Daily Development for

Wednesday, April 9, 1997
by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

Note: The "mini acceleration" technique (through manipulation of the rent period) that this case appears to uphold goes beyond remedies available in many other states. Is this new law in New York, or is it a well established remedy? Is acceleration available even beyond the device used in this lease? New York Lawyers, DIRT wants to know.

LANDLORD/TENANT; LANDLORD'S REMEDIES; DAMAGES; ACCELERATION: A landlord is not required to mitigate damages in the context of the breach by the tenant under a residential lease.

Duda v. Thompson, 647 N.Y.S.2d 401 (S. Ct. 1996).

This case involves a two year residential lease of a single family home using something called the standard Blumberg house lease form. Apparently the form provided for the standard series of remedies available in most jurisdictions (accrued rent, possession with termination of the tenant's lease, or reletting as agent of the tenant) and also provided for a form of accelerated rent. The lease provided that rent was annual, but, for the convenience of tenant, could be paid monthly but "automatically recalled to the annual amount (or balance of annual amount) upon default. The lease also provided that if annual rent was paid or payable, and the landlord relet following default, the tenant was entitled to a credit for rent received by the landlord minus expenses.

The tenant abandoned the premises and stopped paying rent. The landlord waited until January, 1996, and then sued to collect back rents in 1995 and the accelerated annual rent for 1996. The court gave the landlord everything it asked for.

The tenant argued that the landlord had a duty to mitigate its damages. It is not clear whether the tenant argued that this duty accrued in every case or only in a situation in which the landlord is accelerating the rent. Since the "acceleration" in this case was carried out under the device of "recalling" the rent to the annual computation, it is not clear that the court actually is concluding that a broader acceleration of rent clause would be enforceable. A holding that a landlord could collect accelerated rent or damages for the balance of the term and not have to mitigate would be inconsistent with the law in most states. A holding that the landlord could collect rent as it fell due without attempting to relet the premises would be inconsistent with the law in about half the American states.

Reporter's Comment: This case is one of the first interpretations of the common law mitigation rules since the New York Court of Appeal's decision in Holy Properties, Ltd. v. Kenneth Cole Productions Inc. 637 N.Y.S.2d 964 (Ct. App. 1995). In that case, the tenant was a commercial tenant. However, New York's highest court in Holy Properties distinguished *all* leases from other contracts generally subject to mitigation under the theory that leases have always represented a present transfer of an estate in real property and are not executory in nature.

Accordingly, in New York, even if the landlord obtains eviction for non-payment, the rent obligation continues if the lease so allows and the landlord is not obligated to mitigate. Although some believe that the obligation to mitigate damages exists because the lease in Holy Properties was a commercial lease, the Court of Appeals made no distinction between the two types of leases. Moreover, the case upon which the Court of Appeals relied, Becar v. Flues, 64 N.Y. 518 (Ct. App. 1895), was a lease for residential property and the landlord had no duty to mitigate there.

Editor's Comment: The notion expressed by the Reporter that the landlord could terminate the tenant's lease absolutely, and even evict the tenant, and still collect the rent as it falls due, is also beyond the available remedies in most jurisdictions. The case law permitting the tenant to collect rent from the tenant while not reletting the premises generally arises in the context of tenant abandonment, and a number of cases would not provide the landlord such an option when the landlord actually evicts the tenant and asserts its possessory claim after default.

The fact that these very landlord favorable remedies are availble in residential as well as commercial leases is also worthy of special note. If we needed any further evidence of the vast distance philisophically as well as geographically, between New York and Texas, we could find it in the comparisons between the New York and Texas court approaches to landlord remedies. As reported not long ago on DIRT, the Texas Supreme Court recently adopted a general mitigation duty as part of most landlord's remedies.

Also worthy of note is that in a somewhat analogous area, mortgage foreclosure, it is New York that is more protective of the "little guy" - the mortgagor. New York is a judicial foreclosure state with "fair value" controls on excessive deficiencies. Texas uses a very severe and rapid private foreclosure system.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law.

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