United States National Bank of Oregon v. Homeland, Inc

Brief Fact Summary. Defendant Homeland, leased office space from Schlesinger, lessor. Homeland abandoned the property prior to the expiration on the lease and the premises were subsequently re-let to another tenant for a higher rent and longer term, who also defaulted.

Synopsis of Rule of Law. When a commercial tenant abandons leased property there is no automatic termination of the lease when the lessor subsequently re-lets the property, and the original lessee may still be held liable for the periods of time under the original lease that the premises were vacant.

Facts. Lessor owns an office building in downtown Portland, Oregon. Homeland leased 3,000 square feet of office space from lessor for a five-year term, April 1, 1971 until March 31, 1976, which called for rent to be $1,175 per month for the first six months, $1,275 per month for the second six months and then for the last forty-eight months $1,415 per month. Homeland vacated the premises on July 31, 1973, with thirty-two months remaining on the lease, and paid no further rent. A receiver was appointed for Homeland. This case arose as a dispute between the lessor and the receiver for Homeland for unpaid rent following Homeland’s vacation of the property in July 1973. The property was re-let by lessor on February 1, 1974, to Sebastian’s for a longer term than the Homeland lease and for a higher rent. Sebastian’s subsequently vacated the premises on July 14, 1974, after paying total rent of $7,500. Lessor finally re-let the premises again effective August 1, 1975. Thus, lessor’s claim a
gainst the receiver for Homeland is for the period of August 1, 1973, through July 31, 1975, a period of 24 months, at a monthly rate of $1,415, minus the rent paid by Sebastian’s, for a net claim against the receiver of $26,460. In the trial court the receiver urged the court to limit the claim from July 31, 1973, when Homeland vacated, until February 1, 1974, when the premises were re-let. The trial court limited the claim of lessor and denied the remainder of lessor’s claim. The intermediate appellate court affirmed the trial court’s decision and lessor appealed.

Issue. There are two issues:
When a tenant to a commercial lease abandons the premises prior to the expiration of the lease and the lessor re-lets the premises for a longer term than the original lease and for more rent, does such re-letting as a matter of law terminate the original lease, freeing the original tenant from any claim for damages which occurred after the re-letting?
When a lease for commercial premises provides that, upon appointment of a receiver for tenant, the lessor may, without notice, terminate the lease, does the lessor’s re-letting of the premises terminate the lessee’s obligation to pay damages subsequent to the re-letting?

Held. No to a. and No to b. Reversed and remanded, judgment for lessor of $26,460.
Following abandonment of the leased premises a landlord cannot stand idly by and look to the tenant for damages in the remainder of the lease term. Thus, the landlord has a duty to mitigate damages by seeking a suitable tenant to re-let the premises. When the tenant abandons the leased property the tenant surrenders his estate in the property, but is still liable for damages from the breach of contract.
The tenant who breached remains liable for the difference between the agreed price of the rent and the fair rental value of the premises, which is an amount the law presumes the lessor can obtain with reasonable efforts to re-let the premises.
The mere act of re-letting for a longer or shorter term does not, without more, bar the lessor’s claim for damages from the breach. The lessor is not required to mitigate damages by re-letting the premises at less than the fair rental value.
Evidence of the lessor’s reasonable efforts to re-let the premises in question are found when lessor stated that at all times he tried to re-let the property, and that there was a surplus of office space in the Portland area during the relevant portion of time. Because the re-letting did not cancel the original lease, the receiver for Homeland is liable for $26,460, which is the amount for the rent remaining in the original term during which time the building was vacant.

Discussion. The court, by imposing the duty to re-let by reasonable effort, opted not to offer landlords of vacant commercial property an inducement to keep the property vacant.