Reid v. Mutual of Omaha Ins. Co.

Brief Fact Summary.

Defendant leased property from Plaintiff for a term of five years. Defendant complained that an adjacent tenant’s personnel were noisy and occupied Defendant’s parking spaces. Defendant vacated. Plaintiff sued.

Synopsis of Rule of Law.

If a tenant prematurely vacates the premises and stops paying rent, a landlord must take reasonable steps to find a replacement tenant to mitigate damages.

Facts.

In 1980, Mutual of Omaha (Defendant) leased property from Reid (Plaintiff) for a term of five years. Soon after, the adjacent space was leased to Intermountain Marketing (Intermountain). Defendant complained to Plaintiff that Intermountain’s employees were too noisy, occupied all of Defendant’s parking spaces, and otherwise interfered with Defendant’s operations. In 1982, Defendant vacated the premises, and Plaintiff sued to recover unpaid rent for the remainder of the lease term. Defendant counterclaimed for constructive eviction based on Plaintiff’s failure to address the former’s complaints regarding Intermountain. During litigation, Plaintiff remodeled Defendant’s former space and leased it to Intermountain for the remainder of the five-year term. Several months later, however, Intermountain filed for bankruptcy and vacated, after which the property remained unoccupied. The trial court rejected Defendant’s constructive eviction claim and awarded Plaintiff the total rent due for the remainder of the lease term minus rents received from Intermountain for the subject premises. Defendant argued on appeal that it was only liable for the rent that was due between Defendant’s last payment and the reletting to Intermountain because the reletting amounted to an acceptance of the breach and a mutual termination of the lease. Defendant also argued that even if it was liable for rents after the reletting to Intermountain, Plaintiff had a duty to seek a replacement tenant after Intermountain vacated. 

Issue.

Whether a landlord must take reasonable steps to find a replacement tenant to mitigate damages if a tenant prematurely vacates the premises and stops paying rent.

Held.

Yes. The case is reversed and remanded for Plaintiff to show that he has satisfied the duty to mitigate post-trial. If a tenant prematurely vacates the premises and stops paying rent, a landlord must take reasonable steps to find a replacement tenant to mitigate damages.

Discussion.

The tradition rule, from which this holding departs, is the result of outdated principles of property law that existed when land was leased primarily for agricultural purposes. Furthermore, this modern trend rule discourages landlords from keeping their land idle, prevents landlords from recovering more than they may reasonably require for adequate compensation, and is in keeping with loss-mitigation rules adopted in other areas of law. Under this rule, landlords are required to take reasonable steps to re-let the subject premises as they would similar property in similar market conditions. If the landlord does find a replacement tenant, this does not mean that the landlord has accepted or forgiven the breach. Thus if the landlord incurs costs in the attempt to re-let the premises, from repairs or alterations, for example, such expenses that are commercially reasonable may be recovered from the breaching tenant. In cases where the landlord brings suit before the end of the lease term, the court shall retain jurisdiction of the parties to fix damages after a judgment is rendered. The amount awarded at trial shall only be the rent that is owed at the time of trial. For rents due after trial, the landlord may return to court, without filing a new action, for supplemental proceedings to determine additional rents due and whether the landlord has satisfied its ongoing duty to mitigate. Here, the trial court awarded Plaintiff rent that would be due between trial and the end of the lease term without imposing a duty to mitigate.