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The Duty to Mitigate as a Commercial Landlord

May 29, 2017 Posted in Landlord/Tenant Law

As a landlord — commercial or residential — the possibility of a tenant prematurely vacating the property and leaving you with no immediate financial recourse for obtaining rental payments can be rather frightening.  Certainly, this difficult situation can be remedied somewhat by keeping the security deposit and working with an attorney to file a claim against the delinquent tenant for the remaining unpaid rent and various other unpaid charges.

Still, to what extent are New Jersey commercial landlords required to remediate their own damages when a tenant prematurely vacates?  Suppose, for example, that a retail store tenant vacates the property within a month of a yearlong rental agreement.  As a landlord, are you entitled to outright recover damages for all remaining 11 months of the unpaid rent, or are you required to exercise reasonable efforts in order to mitigate the damages?

Let’s take a look at the obligations that New Jersey law imposes on commercial landlords in the context of a tenant who vacates the property prematurely.

The Landlord is Obligated to Mitigate

Despite the fact that landlords are left in something of a lurch when a tenant prematurely vacates the property (and depending on the value of the property and the landlord’s own financial circumstances, the consequences of such abandonment can be severe), New Jersey law requires that all landlords — including commercial landlords — make reasonable efforts to mitigate the damages they suffer due to a tenant prematurely vacating a rental property, primarily by finding a replacement tenant.

There are two concerns that quickly become apparent:

  • How much effort is enough to constitute reasonable effort?
  • What if the new tenant is unwilling to pay the same rate?

There is no objective standard for what constitutes reasonable effort in the context of securing a replacement tenant.  Whether you have expended reasonable efforts depends on a variety of factors, including but not limited to the health of the rental market, how much time is remaining on the rental agreement (for example, despite reasonable efforts, you may be unable to find a replacement tenant if the tenant vacated just two months prior to the end of the rental agreement), the cost of securing a replacement tenant, and more.  Based on the total circumstances, a court will determine whether reasonable efforts have been made.

As a general rule, however, if you fail to secure a replacement tenant, you will have to make a clear showing that the circumstances were such that it was not feasible.

Of course, finding a replacement tenant may become easier if you reduce the rental rate to make the unit more competitive.  The difference in rent (stretched over the remaining rental period) may be included in your damages claim against the vacating tenant, but this cannot be abused by landlords looking to avoid the duty to mitigate.  As a landlord, your duty to mitigate damages requires that you find a reasonably adequate replacement tenant.

Suppose, for example, that a tenant vacates their property 6 months into a 2-year rental period.  The tenant was paying $5k per month to rent a retail space.  If you find a replacement tenant for $4.5k per month, then you may include the difference in rent (over the 2-year period) as part of your damages claim against the vacating tenant for unpaid rent.

You cannot, however, satisfy the duty to mitigate by replacing the tenant quickly with a tenant for $2k per month.  You must make efforts to find a reasonable replacement tenant.

If you are a commercial landlord dealing with a delinquent tenant who has prematurely vacated a rental property, you are entitled to recover for unpaid rent, but must exercise reasonable efforts to mitigate your damages.  To ensure that you obtain a full and adequate recovery, consult with an attorney who has experience handling New Jersey landlord tenant law.  Griffin Alexander, P.C. help.

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