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Hundal of Middlesex v. Audio Energy, Inc.

A-2835-00T5 (N.J. Super. App. Div. 2002) (Unpublished)

LEASES; MITIGATION— A landlord seeking to obtain a higher rental for premises after its tenant’s default may be in breach of its duty to mitigate damages and may not be entitled to collect post-termination damages from its tenant.

A four year lease provided that, at its expiration, it would automatically renew unless either the landlord or tenant had given ninety days’ prior notice of non-renewal. The lease provided for a small monthly rental increase for the next year. The tenant tendered the old rent and the landlord accepted the payment. The tenant’s contention was “that the original lease had expired, that no renewal had occurred, and it was a month-to-month tenant pending negotiation of a new lease.” The rent checks contained a notation “Paid in full through (date)” on the reverse side. Sometimes the landlord crossed out the notation and at other times it did not. When the landlord asked the tenant to sign an estoppel certificate, the tenant wrote on the certificate that its premises were occupied on a month-to-month basis. The landlord did not object to that notation. About a year after the initial lease term ended, the tenant moved out, failing to pay its final month’s rent. The landlord took about fourteen months to re-rent the premises, apparently because it was seeking to get a higher rent than its former tenant had paid. When the landlord eventually sued for damages, the lower court dismissed its claim for the monthly rent deficiency on the theory that there had been “an accord and satisfaction, i.e., the landlord accepted the rent paid as rent in full.” It had reached this conclusion, with the Appellate Division’s affirmance, despite the landlord’s contention that it only accepted seven out of the twelve rent checks with those markings. The lower court, with the approval of the Appellate Division, concluded that the lease had, in fact, been automatically renewed even for a second year because the tenant had not given the required termination notice either at the end of its initial term or at the end of the following year. Nonetheless, the landlord did not receive an award for damages beyond the unpaid last month’s rent because the Court held that the landlord breached its obligation to mitigate damages when it “tried to benefit from the tenant’s breach by seeking to lease the premises for a higher rent than what was provided in the lease.” The Court’s theory was that the “landlord was acting for itself rather than as the tenant’s agent.”

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