Tag: duty to mitigate

Commercial Landlord Not Obligated to Accept Substitute Tenant Where No Sublease Offered – IL 1st Dist.

When a commercial tenant’s business is failing, it’s fairly common for the tenant to tender a sublessee to the landlord as a way to avoid a future damages lawsuit and judgment.

Gladstone Group I v. Hussain, 2016 IL App (1st) 141968-U, examines when a non-breaching landlord must accept a proposed sub- or new tenant from a defaulting lessee and what conduct satisfies the landlord’s duty to mitigate damages.

When the corporate tenant’s barbecue restaurant foundered, the landlord sued the lease guarantors to recover about $60K in unpaid rent.  At trial, the guarantors provided written and oral evidence that it offered three potential subtenants to the landlord – all of whom were refused by the landlord.

The trial court found that the landlord violated the lease provision prohibiting the landlord from unreasonably refusing consent to a sublease offered by the tenant.  Critical to the trial court’s ruling was the fact that the tenant proposed a subtenant who offered to pay $7,500 per month – only about $800 less than the monthly sum paid by the defaulting tenant.

The landlord appealed.  It argued that the lease did not require landlord to accept an offer that wasn’t an actual sublease or to agree to accept less rent than what a breaching tenant owed under a lease.

Held: Reversed

Reasons:

The critical fact was that no prospective tenant contacted by the defendant submitted a sublease to the landlord.  Instead, all that was given were “offers” to lease the premises. There was no evidence that any of the businesses that submitted offers were ready willing and able to step into defendant’s shoes.  While a landlord’s refusal of various subtenant offers is relevant to the landlord’s duty to mitigate, the burden is still on the defaulting tenant to prove that the proposed subtenant is ready willing and able to assume the tenant’s lease duties.

While a landlord’s refusal of various subtenant offers is relevant to the landlord’s duty to mitigate, the burden is still on the defaulting tenant to prove that the proposed subtenant is ready willing and able to assume the tenant’s lease duties.

Since the tenant failed to carry its burden of proving the subtenant’s present ability to take over the lease, the Court found that the landlord was within its rights to refuse the different subtenant’s overtures.  The appeals court remanded the case so the trial court could decide whether the landlord satisfied its duty to mitigate since the evidence was conflicting as to the landlord’s post-abandonment efforts to re-let the premises. (¶¶ 23-25)

The dissenting judge found that the landlord failed to satisfy its duty to mitigate damages.  It noted trial testimony that for several months from the date tenant vacated the property, the landlord did nothing.  It didn’t start showing the property to prospective tenants until several months after the tenant’s abandonment.

The dissent also focused on the landlord’s refusal to meet with or follow-up with the three prospects brought to it by the defaulting tenant.  It cited a slew of Illinois cases spanning nearly five decades that found a non-breaching landlord met its duty to mitigate by actively vetting prospects and trying to sublease the property in question.  Here, the dissent felt that the landlord unreasonably refused to entertain a sublease or new lease with any of the three businesses introduced by the defendant.

Afterwords:

There is a legally significant difference between an offer to sublease and an actual sublease.  A defaulting tenant has the burden of proving that its subtenant is ready, willing and able to assume the tenancy.  If all the tenant brings to a landlord is an offer or a proposal, this won’t trigger the landlord’s obligation not to unreasonably refuse consent to a commercially viable subtenant.

A landlord who fails to promptly try to re-let empty property or who doesn’t take an offered subtenant seriously, risks a finding that it failed to meet its duty to mitigate its damages after a prime tenant defaults.

 

‘Winning’ Failure To Mitigate Defense Doesn’t Confer ‘Prevailing Party’ Status On Restaurant Tenant In Lease Dispute Att’y Fee Hearing Dispute

Alecta v. BAB Operations, Inc., 2015 IL App (1st) 132916-U, a case I spotlighted earlier for its analysis of lease assignment liability rules, also provides a valuable discussion of contractual attorneys’ fees provisions basics. (See case’s bullet-points on lease assignment issues here: http://paulporvaznik.com/bagel-shop-successor-tenant-hit-for-rent-damages-and-attorneys-fees-in-commercial-lease-case-il-first-dist/8491)

The court affirmed a $70k-plus fee award for the landlord even though its damages were reduced by $20k for failing to mitigate damages. Code Section 9-213.1 (of the Illinois eviction or forcible statute) obligates a suing lessor to mitigate  its damages.  This means the landlord can’t sit back while rent payments become due and pile up without making measurable efforts to re-rent the premises.

On the attorneys’ fees issue, the law in Illinois is that the unsuccessful party usually has to pay his own fees unless there is a contract provision regarding attorneys’ fees or an applicable statute allows for fees.  In addition, a clearly worded fee-shifting clause should be enforced as written in favor of the prevailing party.

Q1: Who Is A Prevailing Party?

A: The one who is successful on a significant issue and achieves some benefit in bringing suit.  But, a litigant doesn’t have to succeed on all claims to be considered a prevailing party.

Where a case involves multiple claims and both parties win and lose on different claims, it may be that neither side is the prevailing party.

Q2: What Does Fee Petitioner Have To Show?

A:  The party petitioning for attorneys’ fees has the burden of presenting sufficient evidence to the trial court and a fee petition must specify (i) services performed, (ii) who performed them, (iii) time expended on the services, and (iv) the hourly rate charged by counsel;

Other fees factors for the trial court to consider include (a) skill and standing of attorneys, (b) nature of the case, (c) complexity of the issues, (d) importance of the case, and (e) degree of responsibility required to prosecute or defend a case.

A court considering a fee petition can also rely on its own experience.

¶¶ 72-74.

Here, the defendant lease assignee only prevailed on part of its failure to mitigate defense and didn’t file or win any counterclaims.  An affirmative defense differs from a counterclaim in that the former seeks to defeat a plaintiff’s claim while the latter (counterclaim) seeks affirmative relief from the plaintiff.  See ,e.g. Nadhir v. Salomon, 2011 IL App (1st) 110851, ¶¶34 – 38 (A “set-off” is a counterclaim; not an affirmative defense since the set-off defendant/counter-plaintiff seeks affirmative monetary relief against the plaintiff/counter-defendant.)

The court held that a $20,000 reduction off an over $80k  money damage verdict isn’t enough of a damages cut to make the defendant a prevailing party on the mitigation issue.  As a result, the trial court was within its discretion in awarding 80% of the plaintiff’s claimed fees.  Since the trial court found that the plaintiff prevailed on approximately 80% of its case (based on the partial reduction for failure to mitigate), the court’s fee award of over $70K was upheld.

Afterwords:

The case gives a good refresher on fee-shifting factors an Illinois court considers as well as further refinement of who is/who isn’t a prevailing party in litigation.

An interesting question is what would have happened if the tenant filed a counterclaim (as opposed to affirmative defense) and was able to obtain a $20K damages reduction on a set-off theory.  I don’t know if it would have made a difference here since $20K off a $80K money award likely isn’t big enough to merit “prevailing party” status.