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PHILADELPHIA-While a commercial building owner is permitted to mitigate the financial damages that result from a vacating tenant during a lease term, the tenant is not absolved from making the owner whole. Such was the result of a Superior Court of Pennsylvania ruling in Trizechahn Gateway LLC v. Titus, as reported by Alan Nochumson in The Legal Intelligencer, a publication of ALM, which is affiliated with GlobeSt.com and published here.

The now-defunct law firm of Titus & McConomy had signed a 10-year lease for office, plus basement storage space in a Pittsburgh building owned by Trizechahn Gateway. Several years later the law firm closed operations and offered to help sublet the space. When it vacated the offices, it left files in the storage area. It continued to make payments for a short while, but later defaulted.

The owner notified the tenant of its intention to recover the storage space in order to correct a building violation, and then constructed an egress in the space to accommodate a new tenant. It also re-leased the office space to other tenants for a term that was longer than the law firm’s agreement.

However, because the market had deteriorated, the owner provided rent abatements to the replacement tenants. The owner then initiated a court complaint against the law firm and its general partners to obtain the remaining rent due under the firm’s lease agreement. At trial, the court ruled in favor of the owner and said it could receive the accelerated amount due under the lease, less the amount it would receive under the new lease agreements.

The law firm appealed the judgment in the state’s Superior Court. Among its charges was that, before notification of the need to correct a building violation, the owner had already decided to take back the storage space in order to meet the requirements of a new tenant. The court ruled that once the law firm defaulted and abandoned the premises, the owner was entitled to make alterations needed to re-lease the space.

Nochumson writes, “The original tenant’s duty to pay rent is only relieved when rent of an equal amount is paid under the replacement lease. As such, any deficiency in rent between the leases will be bourn by the original tenant.”

The court found that giving rent abatement to the replacement tenant was a “commercially reasonable inducement,” considering that the local commercial real estate market was in a state of decline. Therefore, the law firm was required to reimburse the landlord for the amount of the abatement.

Nochumson concludes that the Superior Court “merely confirmed that while a commercial landlord may mitigate its damages, its tenant is not absolved from making the landlord whole. If the court had ruled otherwise, landlords in Pennsylvania would be less inclined to mitigate their damages.”

Nochumson is an attorney here that specializes in real estate, litigation, employment and labor, and land use and zoning. He is also president of locally based Bear Abstract Services, which provides title insurance and examination and real estate closing services.

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