No-Mitigation Clause in Lease Was Enforceable

A tenant shut its bagel store several years before its lease was set to expire. The owner then hired a leasing agent to find a new tenant. The agent posted a “for lease” sign at the space and notified national tenants and local businesses about the space. One lease deal fell through, but the agent eventually rented the space to a restaurant. The owner sued the tenant for unpaid rent. The tenant argued that it wasn't liable for unpaid rent because the owner didn't mitigate—that is, lessen—its damages, even though the lease said the owner had no obligation to mitigate. The tenant said the owner's refusal to agree to a lower rent prevented it from quickly reletting the space.

A North Carolina appeals court ruled that the tenant was liable for the unpaid rent because the lease said the owner had no obligation to mitigate its damages. A no-mitigation clause in a lease was enforceable, noted the court, unless it violated a state law, was gotten by unequal bargaining power, or was against public policy. The North Carolina legislature hadn't passed a law requiring owners to mitigate their damages. Also, the evidence showed that the parties had equal bargaining power, neither party had been forced to sign the lease, and, after bargaining over the lease's provisions, both parties chose to keep the no-mitigation clause in the lease. Plus, the clause didn't “create a risk of injury to the public or the rights of third parties.” As a result, the court said, “The public policy of this State cannot relieve a party of the consequences” of a lease that turned out to be a bad deal [Sylva Shops LP v. Hibbard].