Daily Development for
Wednesday, June 17, 1998
By: Ira Meislik
Daily Developments normally are edited and prepared by Prof. Patrick A. Randolph, who is until China in late July. Ira Meislik will file periodic developments reports in Professor Randolph's absence.
LANDLORD/TENANT; DEFAULT; DAMAGES; MITIGATION: Even in the absence of landlord's reasonable efforts to mitigate damages, following its tenant's vacating the premises before the end of the lease term, it is entitled to the difference between the fair market rental value and the rent stated in the lease.
Harrison Riverside Limited Partnership v. Eagle Affiliates, Inc., 309 N.J. Super. 470, 707 A.2d 490 (App. Div. 1998).
A commercial tenant under a lease due to expire in August, 1997, vacated the premises in 1994. A new tenant took possession in 1996, and the landlord rented the premises to the new tenant for well below fair market value until September, 1997, at which time the landlord sued the original tenant for the rent deficiency for the three period after it vacated. The trial judge granted summary judgment in favor of the landlord, holding that even though the landlord may have failed to make reasonable efforts to mitigate damages, it was still entitled to the difference between the fair market rental value and the amount the tenant was supposed to pay for the duration of the lease. On appeal, the tenant argued that the landlord's failure to mitigate excused its obligation to pay rent for the time after it vacated the premises. The tenant further argued that if its landlord had acted reasonably, it would have found a replacement tenant sooner and at a higher rent.
The Appellate Division began by stating that, in New Jersey, a commercial landlord must make reasonable efforts to mitigate damages after a tenant breaches a lease. However, the Court agreed with the trial court that failure to mitigate did not preclude recovery by the landlord. The Appellate Court upheld the lower court's decision to award the landlord the difference between the rent under the lease and the fair market rental value of the space. It opined that in the absence of mitigation, the damages are to be measured by reference to fair market rental. As to whether the landlord, under the circumstances, was entitled to additional damages measured by how far below fair market value the replacement rent actually was, the Appellate Court remanded to the trial court. This is because it found a material issue whether the rent under the new lease was purposely below market value until August, 1997, simply to increase the landlord's recovery against the old tenant. If so, the landlord would be precluded from recovering the difference between the old rental rate and the new one, and recovery would be limited to the difference between the amount under the old lease and fair market value.
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