Daily Development for
Thursday, February 26, 1998

by: Patrick A. Randolph, Jr.
Professor of Law UMKC
School of Law

LANDLORD AND TENANT; LANDLORD'S REMEDIES; DAMAGES; DUTY TO MITIGATE: In a case illustrating the recent change of thought in New York, an appellate level court held that a landlord has no duty to mitigate damages in the context of the breach and termination of a residential lease.

Whitehouse Estates, Inc. v. Post, 662 N.Y.S.2d 982 (S. Ct., Appellate Term 1997).

The recent holding in Holy Properties, Ltd. v. Kenneth Cole Products Inc., 637 N.Y.S.2d 964 (N.Y. 1995), by New York's highest court continues to have an impact on landlord/tenant actions in New York. It had previously been thought by many that a landlord had a duty to mitigate damages in the context of a residential lease. However, since the decision in Holy Properties, lower courts have repeatedly determined that there is no such duty and this case continues the trend on the appellate level. See also, Wallace v. Falken-Smith, 523 N.Y.S.2d 827 (N.Y. Sup. Ct. App. Div. 1998) (notes issue but holds that, even granting there was a duty to mitigate, it was satisfied here); Syndicate Building Corp. v. Lauber One, 512 N.Y.S.2d 674 (N.Y. Sup. Ct. App. Div. 1987)(No duty to mitigate in commercial leases).

Comment 1: New York cases in the last few decades have been moving toward a finding of a duty to mitigate in the residential context: Paragon Industries v. Williams, 473 N.Y.S.2d 92 (App.Term, 2d Dept., 1983); Parkwood Realty Corp. v. Marcano, 353 N.Y.S.2d 623 (Civil Ct., Queens County, 1974). But the Holy Properties case shifted a sharp turn.

The rationale of the Holy Properties case was that the established rule ought not to be changed because parties to real estate contracts bargain with that rule in mind:

"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 [citations omitted]. 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 "

Although the instant case sees no reason that the same thinking ought not to apply in residential cases, one might argue that residential tenants are not legal experts and cannot practically obtain legal advice in most cases. Therefore, their "established expectations" may not be based upon existing law as much as on a belief that the law will treat them fairly. It is worth asking the question whether the law does treat them fairly when it imposes on a residential landlord no duty to mitigate.

Comment 2: The "trend" proclaimed by some scholars and courts - particularly the Texas Supreme Court - a few years ago, seems to have ebbed considerably, and perhaps was not a "trend" at all. At least in the commercial context, there is a good argument that landlords have the right to believe that they have "sold" their property for that "slice of time" represented by the lease, and that the rent represents the "sale price." In the vast majority of cases, the landlord will attempt to relet rather than hold a tenant liable for the balance of a lengthy lease. Rent money now is better than damages later. Consequently, the most common situation in which the court will find a breach of the mitigation duty is when the court disagrees with the landlord that the best economic solution to the tenant's default was not to leave the premises vacant for a time. Why should the court's judgment be substituted for that of the landlord. If the commercial landlord sees its best economic interests to be to leave the premises vacant, why should the court intervene?

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