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 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