In this series we have been examining a landlord's duty to mitigate their damages after a default by the tenant. Earlier we looked at the laws in the District of Columbia and Virginia. An examination of Maryland's law is below.
Maryland courts traditionally followed the common law rule that a commercial landlord had no duty to mitigate damages, but recent decisions have modified the rule significantly and even left open the possibility that the traditional view may be in danger. In Wilson v. Ruhl, 356 A.2d 544 (Md. 1976), the Court of Appeals set forth a landlord’s option when a tenant wrongfully abandons a commercial lease prior to expiration as follows: (i) the landlord may accept the surrender, thereby terminating the tenant’s obligation to pay future rent; (ii) the landlord may re-enter for the account of the tenant, re-let, and hold the tenant liable for the deficiency; or (iii) the landlord may do nothing and hold the tenant liable for the entire amount of rent payable during the remaining term of the lease.
However, in Circuit City Stores, Inc. v. Rockville Pike Joint Ventures Limited Partnership, 829 A.2d 976 (Md. 2003), the Court of Appeals moved closer toward the modern rule by applying contract law principles to hold that the landlord must mitigate its damages upon the landlord’s termination of a lease because of a tenant default. The Circuit City opinion discussed how survival clauses, where a tenant is obligated to pay post-termination rent as damages, rely on contract law rather than real property law for the enforcement of such an obligation. Accordingly, because the right to collect post-termination was a contractual obligation, a landlord who terminates a lease or accepts a surrender must accept the contract law doctrine of the duty to mitigate damages. Further, the court did not expressly affirm the landlord’s common law right to do nothing, raising the possibility of a future adoption of the modern rule in Maryland.
Note that like Virginia, Maryland has also enacted a statute that imposes a duty of mitigation on residential landlords.
Both landlords and tenants need to be aware of applicable state law concerning a landlord's duty to mitigate when negotiating the default provisions of a commercial lease. Further, landlords need to understand the consequences of enforcing certain remedies such as terminating a lease or accepting a surrender after a tenant default. The laws of the states differ significantly and the parties could be exposed to unexpected consequences if they do not draft the remedies provisions with due consideration being given to the applicable law in such jurisdiction on tenants and landlords.
John G. Kelly is an attorney with Bean Kinney & Korman in Arlington, Virginia. He represents national retailers and landlords located primarily in the Washington, D.C. metropolitan area.