Caseflicks

Appellate Division of the Supreme Court of the State of New York • 1988

Wallis v. Falken-Smith

136 A.D.2d 506

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Takeaway

In short, this case holds that even if a landlord must mitigate after a tenant defaults, the tenant bears the burden to prove that the landlord's reletting efforts were unreasonable.

Background

The plaintiff landlord leased an apartment to the defendant tenant for two years. The tenant later returned to California, stopped paying rent, and sought to sublet the apartment. The landlord rejected one proposed subtenant who wanted to install a hot tub on the apartment terrace. A second prospect decided not to rent after her architect concluded that the apartment's layout did not suit her needs.

The landlord advertised the apartment extensively, spending about $3,000 on advertisements in New York City and overseas. The tenant contended that the ads—many of which described the apartment as being for a “quiet, creative person”—discouraged families and that the landlord otherwise imposed unreasonable restrictions on subletting. The apartment was eventually sublet to a couple, but rent remained unpaid for part of the lease term.

After a nonjury trial, Supreme Court, New York County, awarded the landlord $15,000 plus interest and costs. It concluded that the landlord had not sufficiently minimized the lost rental income. The landlord appealed, seeking the balance of the rent and attorney's fees under the lease.

Issues

Issue #1

Whether the court needed to decide whether New York landlords remain exempt from a general contractual duty to mitigate damages after a tenant defaults under a lease.

Holding

No. Even assuming a landlord has a duty to mitigate, the tenant failed to prove that this landlord did not make reasonable efforts to reduce the loss.

Reasoning

The Appellate Division declined to resolve the broader question whether the traditional rule relieving landlords of a duty to mitigate remains viable in light of modern developments in landlord-tenant law. The dispute could be decided under the rule most favorable to the tenant: a landlord who has established a prima facie lease default need only be shown to have failed to take reasonable steps to reduce damages.

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Issue #2

Whether the tenant carried her burden to show that the landlord unreasonably failed to minimize the lost rental income after she stopped paying rent.

Holding

No. The evidence showed reasonable efforts to relet the apartment, not an unreasonable failure to mitigate.

Reasoning

Once the landlord proved the tenant's default, the burden fell on the tenant to establish that the landlord could have avoided or reduced the damages through reasonable efforts. The court relied on authorities placing that burden on the tenant even in cases recognizing a mitigation obligation.

The tenant did not show that the landlord unreasonably rejected the two prospective subtenants. The landlord could reasonably refuse a tenant who wished to install a hot tub on the terrace. The other prospect withdrew because her architect found the apartment unsuitable for her purposes, not because of any obstruction by the landlord.

The record also failed to prove that the landlord refused to cooperate with real-estate agents or categorically rejected tenants with children. Although the advertisements often described the apartment as suitable for a “quiet, creative person,” prospective tenants with families responded to them and were considered. The eventual sublease to a couple further undermined the claim that the ads were designed to exclude otherwise suitable renters.

The landlord spent approximately $3,000 on numerous advertisements in New York and abroad. Even if the advertising copy was not optimally drafted, it was reasonably aimed at attracting interested tenants, which is all the law could require. Testimony that the market for this type of apartment was especially slow for several months further supported the conclusion that the vacancy was not caused by the landlord's lack of diligence.

Issue #3

Whether the landlord was entitled to the unpaid balance of rent and attorney's fees under the lease.

Holding

Yes. The landlord was entitled to an additional $50,000 in unpaid rent, and the case was remanded to determine recoverable attorney's fees.

Reasoning

Because the tenant did not establish an unreasonable failure to reduce damages, the landlord was entitled to the remainder of the rent due under the two-year lease. The Appellate Division therefore increased the judgment from $15,000 to $65,000, plus interest and costs.

The lease authorized recovery of attorney's fees incurred because of the tenant's default. The court remanded for a determination of the amount of those fees.