makes a difference with respect to a landlord's duty to mitigate damages, the question logically arises why that should be. The cases do not answer that question. In the first article we wrote on the mitigation issue approximately eight years ago, we speculated on possible reasons for a variation in treatment.{[20]}†

Perhaps the difference in treatment is explained by an unarticulated belief that residential tenants both require and deserve more protection than commercial tenants. Without expressly saying so, the courts may regard residential tenants as less sophisticated and less armed with legal advice than commercial tenants when negotiating a lease.

It may also be psychologically more difficult for a judge to allow a landlord to let damages accumulate and increase in a residential context than in a commercial context. Damages against a residential tenant are likely to come out of a person's pocket. Damages against a commercial tenant are likely to be corporate or partnership liability, perceived as a more impersonal liability.

Perhaps there is also an unspoken notion that a residence is more essential than a place of business. The courts may therefore find it more objectionable that a landlord would keep vacant residential space off the market as compared to vacant commercial space.

As we pointed out in that earlier article, however, any such unspoken considerations may be more sentimental than realistic. In the luxury residential rental market, for example, tenants can afford to and do hire sophisticated counsel to represent them in lease negotiations. Conversely, many commercial leases are for "mom-and-pop" stores. These are precisely the kind of businesses that are abandoning long-term leases negotiated years ago at rentals that are now far above market.

If no cogent reasons can be advanced for different treatment, and given that the Court of Appeals has been so definitive that there is no duty to mitigate with respect to a commercial lease, do these circumstances militate in favor of a no-mitigation rule for residential leases? On the other hand, is there likely to be a post-Sept. 11 sympathy for the plight of tenants that, pragmatically, makes unlikely any definitive expansion of the no mitigation rule to the residential context?

In short, the issue of duty to mitigate in a residential lease is a quagmire that both cries out for express guidance from the Appellate Division or the Court of Appeals and, at the same time, perhaps has been complicated by current events. Warren A. Estis is a founding partner and William J. Robbins is a partner with Rosenberg & Estis in New York.

--------------------------
FootNotes: [1]

††† See Rasch, N.Y. Landlord and Tenant, §26:22 (3rd ed. 1988). [2]
††† 87 N.Y.2d 130, 637 N.Y.S.2d 964 (1995). [3]
††† 87 N.Y.2d at 134, 637 N.Y.S.2d at 966. [4]
††† 64 N.Y. 518 (1876). [5]
††† 132 N.Y. 269 (1892). [6]
††† 144 N.Y. 271 (1895). [7]
††† 87 N.Y.2d at 133, 637 N.Y.S.2d at 966. [8]
††† 87 N.Y.2d at 134, 637 N.Y.S.2d at 966. [9]
††† 173 Misc.2d 558, 662 N.Y.S.2d 982 (A.T. 1st Dep't 1997). [10]
††† 173 Misc.2d at 559, 662 N.Y.S.2d at 982. [11]
††† 169 Misc.2d 649, 647 N.Y.S.2d 401 (Sup. Ct. Westchester Co. 1996). [12]
††† 169 Misc.2d at 652, 647 N.Y.S.2d at 404. [13]
††† 122 Misc. 2d 628, 473 N.Y.S.2d 92 (A.T. 2nd Dep't 1983). [14]
††† 122 Misc.2d at 629, 473 N.Y.S.2d at 93. [15]
††† 128 A.D.2d 381, 512 N.Y.S.2d 674 (1st Dep't 1987). [16]
††† N.Y.L.J., April 16, 1997, p. 25, col. 2, 25 HCR 205 (Sup. Ct. N.Y.Co.
1997). [17]
††† 25 HCR at 206. [18]
††† Warren A. Estis and William J. Robbins, "Commercial Leases: Court
Affirms Landlord Has No Duty To Mitigate Damages", N.Y.L.J., Feb. 7, 1996,
at 5. [19]
††† 121 A.D.2d 683, 503 N.Y.S.2d 884 (2nd Dep't 1986). [20]
††† Warren A. Estis, "Feudalism Is Alive and Well: The 'No Duty To
Mitigate' Rule for Commercial Landlords", N.Y.L.J., Oct. 16, 1993, at 5.
TenantNet
 
Posts: 9099
Joined: Mon Jan 21, 2002 2:01 am
Location: New York City

Does a Landlord Have a Duty To Mitigate? No, but Maybe

Postby TenantNet » Fri Sep 07, 2012 10:25 am

Does a Landlord Have a Duty To Mitigate? No, but Maybe
Sateesh Nori
New York Law Journal
08-30-2012

A lease is both a contract between parties -- ­the landlord and the tenant -- and an interest in land. However, this duality has created conflict in determining whether a landlord has a duty to mitigate damages in the event of a tenant's early termination of a lease. The rule that a landlord has a duty to mitigate derives from basic principles of contract law. The doctrine that the landlord has no duty to mitigate, which views a lease not as a contract but as an interest in land, was seemingly mandated by the Appellate Division, Second Department, in Rios v. Carrillo in 2008. Now, four years later, uncertainty still abounds as courts waver in applying contract principles to lease breaches and carve exceptions into the rule that a landlord has no duty to mitigate. This article attempts to identify the factors relied upon by courts where a duty to mitigate has been applied in contravention of established case law.

Development of Case Law

The traditional rule was that damages for breach of contract are only those that are incidental to, and directly caused by, the breach, and may reasonably be presumed to have entered into the contemplation of the parties. Such damages, under the traditional rule, are not for speculative profits, or accidental or consequential losses. Hamilton v. McPherson, 28 N.Y. 72 (N.Y. 1863). Principles of contract law support the duty to mitigate because contract law encourages efficiency and discourages economic and physical waste. The duty to mitigate often results in a more productive use of property by requiring re-letting by the landlord upon breach. Re-letting decreases the possibility of harm to the property that may happen due to abandonment, prevents landlords from underusing their property, and prevents the landlord from unreasonably allowing damages to accumulate on abandoned property.

Under the rule described in Hamilton, the law imposes upon a party subjected to injury from a breach of contract by the other party, the active duty of making reasonable exertions to render the injury as light as possible (a duty to mitigate). In Hamilton, the Court of Appeals wrote: "…if the injured party, through negligence or willfulness, allows the damages to be unnecessarily enhanced, the increased loss justly falls upon him." Id at 72.

However, in Becar v. Flues, 64 N.Y. 518 (1876), the Court of Appeals changed course and established the rule in New York State that a residential landlord has no duty to mitigate.

In Becar, the court declined to follow the Hamilton rule for contact interpretation, finding instead that "a parol lease for a year, to commence in futuro, is valid and obligatory." Id at 520. In other words, the court held that a lease, unlike other contracts, is like the sale of personal property, where a defaulting purchaser is liable for breach.

Changing course again, in the 1980s New York courts found that residential landlords had a duty to mitigate. See Paragon Industries v. Williams, 122 Misc.2d 628, 473 N.Y.S.2d 92, 93 (App. Term 2d Dept. 1983); See also Syndicate Bldg. v. Lorber, 128 A.D.2d 381, 512 N.Y.S.2d 674 (1st Dept. 1987) (acknowledging the duty of a landlord to mitigate damages in the residential context). These courts seemingly viewed leases as contracts and interpreted contractual breaches with the goal of efficient mitigation of losses.

A century after Becar, the Court of Appeals revisited this issue in Holy Properties v. Kenneth Cole Productions, 637 N.Y.S.2d 964 (1995). In that case, defendant Kenneth Cole Productions entered into a written lease for premises in a commercial office building at 29 W. 57 St. in Manhattan. The term was to commence on Jan. 1, 1985, and end on Dec. 31, 1994. In December 1991, following a change of owners and an alleged deterioration in the level and quality of building services, defendant vacated the premises. Shortly thereafter, the new owner, plaintiff Holy Properties Limited, L.P., commenced a summary eviction proceeding against defendant for the nonpayment of rent. It obtained a judgment and warrant of eviction on May 19, 1992, and subsequently instituted this action seeking rent arrears and damages.

At trial, defendant asserted, as an affirmative defense, that plaintiff had failed to mitigate damages by deliberately failing to show or offer the premises to prospective replacement tenants. The Supreme Court entered judgment for plaintiff, holding that defendant had breached the lease without cause and that plaintiff had no duty to mitigate damages. The Appellate Division affirmed. The Court of Appeals, relying on the distinction carved out in Becar that a lease is different from other contracts and therefore there is no duty to mitigate, also affirmed, setting in place the no duty to mitigate rule­ -- at least for commercial leases.

Following Holy Properties, the rule that landlords did not have a duty to mitigate was extended by courts to residential leases. See Duda v. Thompson, 169 Misc.2d 649, 647 N.Y.S.2d 401 (Sup. Ct. Westchester Co. 1996); Whitehouse Estates v. Post, 173 Misc.2d 558, 662 N.Y.S.2d 982 (App. Term 1st Dept. 1997); Olim Realty v. Big John's Moving, 250 A.D.2d 744, 673 N.Y.S.2d 439 (2d Dept. 1998); 85 John Street Partnership v. Kaye Ins. Associates, 261 A.D.2d 104, 689 N.Y.S.2d 473 (1st Dept. 1999).

Still, the issue remained unsettled. In 2004, a court in the First Department found that there was a duty to mitigate on the part of residential landlords. The court held:

The concept that a landlord can hold a residential tenant hostage to the terms of a lease, doing nothing and permit damages to accrue when leased premises are readily marketable is clearly contrary to common sense, the reasonable expectations of the public, and notions of justice and equity. It is already harsh justice which imposes an indefinite obligation upon a guarantor of a residential lease. To superimpose upon this harsh result the right of a landlord to make no effort to minimize damages is unconscionable, and violative of public policy. 29 Holding v. Diaz, 3 Misc.3d 808, 775 N.Y.S.2d 807 (Sup. Ct. Bronx Co. 2004).


A court in the Second Department followed, ruling in 2006 in Lora Equities v. Galindo, 12 Misc.3d 1104, 1105, 821 N.Y.S.2d 377, 378 (Civ. Ct. Kings Co. 2006) that "…in this judicial district, a landlord does have a duty to mitigate damages when a tenant leaves before the end of its term." Id at 1106.

The issue was addressed by the Second Department in 2008 in Rios v. Carrillo, 53 A.D.3d 111, 861 N.Y.S.2d 129, which stated that "[w]e reiterate the principle that, in the absence of legislative direction to the contrary, common-law principles control and contrary to lower court authority, an assessment of damages should not require the prevailing party to mitigate damages." Id. at 129. Rios pronounced that even in a residential lease, the landlord has no duty to mitigate damages.

After 'Rios'

The legal landscape after Rios was no less uncertain for landlords and tenants. The temptation to apply contract principles to breaches of leases proved too tempting for many courts. One court described the Holy Properties rule as "harsh." Jonassen v. Kirtland, 24 Misc.3d 1241(A), 899 N.Y.S.2d 60 (City Ct. Ithaca 2009) This court found it unreasonable to apply the no mitigation rule in certain cases, writing:

Feudal real property concepts are significant to seasoned real property lawyers negotiating a lease with brokers for commercial multi-million dollar parties, but are inappropriate to consumer lease rules where a tenant is homeless and a landlord can re let the property without effort in a tight market. Id.


Thus economics played a role in this court's decision on whether to apply a long-standing rule. In essence, the court sought to prevent the unjust enrichment of a landlord who sought to avoid mitigation of damages.

The Appellate Term, Second Department, just a few months after Rios, held that a landlord could be estopped from asserting that it had no duty to mitigate. Salvia v. Dyer, 21 Misc.3d 140(A), 875 N.Y.S.2d 823 (App. Term 2008). In that case, the landlord affirmatively attempted to relet the apartment, and having failed to find a new tenant, was barred from claiming that it had no duty to mitigate.

The court in Salvia also held that "[a] landlord's conduct may indicate his intent to terminate the lease and use the property for his own benefit, thereby releasing a tenant from further liability for rent." Id; See also Deer Hills Hardware v. Conlin Realty, 292 A.D.2d 565 (2d Dept. 2002).

Courts in the First Department were also tempted to apply equitable estoppel as a bar to the no duty to mitigate rule. Frebar Dev. v. Posner, 33 Misc.3d 1210(A), 941 N.Y.S.2d 537 (Sup. Ct. New York Co. 2010). In Hamblin v. Bachman, 23 Misc.3d 1116(A), 885 N.Y.S.2d 711 (City Ct. Rochester 2009), the landlord undertook repairs to the abandoned premises, and was thereby estopped from claiming that it had no duty to mitigate.

In July 2012, in Kings Holding v. Terrick, CV-118388-08/KI (Civil Ct. Kings Co.), NYLJ, July 2, 2012, a Civil Court judge in Brooklyn held that while there was no duty to mitigate, a landlord's damages are limited if the tenant surrendered the premises by operation of law. This court acknowledged the rule in Rios, but was reluctant to grant the landlord damages for the full period of the contractual breach since the tenant had taken clear steps to surrender the apartment. In August 2012, in Ilishaeva v. U-Buy-1 Realty, yet another Civil Court Judge in Kings County relied on Holy Properties to find that a landlord had no duty to mitigate, but recognized the ambiguity in the legal precedents on the issue.

In the four years since Rios v. Carrillo held that there is no duty to mitigate on the part of residential landlords, few cases have relied on Rios (only about seven published decisions referenced the case, and even fewer relied on it). Nonetheless, that there is no duty to mitigate on the part of residential landlords remains a default rule and is followed by both the First and Second departments. However, since 2008, contract principles have become employed with higher frequency, and the language used in the context of residential leases has begun to resemble more and more the language used in the context of contract cases.

Concepts such as equitable estoppel­ -- precluding a landlord from avoiding mitigation where it has taken affirmative steps to mitigate -- ­and unjust enrichment have crept into the courts' vocabulary. As a result, both the First and Second departments have begun carving out exceptions to the default rule. There is no indication that courts will stop creating ways to avoid following Holy Properties and Rios. So does a landlord have a duty to mitigate? No, but maybe.

Sateesh Nori is the director of housing litigation at Bedford Stuyvesant Community Legal Services. Olga Peshko, a summer associate, assisted in the preparation of this article.
TenantNet
 
Posts: 9099
Joined: Mon Jan 21, 2002 2:01 am
Location: New York City

Re: Landlord's Duty to Mitigate Damages

Postby TenantNet » Sat Jul 13, 2019 1:40 pm

WORTH THE PAPER IT'S WRITTEN ON
A court makes it official: a tenant who breaks his lease still owes rent for the full term.
by Eric Dinnocenzo
City Limits WEEKLY #659
October 6, 2008

Anyone thinking about moving out of your apartment before the lease is up? You may want to reconsider.

A state Appeals court ruled over the summer that a landlord has no duty to mitigate damages in the case of a tenant breach. In other words, a landlord is not required to find a new tenant, and can sue for the rent due for the remainder of the lease. This may be what many tenants thought, anyway – but with an opinion issued in July, it’s official.

The opinion, Rios v. Carrillo, was written by Judge Robert A. Lifson of the New York Appellate Division, Second Department, and involved Queens tenant Alfred Carrillo, who vacated his apartment before the lease expired and ceased paying rent. Landlord Maria Rios later sued for the unpaid rent for the entire lease term. The court ruled that the lease provided that the tenant remained liable for the rent if there was a cancellation of the lease. This type of clause is included in most standard lease agreements used in New York City – but the court went even further to hold that even absent such language, a landlord still has no duty to mitigate damages.

Victorious landlord’s attorney Peter Piddoubny of Astoria, Queens – whose previous defeat in state Supreme Court was reversed with this ruling – indicates the decision is a warning to tenants. “The tenant believed he could just walk away and it was up to the landlord to re-rent the apartment,” Piddoubny said.

Landlord Rios explored re-renting the apartment, but found no takers and decided to sell the unit, keeping it vacant to make it more marketable. Piddoubny asserted that (although it was not mentioned in the court’s written decision), the tenant moved out of the apartment at a time when rents were falling in order to move into a similar apartment in the same building at a lower rent.

“The decision represents an exception for landlord-tenant matter from general contract principles whereby the victim of a breach is obligated to minimize damages,” said tenant’s attorney Robert Goldberg, from the Manhattan law firm of Goldberg, Scudieri, Lindenberg & Block. “For instance, if I promise to buy a barrel of oil for $100 and don’t follow through, the seller is obliged to find another buyer.”

The ruling represents a divergence from the decisions of courts elsewhere in the area; Connecticut and New Jersey both impose a duty to mitigate on residential landlords. In fact, under New Jersey law the burden of proof rests on the landlord to show the use of “reasonable diligence in attempting to re-let the premises.” In the recent appeal, however, the legal theory guiding the decision was a determination that a residential lease is a transfer of an estate in property rather than a contractual relationship. This distinction, while seemingly an obscure legal point, made all the difference in the outcome.

Historically, a residential lease was considered to be a transfer of an estate in property—this means the tenant received the property, but there were no obligations imposed on the landlord, such as to maintain it in a habitable condition. For example, if there was a problem with heat or sewage, tenants were left on their own to make repairs. This view has its origins in agrarian society. But with the advent of modern urban tenancies, in the 1970’s the law began to change. Courts started to view lease agreements as being contractual in nature, finding this to be more in line with the expectations and reality of modern life, where landlords operate as commercial businessmen, and tenants are more transient and not equipped to make repairs.

“It is certainly my impression that courts since the 1970’s have often incorporated contract doctrines into the law of leaseholds,” said Christoper Serkin, an assistant professor at Brooklyn Law School who teaches property law. “While the court in Rios certainly followed the traditional rule regarding leases, it explicitly declined to follow or extend the large body of case law recognizing the contractual aspect to leases.”

In fact, the Rios court extended to residential tenancies a prior decision from the Court of Appeals, which is the highest state court in New York, stating that the landlord in a commercial lease has no duty to mitigate. The court indicated that it was constrained by this ruling and that it was up to the legislature to enact any changes to the law.

Mitchell Posilkin, general counsel for the Rent Stabilization Association, a trade group that represents thousands of New York City landlords and property managers, said his members would appreciate the clarity brought by the case, even though it “did not break new ground.”

“The appellate court simply made clear that the decision that there is no duty to mitigate in commercial tenancies applies to residential ones,” Posilkin said. “The courts have made it clear that real estate contracts are different than non-real estate contracts by their very nature. If the owner chooses to mitigate, that is the business judgment made by the owner. The onus is not on the owner but rather is on the tenant.”

But according to attorney Goldberg, who represents both landlords and tenants, “There should be a general duty to mitigate, although there may be exceptional circumstances where the failure to mitigate can be excused.”

His advice for tenants who plan to vacate their apartments early is: “Give notice to the landlord and tell the landlord that you’ll work with them to try to find a new tenant. Tenants may want to even ask the landlord if they can find a new tenant and get the landlord to agree not to unreasonably refuse one if found.”

- Eric Dinnocenzo
The Tenant Network(tm) for Residential Tenants
Information from TenantNet is from experienced non-attorney tenant
activists and is not considered legal advice.

Subscribe to our Twitter Feed @TenantNet
TenantNet
 
Posts: 9099
Joined: Mon Jan 21, 2002 2:01 am
Location: New York City

Re: Landlord's Duty to Mitigate Damages

Postby TenantNet » Sat Jul 13, 2019 1:42 pm

Here's another article on this subject:

https://www.law.com/newyorklawjournal/2 ... al-leases/

New Rent Laws Abrogate No-Mitigation Rule in Residential Leases
The recently enacted Housing Stability and Tenant Protection Act of 2019, which Gov. Andrew Cuomo signed into law on June 14, 2019, has now completely abrogated the no-mitigation rule in the context of residential leases.
By Massimo F. D’Angelo | July 12, 2019 at 11:45 AM

In 1995, the Court of Appeals in Holy Properties Ltd., L.P. v. Kenneth Cole Productions, 87 N.Y.2d 130 (1995), threw landlord tenant law into a tailspin when it held that landlords had no duty to mitigate their damages by re-letting the premises where the tenant abandons prior to the expiration of the lease. Although Holy Properties dealt with a commercial lease, courts widely extended the application of this rule to residential leases as well.

However, the recently enacted Housing Stability and Tenant Protection Act of 2019 (the 2019 Tenant Act), which Gov. Andrew Cuomo signed into law on June 14, 2019, has now completely abrogated the no-mitigation rule in the context of residential leases.

Rationale Behind the No-Mitigation Rule

Generally, the law imposes upon a party who suffers an injury as the result of a breach of contract, the duty to make reasonable efforts to minimize the injury. Wilmot v. State of New York, 32 N.Y.2d 164 (1973); Losei Realty v. City of New York, 254 N.Y. 41 (1930). Notwithstanding this general principle of law, the Holy Properties court ruled that where a tenant breaches a lease by vacating the space prior to termination and the lease entitles landlord to recoup rent following an eviction, the law allows the landlord to do absolutely nothing to re-let the space. Moreover, while the landlord sticks its head in the sand, it can then still sue the tenant for all of the future rent becoming due under the lease through and including the termination date, along with attorney fees and costs to boot. Therefore, it is no surprise that New York’s no-mitigation rule absolving landlords from mitigating their damages following a tenant abandonment of its leasehold before a lease’s expiry—places it in the minority when compared to other jurisdictions—particularly since the rule promotes laziness, which the law abhors.

Although the rule appears, at least on its face, to be counterintuitive, the Holy Properties court rationalized that it serves to impart stability and certainty into business transactions. This is of paramount importance in the context of real property, which is sui generis, thus requiring adherence to established precedents more so than in any other area of the law. 159 MP Corp. v. Redbridge Bedford, — N.E.3d —, 2019 WL 1995526 (N.Y.), 2019 N.Y. Slip Op. 03526. In other words, parties, who are free to contract as they please, will be held to the benefit of their bargain, with the language of their contracts being enforced in accordance with their plain language and meaning. Vermont Teddy Bear Company Co. v. 538 Madison Realty Company, 1 N.Y.3d 470 (2004).

Abrogation of Rule in Residential Arena

In promulgating the 2019 Tenant Act, the main purpose of which was to afford better protections to tenants in order to halt their increased displacement, the Legislature decided to completely nullify the no-mitigation rule espoused under Holy Properties in the residential setting. The plight to minimize tenant evictions and the resulting widespread dispossession from their homes is presently at the forefront for the City given the current affordable housing crisis. Consequently, annulment of the rule in residential leases is concomitant with the underlying purpose of the newly enacted legislation.

Section 4 of the 2019 Tenant Act amended the Real Property Law (RPL) by adding a new §227-e, which explicitly imposes upon landlords a duty to mitigate damages if a tenant vacates the premises in violation of the terms of the lease. In particular, §227-e applies to any lease or rental agreement covering premises occupied for dwelling purposes. Hence, while the statute applies across the board to all residential leases, inclusive of free market leases, it clearly does not apply to the ambit of the commercial universe, meaning that Holy Properties has only been provisionally repudiated by the 2019 Tenant Act, at least for the present.

Beyond this, the statute places the burden of proof to show that the landlord properly mitigated upon the landlord. Further, §227-e explicitly exempts any contractual lease provision in which landlord’s duty to mitigate is absolved, as void for being contrary to public policy.

Critically, the statute provides that a landlord mitigating its damages must, “in good faith and according to the landlord’s resources and abilities, take reasonable and customary actions to rent the premises at fair market value or at the rate agreed to during the term of the tenancy, whichever is lower.” Under this statutory framework, the onus rests squarely on a residential landlord to take affirmative steps to re-let the abandoned space by, inter alia, engaging professional residential real estate brokers, marketing and advertising the space.

Conclusion

The statute gives broad deference to the factfinder to determine whether the landlord acted in good faith, and took reasonable steps commensurate with its subjective “resources and abilities” in mitigating. This leaves a vast gray area in the law which will be further developed as residential landlords and tenants fight over whether a landlord aptly mitigated. More importantly, however, the landlord will need to fastidiously document all of its mitigation efforts since the statute has shifted the burden of proof of adequate mitigation efforts upon the landlord. Contrarily, the statute arms tenants, who vacate their leases before expiration, with a powerful weapon to combat against the landlord’s claims for recovery in collection cases in all instances where tenants vacate before their leases terminate. Much to their chagrin, the 2019 Tenant Act also bars landlords from charging for residential application fees, limits the fees that can be charged for background checks to $20, and extends by five days a tenant’s time within which to pay rent before the landlord may serve a default notice (see RPL 238-a).

In light of the Legislature’s penchant for progressive policy changes to the real property law for the purpose of further augmenting tenant protections, it will be interesting to see whether the no-mitigation rule is similarly voided in the commercial context through subsequent legislation.

Massimo F. D’Angelo is a partner at Desiderio, Kaufman & Metz, PC.
The Tenant Network(tm) for Residential Tenants
Information from TenantNet is from experienced non-attorney tenant
activists and is not considered legal advice.

Subscribe to our Twitter Feed @TenantNet
TenantNet
 
Posts: 9099
Joined: Mon Jan 21, 2002 2:01 am
Location: New York City

Re: Landlord's Duty to Mitigate Damages

Postby TenantNet » Sat Jul 13, 2019 1:46 pm

New NYC rent laws create confusion over whether a landlord can keep your deposit if you break your lease
https://www.brickunderground.com/rent/l ... -face-fees

Breaking a lease can be a difficult situation to navigate. The new laws create incentives for landlords to re-rent the apartment quickly.
JULY 9, 2019 - 9:00AM
BY EMILY MYERS

The new rent reforms have created some confusion over whether your landlord can keep your security deposit if you break a lease. A rule change says landlords must now "mitigate damages" for a tenant who wants to leave an apartment before the lease ends. That means they must do what they can to re-rent the unit and can't keep it empty while they go after a departing tenant for lost rent.

Ellen Davidson, a staff attorney at the Legal Aid Society in New York, thinks this means your security deposit is safe if you provide access to the unit and the landlord incurs no lost money because of damage or unpaid bills. She says the new law incentivizes landlords to find a new tenant.

“If the landlord was able to keep the security deposit every time the tenant broke the lease, it would undermine the law that requires landlords to try and rent the apartment,” she says.

However, Manhattan real estate attorney Steven Wagner of Wagner Berkow & Brandt (a Brick Underground sponsor) says it’s an “overstatement” to say your security deposit isn't vulnerable if you break your lease. He says the new law makes it less likely a tenant will be sued in these situations, but the damages could still include fees for repainting or paying a brokerage to re-rent the apartment.

Both agree, however, that tenants may still be on the hook for paying the rent until a tenant is found or for paying the difference if the apartment is re-rented at a lower price.

Wagner says, "The landlord is entitled to deduct itemized costs due to non-payment of rent" from the security deposit when a tenant leaves.

Davidson isn't so sure, saying "If the tenant's lease was through September and the tenant tells the landlord in May that as of July first the tenant is moving and pays the rent through June, the landlord doesn’t get to keep the security deposit."

Wagner says, ultimately, confusion over whether a security deposit is protected when you break your lease will have to be cleared up by the courts.

"The new statute was written quickly and there are things that will require interpretation, like the return of the security deposit. [The law] has strengthened tenants' rights significantly but there are plusses and minuses about it, not just in terms of interpretation but also things like the extreme limitations on [apartment and building] upgrades," he says.

Getting landlords and tenants in sync

The law says re-renting the apartment is something the landlord is required to do in good faith according to their resources and abilities. The wording of the new laws suggests small landlords will be given more leeway than larger institutional landlords but as a renter, you will also want to make every effort to help find a new eligible tenant to take over your lease.

That could include keeping the apartment clean, making sure the landlord's broker has access to the unit or actively spreading the word that you're looking for a new tenant to rent your unit.

The new rental price

According to the law, the landlord is required to rent the apartment "at fair market value or at the rate agreed to during the term of the tenancy, whichever is lower." Davidson says this doesn't cap the new rental price but relates to "what is the tenant on the hook for." So, in the event a landlord cannot rent the apartment out at a price equal to or above the departing tenant’s rent, the tenant is liable for damages.

Wagner says this is also aimed at keeping rents at a reasonable price point and preventing landlords aiming for a much higher rent and claiming they cannot re-rent the apartment. This would not "mitigate damages" for the outgoing tenant. Landlords "can no longer take their own sweet time, and if they want to get more money but can't, they will be responsible," says Wagner.

Who pays what?

Once the new lease is in effect, the old lease is automatically terminated. The landlord and tenant are equally liable when it comes to substantiating damages: So if a landlord has lost money as a result of the lease break, he will have to prove it in order to get reimbursement from the departing tenant. If the tenant feels they have been unfairly charged, the burden is on them to prove it.

Some tenants will likely accept having their security deposit withheld as the price of being released from their lease, especially since the security deposit is now capped at one month's rent. Adam Firsch, a leasing broker and managing principal at Lee & Associates Residential, says, "If you were to offer a tenant a choice between being sued [for a lost rental] or merely forfeiting the security deposit, I think it’s a fairly obvious choice."

Looking ahead, all this may be a moot point as landlords grapple with other changes that require them to return a security deposit within 14 days of the tenant's departure. Many landlords say that is nearly impossible to comply with, and some are moving to new 'deposit free' alternatives that require renters to pay a small monthly fee to a third party in lieu of paying a security deposit to a landlord.

Breaking a lease can be a difficult situation to navigate. If you are in this situation, you’d be well advised to be upfront with your landlord, do everything you can to help him or her re-rent the unit and accept that you may still face penalties.
The Tenant Network(tm) for Residential Tenants
Information from TenantNet is from experienced non-attorney tenant
activists and is not considered legal advice.

Subscribe to our Twitter Feed @TenantNet
TenantNet
 
Posts: 9099
Joined: Mon Jan 21, 2002 2:01 am
Location: New York City

Re: Landlord's Duty to Mitigate Damages

Postby TenantNet » Sat Jul 13, 2019 1:47 pm

The Tenant Network(tm) for Residential Tenants
Information from TenantNet is from experienced non-attorney tenant
activists and is not considered legal advice.

Subscribe to our Twitter Feed @TenantNet
TenantNet
 
Posts: 9099
Joined: Mon Jan 21, 2002 2:01 am
Location: New York City


Return to Tenant Reference materials

Who is online

Users browsing this forum: Google [Bot] and 3 guests

cron