In today’s market, we are seeing an increase in the number of commercial leases that are being terminated early. Indeed, I am often retained to help in lease termination negotiations.
Here are four things to consider during such negotiations:
1. Mitigating Damages: In general the commercial property landlord has a duty to mitigate its damages. That means if a commercial tenant vacates or abandons the leased premises prior to the expiration of the lease term, the landlord must take steps to re-let the premises after following the appropriate procedures to make sure the tenant truly is no longer in possession. In other words, the commercial landlord cannot sit idle and let the premises be vacant and expect to collect the missing rent from the breaching tenant.
2. Lessor (Landlord) is Not Entitled to a Double Recovery: In California, if the landlord re-lets the premises after abandonment by the former tenant, the landlord cannot attempt to collect rent from both the prior and current tenant.
3. No Increased Recovery: The landlord claiming to be damaged by the breach of the lease cannot recover more on the breach than the landlord would have received had the tenant continued in possession of the leased premises.
4. Former Tenant is Entitled to an Offset: If the commercial real estate landlord is able to re-let the premises for the balance of the prior lease term, the landlord must offset its increased rent against its damages for the period of time where he was not collecting rent from the prior tenant. Willis v. Soda Shoppes of California, Inc. (1982) 134 Cal. App. 3d. 899, 903-905. This makes sure that the landlord does not obtain a windfall.