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A tenant enters into a 24 month non residential office lease, pays for months 1 though 5 and unilaterally indicates to move out in early month 7. The tenants move out at approximately 7.5 months. Assume:

  • there is no provision in the lease for early termination
  • the landlord does not agree to early termination
  • there is no material breach of the contract other than tenant non payment
  • the tenant has prepaid the last month's rent
  • the tenant has a prepaid security deposit in the amount of 2 months rent
  • the tenant returns the rental in perfect condition

The tenant has effectively prepaid for 3 months of rent. In the absence of a provision for termination in the lease: Why should the landlord have cause to collect (keep the deposit):

  1. for month 6 and 7?

  2. for any months subsequent to month 7?

  3. if yes to subsequent, how many months? Months 8, 9, ... until new tenant is found?

  4. By moving out early without landlord agreement, did the tenant abandon month 24 and its corresponding payment?

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The landlord is entitled to damages

Damages under a contract are to restore the innocent party to the position they would have been in had the breach not occurred.

This means the landlord is entitled to rental payments of a monthly basis for the balance of the lease. However, the landlord is also obliged to reasonably mitigate the damage, typically by finding a new tenant as soon as possible.

Let’s make the example concrete.

Let’s assume the rent is $1,000 per month and that there is no pro-rata clause in the contract (as is typical). That means whether the tenant uses 1 day or 31 days of a month, they owe a full month’s rent.

When the tenant moves out, they owe $3,000 (plus interest). They also have an ongoing obligation to pay rent each subsequent month. This gives unmitigated damages of $17,000.

The landlord spends $500 to clean and get the property ready to rent. $1,000 commission to the agent and $500 on advertising. After 2 months they find a tenant at $800 per month.

Damages would be $3,000 for the unpaid rent, $2,000 for the out of pocket, $2,000 for the unoccupied months and 14 x $200 = $2,800 for the lower rent. So, $9,800.

Typically, a security deposit can be put against unpaid rent but might not be allowed to be deducted for economic loss from a breach.

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