MITIGATION OF DAMAGES IN IL COMMERCIAL LEASE DISPUTES

Synopsis:

An Illinois landlord under a commercial lease must take reasonable measures to mitigate damages,

. . . but only if mitigation of damages is required – which is not always.

The General Duty to Mitigate

      Illinois landlords and their agents are required to use reasonable measures to mitigate damages recoverable against a defaulting lessee. 735 ILCS 5/9-213.1. The term “reasonable measures” is not defined by statute, and Illinois courts have held that whether the landlord has complied with the reasonable-measures standard is a question of fact, to be determined on a case-by-case basis. Danada Square, LLC v. KFC National Management Co., 392 Ill.App.3d 598, 913 N.E.2d 33, 41, 332 Ill.Dec. 438 (2d Dist. 2009).

      Section 9-213.1 of the Code of Civil Procedure, 735 ILCS 5/1-101, et seq., is mandatory, however, and it is the responsibility of the landlord, when proving damages, to also prove that it took reasonable measures to mitigate damages, whether or not the landlord’s requirement to mitigate damages was raised as an affirmative defense by the tenant. St. George Chicago, Inc. v. George J. Murges & Associates, Ltd., 296 Ill.App.3d 285, 695 N.E.2d 503, 508 – 509, 230 Ill.Dec. 1013 (1st Dist. 1998); Snyder v. Ambrose, 266 Ill.App.3d 163, 639 N.E.2d 639, 640 – 641, 203 Ill.Dec. 319 (2d Dist. 1994).

      The landlord has the burden to prove mitigation of damages as a prerequisite to recovery. Snyder, supra, 639 N.E.2d at 641; St. Louis North Joint Venture v. P & L Enterprises, Inc., 116 F.3d 262, 265 (7th Cir. 1997). Losses that are reasonably avoidable are not recoverable. Nancy’s Home of Stuffed Pizza, Inc. v. Cirrincione, 144 Ill.App.3d 934, 494 N.E.2d 795, 800; 98 Ill.Dec. 673 (1st Dist. 1986); Culligan Rock River Water Conditioning Co. v. Gearhart, 111 Ill.App.3d 254, 443 N.E.2d 1065, 1068, 66 Ill.Dec. 902 (2d Dist. 1982).

      In dicta, the court in St. George, supra, stated that failure to take reasonable measures to mitigate damages may not necessarily bar recovery by the landlord, but it will result in the landlord’s recovery being reduced. 695 N.E.2d at 509. How this would work from an evidentiary standpoint, however, is not entirely clear. Presumably, the landlord could introduce evidence at trial that, although the landlord did not take reasonable measures to mitigate damages, if it had, damages would have been reduced by some specified amount. If the landlord fails to introduce even that evidence, however, the question appears to remain open as to whether the landlord adequately proved damages — since the burden of proof of damages remains with the landlord and there is no suggestion that the statutory requirement to prove mitigation shifts to the tenant.

      At least one recent case has, in dicta, questioned aspects of both St. George and Snyder, supra, disagreeing that proof of mitigation must be demonstrated by the landlord as a prerequisite to recovering damages and has suggested that the issue of mitigation of damages is an affirmative defense that must be raised by the tenant, or it is waived. Takiff Properties Group Ltd. #2 v. GTI Life, Inc., 2018 IL App (1st) 171477, ¶23; 124 N.E.3d 11; 429 Ill.Dec. 242.

      Further, as a matter of first impression, the court in Takiff went on hold that the landlord’s obligation to mitigate can be contractually waived by a commercial tenant Takiff, at ¶29, and, as determined by the trial court, was in fact contractually waived by the tenant, rendering the issue of mitigation moot. 2018 IL App (1st) 171477 at ¶31.

      Possession as a Condition Precedent to Landlord’s Duty to Mitigate.

      Notwithstanding any general duty of landlord to mitigate damages, a landlord has no duty to mitigate until the landlord comes into possession. 2460-68 Clark LLC v. Chopo Chicken, LLC, 2022 IL App (1st) 210119, ¶34; Block 418, LLC v. Uni-Tel Communications Group, Inc.  398 Ill.App.3d 586, 925 N.E.2d 253, 258 ((Ill. App. 2 Dist. 2010); St. George Chicago, Inc. v. George J. Murges & Associates, Ltd., 296 Ill.App.3d at 290-91.

      Discussing the application of this principal, the Chopo Chicken court noted that an eviction proceeding is a summary proceeding to recover possession. Since a landlord has no duty to mitigate until the landlord is in possession, and, in an eviction action, a landlord is not in possession until the eviction court grants the landlord an order of possession and landlord recovers possession, landlord’s efforts to mitigate, or the lack thereof, are not relevant.  Chopo Chicken, supra ¶34

      Liquidated Damages Provision Makes Mitigation Irrelevant. 

      It is the general rule in Illinois that, in the case of an enforceable liquidated damages provision, mitigation is irrelevant and should not be considered in assessing damages. Chopo Chicken at ¶33. A liquidated damages provision is an agreement by the parties as to the amount of damages that must be paid in the event of default. Chopo Chicken at ¶33. Liquidated damages in commercial leases are not uncommon.

      In Chopo Chicken, the court considered a provision that included an itemization of damages recoverable by landlord from tenant including “a sum equal to the amount of unpaid rent and other charges and adjustments called for herein for the balance of the term hereof, which sum shall be due to Landlord as damages by reason of Tenant’s default hereunder” which, the court found, constituted a liquidated damages provision. 

      Similarly, in the St. George case, 296 Ill.App.3d 285; 695 N.E.2d 503, 507 the court found that a so-called “rent differential” formula (i.e. amount determined by the excess if any of the present value of the aggregate Monthly Base Rent and Operating Expense Adjustments for the remainder of the Term as then in effect over the then present value of aggregate fair rental value of the Premises for the balance of the Term the present value calculated in each case at 3%) constituted a liquidated damages provision.

            The Summary Rule regarding Mitigation

      Based upon the foregoing cases, the actual Illinois rule governing mitigation of damages in commercial lease disputes appears to be as follows: A landlord must take reasonable measures to mitigate damages, if mitigation of damages is required – but mitigation of damages is not required (i) until the landlord is placed in possession of the leased premises, or (ii) when the lease includes a liquidated damages provision.