New Court of Appeals opinion affirms landlord’s duty to mitigate damages on Tennessee leases

In a post from last month, I mentioned that, when a commercial tenant defaults and leaves a leased property, the landlord is faced with a hard decision: File the lawsuit for unpaid rent now, or do you wait 6-9 months until a replacement tenant can be found?

One thing we know for sure: A landlord can’t just file a lawsuit for all the rent due for the remainder of the term. Instead, the landlord has a duty to mitigate its losses, which means–in this situation–to try to find a replacement tenant.

Last week, the Tennessee Court of Appeals reaffirmed this duty in Loans YES v. Kroger Limited Partnership I, et. al. No. M201901506-COAR3CV, 2020 WL 6386884 (Tenn. Ct. App. Oct. 30, 2020).

As a quick summary, the Court makes the following points:

  1. A lease is like any other contract, and the general rule of contracts–that the plaintiff may recover damages only to the extent of its injury–applies to leases.
    • This means that damages for breach of a lease should provide compensation designed to put the injured party in the same position as he or she would have been in had the breach not occurred and the contract been fully performed, taking into account, however, the duty to mitigate damages.
  2. To be clear, when a tenant defaults , the landlord “is required to mitigate the damages suffered…” (citing Bellevue Props., LLC v. United Retail Inc., No. M1999-01480-COA-R3-CV, 1999 WL 1086221, at *2 (Tenn. Ct. App. Dec. 3, 1999)).
    • This duty requires the landlord to do “what is fair and reasonable under the circumstances to reduce [the landlord’s] damages” and by “exercis[ing] reasonable care and diligence to avoid loss or to minimize or lessen the resulting damage…” (quoting Cook & Nichols, Inc. v. Peat, Marwick, Mitchell & Co., 480 S.W.2d 542, 545 (Tenn. Ct. App. 1971)).
  3. When this issue comes up, however, the breaching party has the burden of proving the landlord failed to mitigate its damages. See Bellevue Props., 1999 WL 1086221, at *2 (citing Hailey v. Cunningham, 654 S.W.2d 392, 396 (Tenn. 1983)).

This opinion is a really comprehensive recap of Tennessee law on mitigation of damages, and I’d recommend that any eviction lawyer print out a copy for their files.

As an added bonus, the opinion goes on to provide really useful analysis of other common legal issues related to calculating damages, including:

  1. That a trial court’s award of damages (including prejudgment interest) is reviewed under an abuse of discretion standard, with a clear definition of that standard;
  2. A review of a trial court’s basis to award prejudgment interest pursuant to Tenn. Code Ann. § 47-14-123; and
  3. The standard for evaluating the reasonableness of a prevailing as attorneys’ fee request.

When I talk about how “well-done” an opinion is, what I really mean is that “This is so good that I’m going to cut-and-paste this exact same text the next time I brief this issue.”

So, maybe I assess the quality of jurisprudence differently than Oliver Wendell Holmes Jr. might, but, in my book, if a case is so clear and well-reasoned that it can save me time and research, it passes my test.

This case should be in every commercial eviction lawyer’s tool-kit.

Author: David

I am a creditors rights and commercial litigation attorney with Harris Shelton in Nashville, Tennessee.

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