The impacts to commercial and residential landlords caused by the COVID-19 pandemic have been devastating. Faced with eviction moratoriums, owners have been handcuffed in their ability generate income from their rental properties. When faced with a non-paying tenant, landlords should avoid hand-wringing and devote their energy and attention to mitigating their losses. Should a tenant voluntarily vacate the premises or possession is recovered through an unlawful detainer proceeding once the moratorium is lifted, landlords will need to double-down on their efforts to secure a new tenant. While this may be easier said than done during these challenging times, a landlord’s failure to mitigate its damages may prevent recovery of certain damages.
MITIGATE. IT’S THE LAW.
Mitigate (mit·i·gate | \ ˈmi-tə-ˌgāt: \): To make less severe or painful.
When a tenant breaches a lease, a landlord must take affirmative steps to lessen the damages caused by the breach. California Civil Code section 1951.2 allows a landlord to recover damages for unpaid future rent only if the owner “acted reasonably and in a good-faith effort to mitigate the damages.”
The doctrine of mitigation of damages holds that a party who suffers damage as a result of a breach of contract has a duty to take reasonable steps to mitigate those damages and will not be able to recover for any losses which could have been avoided.
Toward that end, landlords should:
- Retain a real estate broker or property manager to market to new tenants;
- Work with the tenant (and lease guarantor, if any) to find a replacement tenant or subtenant;
- Resist using a “no consent” lease provision to reject a potential subtenant;
- Be flexible about lease terms and tenant improvement requests.
While it may be difficult to accept less rent or invest resources to attract a new tenant, a landlord may be able to recover those losses and investments from the former tenant, but only if the landlord acts reasonably to mitigate its losses.
Landlords faced with a tenant in default should not sit idle; instead, they should seize the opportunity to mitigate damages, put efforts into securing a new tenant, and proceed diligently. Each lease and each landlord-tenant relationship is unique, so it is important to also determine what options the lease provides for recovering possession of leased property and damages from a defaulting tenant.