Commercial Tenancies and Mitigation

Commercial Tenancies and Mitigation

Commercial tenancies are governed by statute and the terms of lease.  This blog discusses two provisions in commercial leases addressing damages and mitigation issues that arise when tenants prematurely cancel their lease.

A landlord faced with a tenant who has prematurely vacated the premises, can continue the lease for the unexpired lease term and recover California Civil Code Section 1951.4 damages for the remainder of the rent.  (250 LLC v. PhotoPoint Corp (USA) (2005) 131 CA4th 703, 714.)   To do so, the lease must first (a) have the Cal. Civ Code Section 1951.4 relief specifically reserved, and (b) permit the tenant, or otherwise not prohibit or restrict the tenant’s right, to sublet and/or assign the lease.  (CC Section 1951.4(b)(1).)  Any restrictions on the tenant’s right to sublease or assign the premises must be reasonable.  For the lease to reserve Civil Code Section 1951.4 relief, a variation of the following language should be included:

The lessor has the remedy described in California Civil Code Section 1951.4 (lessor may continue lease in effect after lessee’s breach and abandonment and recover rent as it becomes due, if lessee has right to sublet or assign, subject only to reasonable limitations).

Alternatively, landlords can terminate the abandoning tenant’s unexpired lease and seek Cal. Civil Code Section 1951.2 damages.  These damages provide the landlord with, inter alia, the balance of the unpaid rent for the remainder of the lease term offset by the “rental loss that the lessee proves could be reasonably avoided.”  (CC Section 1951.2.)  This is also known as the landlord’s duty to mitigate damages.  Civil Code Section 1951.2 relief is further restricted if either of the following is present:

  • The lease provides that the damages the lessor may recover include the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award, or for any shorter period of time specified in the lease, exceeds the amount of such rental loss for the same period that the lessee proves could be avoided; or
  • The lessor relet the property prior to the time of award and proves that in reletting the proper he acted reasonably and in good-faith effort to mitigate the damages, but the recovery of damages under this paragraph is subject to any limitations specified in the lease.” (CC Section 1951.2(c)(1) &(2).)
Commercial tenants and landlords often impose further restrictions and/or obligations on the duty to mitigate.  For example, tenants in commercial tenancies may impose the following obligations on landlords:
  • The landlord must list the space with its usual broker;
  • The landlord must conduct tours of the premises when requested by a prospective tenant; and
  • The landlord to undertake other customary marketing.
 By contrast, commercial landlords restrict their mitigation duties with the following:
  • The landlord has the right to lease other space in the building first;
  • The landlord has the right to refuse to relet to the following tenants:
    • Tenants who would not otherwise meet the landlord’s financial requirements.
    • Tenants with a use that would violate another tenant’s exclusive use or otherwise upset the tenant mix of the property;
    • Tenants for a use that is unusual for the building;
    • Tenants with excessive parking requirements; and
    • Tenants that do not have the requisite business experience.

The above is just some of the matters to consider when dealing with commercial tenancies and mitigation.  Our real estate attorneys at Schorr Law have a great deal of experience with real estate matters and disputes. To see if you qualify for a free 30-minute consultation, contact us today!

By: Randy Aguirre, esq.

See related: Commercial Lease Indemnity Provisions

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