May 6, 2014
No landlord likes to contemplate the circumstance of a tenant breaching a lease, but one of the most essential elements of any successful plan is to prepare for the worst. Success can be measured in many ways. While you clearly desire to secure a new tenant for that property, your mitigation plan should also include steps that ensures that you do not lose you ability to recover from your breaching tenant in court.
New Jersey courts have consistently held that, as a landlord, when your tenant breaches and leaves before the end of the term, you must work to mitigate the harm caused by the breach. Of course, as a landlord, you must make a pro-active effort to replace the tenant. One consummate example of “what not to do” in mitigation planning was illustrated in a 2010 case, Cheesequake Realty, L.L.C. v. Finkelstein. In that case, not only did the landlord fail to take action to secure a new tenant, the landlord specifically told a subtenant, who had received numerous inquires about the newly vacant space, to cease informing the landlord about the interest expressed by these potential replacement tenants.
Simply avoiding the mistakes of the landlord in the Cheesequake case is not enough, however. The law requires you, as the landlord, to take reasonable steps to fill that space. This means that you must be prepared to go to court and put forward sufficient evidence to demonstrate clearly that you have reasonably pursued acquiring a new tenant.
For example, hiring of a real estate professional to seek out new tenants does not automatically satisfy this reasonable effort standard. Your realtor must put forward a diligent effort to secure a new tenant, and you must have evidence to establish the efforts made.
As part of that reasonable effort requirement, you or your agent must offer the space for lease at a reasonable price. If you go to trial against your breaching tenant, you should consider securing proof of the property’s fair market value. This is helpful to the court to demonstrate that the rental rate at which you are offering the space is appropriate, and that you have not just made a token effort to offer the property at a grossly inflated and unreasonable price. Accumulating detailed evidence of you or your agent’s reasonable efforts to lease the space become increasingly important the longer the space remains vacant. A longer period of vacancy may be more likely to raise suspicion with the court that your efforts were less than reasonable.
Dealing with the unexpected setback of a breaching tenant leaving a property early involves taking many steps. Ensuring that you institute a plan reeasonably geared toward mitigating your damages incurred by the breach is an essential step. For quality advice and representation in the event that your tenant breaches, consult the real estate attorneys at Samuel C. Berger, P.C. Our New Jersey real estate attorneys have the experience and knowledge to make sure that you are positioned to succeed should you need to go to court. Reach us online or call (201) 587-1500 or (212) 380-8117.
Contact us through our website or call to schedule your free, confidential initial consultation today.
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Real Estate Sales Venture in Its ‘Developmental’ Stage Fails to Qualify for Business Deduction, New York & New Jersey CPA Tax Lawyer Blog, Feb. 21, 2014
Photo credit: Wayne Wilkinson at Wikimedia Commons.