Under current New York law, commercial landlords have no duty to mitigate damages if a commercial tenant breaks the lease. In this circumstance, mitigating damages generally means an obligation on the part of a landlord to re-rent the space. This decreases — mitigates — the landlord’s damages from a tenant breaking the lease since the new tenant is now paying the rent and other tenant obligations. For example, if a commercial tenant vacates the premises and stops paying rent, the landlord can immediately sue the tenant for the unpaid rent. Indeed, the landlord can accelerate all rents (and other obligations due under the lease) and file a lawsuit for past-due rents and all rents owing in the future to the end of the lease. These damages are called liquidated damages. The landlord has no duty to mitigate damages and can leave the premises vacant and make no effort to re-rent the space.
Depending on the commercial lease, “other tenant obligations” might include the following:
- Tenant’s proportionate share of real estate taxes
- Tenant’s share of common area maintenance expenses
- Utilities for the space
- Repairs and maintenance for the space (separate from common area maintenance)
- Amortized costs related to renting concessions, broker’s fees, and other fees/charges.
- And more
Will New York Change the Law and Impose a Duty to Mitigate?
Maybe. In both 2021 and 2022, the New York State Assembly passed a new law that would impose a duty to mitigate on commercial landlords. However, the New York Senate failed to pass the legislation in both years. So, the law did not take effect. Had it passed, the law — called Assembly Bill A6906 — would have required, among other things, commercial landlords to:
- “Take reasonable and customary actions to rent the premises” if a current tenant vacates.
- The landlord’s obligation would have required “good faith” and have been based on “the landlord’s resources and abilities.”
- An “acceptable” new rent would have been the lower of the “fair market value” of the space or the previous tenant’s rental obligations.
Would it Matter if New York Changed the Law and Imposed a Duty to Mitigate?
Maybe. If New York imposed a duty on commercial landlords to mitigate their damages, likely, commercial landlords would change their leases to waive that duty. This is legal in some states — like North Carolina — where there is a duty to mitigate. An example of such a waiver might read like this: “Landlord has no duty to attempt to mitigate any damages resulting from Tenant’s breach of or the failure to perform any of the terms and conditions of this Lease.”
Other States — like Texas — have enacted laws prohibiting any waiver of a duty to mitigate. The Texas statute reads: “A lease provision that purports to waive a right or to exempt a landlord from a liability or duty [to mitigate damages] is void.” Tex. Prop. Code § 91.006(b). So, much will depend on how the New York Legislature writes the law and whether a waiver in a commercial lease would be deemed valid by New York courts.
Contact the NYC Commercial Lease Negotiators at Wright Law Firm NYC Today
Call the experienced New York commercial lease and real estate attorneys at Wright Law Firm NYC for more information. We provide top-tier commercial real estate legal services for the NYC business community. To schedule a consultation, contact our office by e-mail or call us at (212) 619-1500.