Thursday, January 14, 2010


The Landlord claims from the Tenant, the sum of $142,635 for arrears of rent. The Tenant in turn, counter sues in the amount of $4,000,000.00 claiming damages as a result of the alleged default of the Landlord to deploy reasonable efforts and resources to ensure the lease of contiguous commercial space in the shopping center, thereby allowing the center to deteriorate and reduce the volume of pedestrian traffic.

The Tenant also alleged that the Landlord purposely neglected to adequately maintain the shopping center so as to drive existing tenants out of the food court in order to lease the premises to a large surface tenant.

The evidence established that the Tenant’s revenues declined by 50% during the eight (8) year period between the signing of the lease and the filing of the legal suit. However, the evidence also established that, in addition to being adversely affected by the deterioration of the shopping center, the Tenant also litigated with its franchisor, who had allegedly adopted a strategic plan to terminate all franchises in order to operate all stores at the corporate level. So what was the direct cause of the Tenant’s damages?

The evidence established that the shopping center was in a lamentable state which surely had an adverse impact on the Tenant’s goodwill and on its right to peaceable enjoyment of the leased premises. The absence of substantial renovations over a number of years and the absence of adequate maintenance in the common areas together with the dilapidated appearance of vacant premises and the failure to respect the established business hours caused the Tenant to suffer a loss of enjoyment in the premises which justified a reduction in the rent. In the circumstances, the Court rejected the claim of the Landlord for recovery of the arrears of rent.

The Court concluded however that the reduction in the Tenant’s revenues was not the direct and sole result of the Landlord’s neglect of the shopping center since other factors, such as litigation with the franchisor and substantial competition in the area, all contributed to adversely affect the Tenant’s goodwill.

The Court noted that the Tenant never attempted to mitigate its damages by negotiating changes to the terms and conditions of the lease as did other commercial tenants. Moreover, the Tenant did not request a reduction in rent or other court order of a nature to lessen the negative impact upon its goodwill or request the cancellation of the lease at an opportune time. Instead, it chose to remain in possession of leased premises which were adversely impacted by the Landlord’s neglect. Consequently, the Court rejected the counter claim of the Tenant for damages, while ratifying the agreement between the parties to cancel the lease.

The party making the claim has the legal burden to prove its damages. When a multitude of factors are present, it may be rather difficult to prove the case to the satisfaction of the court and next to impossible to attribute the direct cause of the damages.

The principle of “mitigation of damages” requires a victim to take reasonable steps to minimize its damages. Based on this legal principle, the Court held that the Tenant should have requested a reduction in rent or cancellation of the lease earlier than it did. Had it done so, the amount of its loss may have been less. On the other hand, the Tenant had a right to remain in possession of and enjoy the premises until the end of the lease and the Landlord had a corresponding obligation to provide peaceable enjoyment. When the Landlord does not do so, is it reasonable to exculpate the Landlord for breaching its obligations and shift the onus to the Tenant, who was not in breach?

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