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Emkay Realty Corporation v. Ibbetson

A-6874-99T2 (N.J. Super. App. Div. 2002) (Unpublished)

LANDLORD-TENANT; DAMAGES; MITIGATION— The burden to show that a landlord meets its post-default mitigation obligation is on the landlord, not the tenant.

A commercial tenant breached its lease and vacated its premises. The landlord then filed an action to collect unpaid rent and compensation for certain other damages. After a jury trial, judgment was issued in favor of the landlord. On appeal, the tenant argued, among other grounds, that the lower court should not have placed the burden of showing that the landlord had failed to mitigate its damages on the tenant. It also asserted that the lower court should not have permitted the landlord to introduce into evidence two checks that had been tendered by the tenant during the lease term and has been returned for insufficient funds. In 1977, the New Jersey Supreme Court adopted a rule that fairness and equity require that a “landlord has a duty to mitigate damages where he seeks to recover rents from a defaulting tenant.” That ruling, involving a residential lease, was applied in 1991 to commercial tenancies. In the 1977 case, the Supreme Court held that, “notwithstanding the rule generally applicable in contract actions that the breaching party has ‘the burden of proving that damages are capable of mitigation,’ in landlord tenant actions the burden would be placed on the landlord, who ‘will be in a better position to demonstrate whether he exercised reasonable diligence in attempting to re-let the premises.’” When the underlying ruling was extended to commercial tenancies, the Supreme Court said, “[t]he lessor bears the burden of demonstrating the actions taken to mitigate damages.” Because the lower court wrongly instructed the jury on the burden of proof mitigation, the Court remanded the matter for a new trial on that issue. At the same time, the Court examined whether “evidence of [the tenant’s] late rent payment was relevant as tending to undercut [the tenant’s] position that it had vacated the premises due to its uninhabitability… .” The landlord had been suggesting that its tenant “left because of financial problems, ... [and] in fact, rented elsewhere after leaving the leased premises.” The Court was unwilling to conclude that evidence as to a “continuing pattern of late rent payments was without relevance.” On the other hand, it viewed the evidence of the two bad checks differently. Those checks were given more than eighteen months before the tenant vacated the premises. The Court failed to see “how that evidence had a logical connection to any fact genuinely in issue.” Without doubt, that evidence placed the tenant in a bad light and caused undue prejudice to the tenant’s cause. The Court felt no need to decide whether there should be a new trial for that reason alone, because it already decided there should be a new trial on the mitigation issue. The Court concluded that because the initial trial was “a brief one, that the interests of justice would be best served by a new trial on all issues.”

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