Damages

Generally, under contract law, when there has been a breach of contract, there is a duty to mitigate damages. In Holy Properties, the Court of Appeals explained why that contract rule was not applicable in the landlord/tenant context, stating:

Recognizing leases as a present transfer of an estate in real property, i.e., the conceptual basis of the no mitigation rule, goes back to feudal times. According to English common law, a lease (whether for commercial or residential property) was deemed to be a contract of sale of a vested interest in real estate. Rent was deemed to be the purchase price, to be paid in regular installments. Once the tenant “bought” the property, he was obligated to pay the full purchase price, even if he no longer intended to use the premises.

In short, as to commercial leases, the law is clear that there is no duty to mitigate, based on a conceptual approach to leases that goes back to feudal times. The issue of whether there is a duty to mitigate where a residential lease is involved, however, had appeared uncertain.⁵

Carrillo has now removed that uncertainty, in the Second Department in any event. In that case, on or about July 29, 2000, the landlord leased a residential apartment to the tenant for a two-year term. Around October 2001, the tenant vacated the apartment and ceased paying rent of $3,500 per month. The tenant asserted that he did so with the landlord’s consent. Challenging that contention, in 2003, the landlord commenced a lawsuit to recover damages consisting of the unpaid rent she claimed due pursuant to the parties’ lease. The apartment had not been re-rented to any other tenant during the lease term.

The Supreme Court, Queens County dismissed the complaint, determining that the landlord had failed to prove that she made a serious attempt to mitigate damages. According to the decision of Judicial Hearing Officer Sidney Leviss, before whom a non-jury trial was held upon the parties’ stipulation, the “only testimony offered was that she [the landlord] listed the apartment with a broker and was not offered $3,500.00 per month.”⁶

Citing an Appellate Term, Second Department, decision in Paragon Industries Inc. v. Williams,⁷ and a Civil Court, Kings County decision in Palumbo v. Donalds,⁸ JHO Leviss held that “in this judicial district, a landlord has a duty to mitigate damages by reletting the premises” when the tenant leaves before the end of the term, and the landlord must make reasonable and diligent efforts to re-rent the premises.

The Appellate Division, Second Department, reversed and reinstated the complaint. The appellate court stated that the Supreme Court had “improperly determined that the plaintiff owed the defendant a duty to mitigate damages upon the breach of the parties’ residential lease” and that its reliance on Paragon and its progeny was “misplaced.” Citing Holy Properties, and quoting the passage from that case set forth above to the effect that leases are not subject to the general rule of mitigating damages, the Appellate Division pointed out that “[w]ell-settled law in this State imposes no duty on a residential landlord to mitigate damages.” The court expressly recognized that Holy Properties involved a commercial lease, but commented that: