Your commercial Lease will specify what happens when a party breaches the contract, often with a requirement that Tenant waive “Landlord’s duty to mitigate damages.” What does this mean?
Let’s say the Tenant breaches a $10,000 per month Lease with exactly 24 months remaining. A friendly competitor of the Tenant is looking for space similar to the Tenant and wants to pay $9,000 per month. The Tenant connects the friendly competitor with a broker, who then talks to the Landlord. The Landlord tells the broker that the Landlord is not interested in talking to anyone, even if the friendly competitor was willing to pay more.
Landlord then turns around and sues you for the remaining $240,000 in rent, plus attorneys’ fees and costs of reletting (broker fees, more attorneys’ fees, property restoration, etc.). Tenant could argue that Landlord should have taken the rent for $9,000. After all, that new tenant could use that space and reduce Landlord’s damages to only $1,000 per month, or $24,000 total. In response, Landlord takes out its Lease that states, “Landlord shall have no duty to mitigate damages.” That means that Tenant is liable for the remaining $240,000 regardless of the availability of rent from the friendly competitor.
That is an illustration of mitigation of damages. Landlords will often put this in a lease to avoid the court using a default rule, which varies across jurisdictions. In Pennsylvania, Landlords don’t have a duty to mitigate damages unless it is expressly stated in the Lease.