Mitigating Damages

Mitigating damages is a concept in contract law that requires a party who has suffered a loss in a contract dispute to minimize their damages that have occurred because of that dispute.

This means that as the wronged party, you must make reasonable efforts to reduce what your damages are.  Examples of mitigation of damages include, but are not limited to:

(1)         A residential landlord must attempt to find a new suitable tenant when their current tenant vacates the rented premises prior to the expiration of the lease term;

(2)         Upon the default of a lease agreement, the leasing company must sell the leased equipment as soon as possible and apply those sale proceeds to the lease, which would reduce the deficiency and their losses; and

(3)         An employee who is terminated from their employment has an obligation to attempt to find new comparable employment, if possible.

There are circumstances when mitigation is not possible.  For example, when a lessor cannot locate the leased equipment because its being hidden by the lessee, resulting in the lessor’s inability to mitigate their damages.

Also, liens for repairs to equipment may be registered on the title of the equipment when a lessee fails to pay for repairs.  Depending upon the amount of the repairs and the potential value of the equipment, it may not be cost effective to attempt to mitigate, as the repairs might be in excess of the value of the equipment and the lessor makes the business decision to let the equipment go.

One instance where mitigation is not usually necessary are commercial tenancies.  If you have a valid commercial lease agreement, and the tenant vacates prior to the end of the term, the commercial landlord is not obligated to mitigate their damages by finding a new tenant like the residential landlord is required to do so.

If you were able to mitigation your damages, and you fail to do so, and you proceed with legal action, the Court may significantly reduce what you are awarded, or even worse, not grant your request for relief as a penalty for failing to mitigate your damages.

Before you proceed with litigation, ask yourself if you are able to mitigate your damages, and if you can, did you do all you could to reduce your losses, and if you can’t, have a good explanation ready as to why.

Murray Brown, Licensed Paralegal