Chapter 22 - § 22.7 • MITIGATION OF DAMAGES

• Jurisdiction: Colorado

§ 22.7 • MITIGATION OF DAMAGES

Under Colorado law, on a tenant's default, the landlord is required to mitigate its damages. Where a tenant has abandoned the premises, a landlord cannot passively suffer preventable economic losses; instead, the landlord must take actions to mitigate its losses, such as reletting the premises.¹⁰¹ A landlord is not allowed to refuse to accept the tenant's surrender of the premises, make no effort to relet the premises, and hold the original tenant liable for rent.¹⁰² Instead, to fulfill its duty to mitigate, the landlord must exercise reasonable efforts to procure a substitute tenant.¹⁰³ Consequently, landlords and tenants should be aware that even if their lease states that they have no duty to mitigate damages, such a duty will be imposed under Colorado law. Failure to mitigate damages is an affirmative defense to a breach of contract action, but not to an action on the contract itself.¹⁰⁴

Considering these legal requirements, a landlord may take one of several approaches to the mitigation of damages clause. Some landlords will still state that they have no obligation to relet the premises. They will then comply with mitigation requirements only to the extent required by Colorado law, if and when a tenant defaults. Other landlords will say nothing as to whether they will mitigate damages or relet the premises. A third group of landlords will state that they will use "reasonable efforts to relet the premises" in the event of a tenant default. While a tenant will often push to require the landlord to use its "best efforts," landlords generally resist this requirement because the amount of effort required may be unclear and might require extraordinary efforts. A landlord taking this third approach should consider listing certain things that it is not required to do to satisfy its obligation to make reasonable reletting efforts. These often include renting the space for below market rent, leasing the premises before other available space in the building or other buildings owned by the landlord, and accepting a subpar tenant (one who is not creditworthy, does not have a desirable use, etc.). If specific circumstances, such exclusives or use prohibitions, limit the tenant mix on the property, the landlord is wise to state that it is not required to relet the premises to a tenant who violates these restrictions.¹⁰⁵

The landlord also might negate any requirement to lease to any party related to the defaulting tenant, certain...