Anyone thinking about moving out of your apartment before the lease is up? You may want to reconsider.
A state Appeals court ruled over the summer that a landlord has no duty to mitigate damages in the case of a tenant breach. In other words, a landlord is not required to find a new tenant, and can sue for the rent due for the remainder of the lease. This may be what many tenants thought, anyway – but with an opinion issued in July, it’s official.
The opinion, Rios v. Carrillo, was written by Judge Robert A. Lifson of the New York Appellate Division, Second Department, and involved Queens tenant Alfred Carrillo, who vacated his apartment before the lease expired and ceased paying rent. Landlord Maria Rios later sued for the unpaid rent for the entire lease term. The court ruled that the lease provided that the tenant remained liable for the rent if there was a cancellation of the lease. This type of clause is included in most standard lease agreements used in New York City – but the court went even further to hold that even absent such language, a landlord still has no duty to mitigate damages.
Victorious landlord’s attorney Peter Piddoubny of Astoria, Queens – whose previous defeat in state Supreme Court was reversed with this ruling – indicates the decision is a warning to tenants. “The tenant believed he could just walk away and it was up to the landlord to re-rent the apartment,” Piddoubny said.
Landlord Rios explored re-renting the apartment, but found no takers and decided to sell the unit, keeping it vacant to make it more marketable. Piddoubny asserted that (although it was not mentioned in the court’s written decision), the tenant moved out of the apartment at a time when rents were falling in order to move into a similar apartment in the same building at a lower rent.
“The decision represents an exception for landlord-tenant matter from general contract principles whereby the victim of a breach is obligated to minimize damages,” said tenant’s attorney Robert Goldberg, from the Manhattan law firm of Goldberg, Scudieri, Lindenberg & Block. “For instance, if I promise to buy a barrel of oil for $100 and don’t follow through, the seller is obliged to find another buyer.”
The ruling represents a divergence from the decisions of courts elsewhere in the area; Connecticut and New Jersey both impose a duty to mitigate on residential landlords. In fact, under New Jersey law the burden of proof rests on the landlord to show the use of “reasonable diligence in attempting to re-let the premises.” In the recent appeal, however, the legal theory guiding the decision was a determination that a residential lease is a transfer of an estate in property rather than a contractual relationship. This distinction, while seemingly an obscure legal point, made all the difference in the outcome.
Historically, a residential lease was considered to be a transfer of an estate in property—this means the tenant received the property, but there were no obligations imposed on the landlord, such as to maintain it in a habitable condition. For example, if there was a problem with heat or sewage, tenants were left on their own to make repairs. This view has its origins in agrarian society. But with the advent of modern urban tenancies, in the 1970’s the law began to change. Courts started to view lease agreements as being contractual in nature, finding this to be more in line with the expectations and reality of modern life, where landlords operate as commercial businessmen, and tenants are more transient and not equipped to make repairs.
“It is certainly my impression that courts since the 1970’s have often incorporated contract doctrines into the law of leaseholds,” said Christoper Serkin, an assistant professor at Brooklyn Law School who teaches property law. “While the court in Rios certainly followed the traditional rule regarding leases, it explicitly declined to follow or extend the large body of case law recognizing the contractual aspect to leases.”
In fact, the Rios court extended to residential tenancies a prior decision from the Court of Appeals, which is the highest state court in New York, stating that the landlord in a commercial lease has no duty to mitigate. The court indicated that it was constrained by this ruling and that it was up to the legislature to enact any changes to the law.
Mitchell Posilkin, general counsel for the Rent Stabilization Association, a trade group that represents thousands of New York City landlords and property managers, said his members would appreciate the clarity brought by the case, even though it “did not break new ground.”
“The appellate court simply made clear that the decision that there is no duty to mitigate in commercial tenancies applies to residential ones,” Posilkin said. “The courts have made it clear that real estate contracts are different than non-real estate contracts by their very nature. If the owner chooses to mitigate, that is the business judgment made by the owner. The onus is not on the owner but rather is on the tenant.”
But according to attorney Goldberg, who represents both landlords and tenants, “There should be a general duty to mitigate, although there may be exceptional circumstances where the failure to mitigate can be excused.”
His advice for tenants who plan to vacate their apartments early is: “Give notice to the landlord and tell the landlord that you’ll work with them to try to find a new tenant. Tenants may want to even ask the landlord if they can find a new tenant and get the landlord to agree not to unreasonably refuse one if found.”