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Ruud v. Larson

    Brief Fact Summary.

    Defendant vacated the property he leased from Plaintiff after not paying taxes for five years and owing $24,500 in rent. Plaintiff repaired and advertised the premises for rent. The trial court found that Plaintiff had made diligent efforts to mitigate damages. Defendant appealed, arguing that the district court erred in finding that Plaintiff had made a good faith effort to mitigate.

    Synopsis of Rule of Law.

    1) In mitigating damages, a landlord may not make payment of all arrearages a condition for approval of a replacement tenant. 2) In mitigating damages, a landlord is not prohibited from seeking to re-let at a higher rent.

    Facts.

    In 1966, Ruud (Plaintiff) leased property to Larson (Defendant) for a ten-year term, at the conclusion of which the lease was renewed for another ten years. Defendant operated Mid-State Oil Company on the premises. In 1981, Defendant failed to pay property taxes, and in early 1982, Defendant failed to pay rent for two months. Rudd sued for breach of the lease, and the trial court found that Defendant failed to pay real estate taxes from 1981 to 1985, and rent totaling $24,500. Defendant had attempted to find a sublessor to pay $1,200 per month in rent. Before trial, Mid-State had declared bankruptcy and the bankruptcy court approved the sale of substantially all of Mid-State’s assets to Charles Luna. Defendant and Luna agreed that Defendant would pay all tax arrearages. After Defendant vacated the premises, Plaintiff repaired and advertised the premises for rent. These efforts produced 140 contacts and fifty prospective tenants. The trial court found that Plaintiff had made diligent efforts to mitigate damages. Defendant appealed, arguing that the district court erred in finding that Plaintiff had made a good faith effort to mitigate.

    Issue.

    1) Whether in mitigating damages, a landlord may make payment of all arrearages a condition for approval of a replacement tenant. 2) Whether in mitigating damages, a landlord is prohibited from seeking to re-let at a higher rent.

     

    Held.

    1) No. The trial court ruling is affirmed. In mitigating damages, a landlord may not make payment of all arrearages a condition for approval of a replacement tenant. 2) No. The trial court ruling is affirmed. In mitigating damages, a landlord is not prohibited from seeking to re-let at a higher rent.

    Dissent.

    (Levine, J.):A landlord may not make payment of all arrearages a condition for approval of a replacement tenant. It should not matter that Defendant agreed beforehand to pay the arrears without Plaintiff first demanding it. Plaintiff cannot rely on the agreement between Defendantand Luna because he had no right to it in the first place. Moreover, Defendant produced a willing, able, and suitable subtenant. Plaintiff was therefore unreasonable in his refusal, especially because Defendant, by the terms of the original lease, remained liable for all obligations as tenant. Thus no special agreement was needed to hold Defendant accountable for any arrears.

    Discussion.

    1)In mitigating damages, a landlord may not make the payment of all arrearages a condition for approval of a replacement tenant or subtenant. Here, this is not a situation in which a tenant presents a sublessee and the landlord refuses consent until all arrears are paid. Rather, Defendant and Luna agreed, as part of their sublease agreement and without Plaintiff’s involvement, that Defendant would pay the arrearages. Defendant never expressly sought Plaintiff’s consent to the sublease without requiring payment of arrears. 2) In mitigating damages, a landlord is not prohibited from seeking to re-let at a higher rent. Refusing to re-let to someone unless he is willing to pay a higher rent indicates a lack of good faith effort to re-let, but it is not conclusive. Here, Defendant’s own witness testified that the higher rent sought, $1,200, was a reasonable rental value for the property. Defendant himself was seeking to sublet at $1200. Moreover, Plaintiff repaired and advertised the premises, efforts which produced 140 contacts and fifty prospective tenants. ThusPlaintiff acted reasonably and in good faith to lease the premises to another tenant.


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