A lease is both a contract between partiesthe landlord and the tenantand an interest in land. However, this duality has created conflict in determining whether a landlord has a duty to mitigate damages in the event of a tenant’s early termination of a lease. The rule that a landlord has a duty to mitigate derives from basic principles of contract law. The doctrine that the landlord has no duty to mitigate, which views a lease not as a contract but as an interest in land, was seemingly mandated by the Appellate Division, Second Department, in Rios v. Carrillo in 2008. Now, four years later, uncertainty still abounds as courts waver in applying contract principles to lease breaches and carve exceptions into the rule that a landlord has no duty to mitigate. This article attempts to identify the factors relied upon by courts where a duty to mitigate has been applied in contravention of established case law.
Development of Case Law
The traditional rule was that damages for breach of contract are only those that are incidental to, and directly caused by, the breach, and may reasonably be presumed to have entered into the contemplation of the parties. Such damages, under the traditional rule, are not for speculative profits, or accidental or consequential losses. Hamilton v. McPherson, 28 N.Y. 72 (N.Y. 1863). Principles of contract law support the duty to mitigate because contract law encourages efficiency and discourages economic and physical waste. The duty to mitigate often results in a more productive use of property by requiring re-letting by the landlord upon breach. Re-letting decreases the possibility of harm to the property that may happen due to abandonment, prevents landlords from underusing their property, and prevents the landlord from unreasonably allowing damages to accumulate on abandoned property.
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