Title: Frenchtown Square Partnership v. Lemstone, Inc.

State: ohio

Issuer: Ohio Supreme Court

Document:

[Cite as Frenchtown Square Partnership v. Lemstone, Inc., 99 Ohio St.3d 254, 2003-Ohio-
3648.] 
 
 
FRENCHTOWN SQUARE PARTNERSHIP, APPELLANT, v. LEMSTONE, INC., 
D.B.A. LEMSTONE BOOKS, APPELLEE. 
[Cite as Frenchtown Square Partnership v. Lemstone, Inc., 99 Ohio St.3d 254, 
2003-Ohio-3648.] 
Landlord and tenant — Lessor has a duty to mitigate damages caused by 
lessee’s breach of a commercial lease if the lessee abandons the 
leasehold — Lessor’s efforts to mitigate must be reasonable — 
Reasonableness should be determined by trial court. 
(Nos. 2001-1165 and 2001-2259 — Submitted February 12, 2003 — Decided 
July 23, 2003.) 
APPEAL from the Mahoning County Court of Appeals, No. 99 C.A. 300, 2001-
Ohio-3245. 
__________________ 
SYLLABUS OF THE COURT 
1.  A lessor has a duty to mitigate damages caused by a lessee’s breach of a 
commercial lease if the lessee abandons the leasehold. 
2.  The lessor’s efforts to mitigate must be reasonable, and the reasonableness 
should be determined by the trial court. 
__________________ 
 
O’CONNOR, J. 
Preliminary Issue 
{¶1} 
Before addressing the merits of this appeal, we resolve a 
procedural issue raised by Frenchtown Square Partnership (“Frenchtown”). 
{¶2} 
This case is before us as a consolidated appeal.  On February 6, 
2002, we accepted jurisdiction in case No. 2001-1165, the underlying case, solely 
to determine whether a landlord has a duty to mitigate damages caused by a tenant 
SUPREME COURT OF OHIO 
2 
who breaches a commercial lease and abandons the leasehold.  Subsequently, in 
case No. 2001-2259, Frenchtown petitioned us to accept jurisdiction over two 
procedural issues involving the same parties and transaction as in the underlying 
case.  We consolidated Frenchtown’s appeals; however, at no point did we accept 
jurisdiction over the issues raised in case No. 2001-2259, nor did we order the 
parties to brief those issues pursuant to the Rules of Practice of the Supreme 
Court.  Accordingly, the only issue before us is whether a landlord has a duty to 
mitigate damages caused by a tenant who breaches a commercial lease and 
abandons the leasehold. 
Facts and Procedural History 
{¶3} 
This case is before us from the Seventh District Court of Appeals, 
which affirmed in part and reversed in part summary judgment in Frenchtown’s 
favor and held that Frenchtown bore a duty to mitigate its damages after 
Lemstone, Inc. (“Lemstone”) breached its lease. 
{¶4} 
Frenchtown owns Frenchtown Square Shopping Center, a mall 
located in Monroe, Michigan.  Lemstone is an Illinois corporation doing business 
as a Christian bookstore.1  On June 3, 1989, Frenchtown leased store space in its 
mall to Lemstone for a period of ten years. 
{¶5} 
Frenchtown leased other mall space to Alpha Gifts, a business that, 
in 1998, began to sell items similar or identical to products sold by Lemstone.  
Lemstone argues that competition from Alpha Gifts reduced its profitability to the 
point where it could no longer meet its rent obligations under the lease.  
Approximately six months prior to lease expiration, Lemstone ceased conducting 
business at Frenchtown Square and abandoned its store space.  For the balance of 
                                                          
 
1. 
Although the mall is located in Michigan and Lemstone is incorporated in Illinois, this 
action arose in Ohio because Frenchtown is an Ohio general partnership with offices in 
Youngstown, Ohio, and the lease is governed by Ohio law, pursuant to the lease’s choice-of-laws 
provision. 
January Term, 2003 
3 
the lease’s term, Lemstone did not pay rent to Frenchtown, and Frenchtown did 
not relet the property. 
{¶6} 
Frenchtown sued Lemstone for rent due, incidental fees, and 
taxes.2  Lemstone answered that Frenchtown failed to mitigate its damages, and it 
filed multiple counterclaims.3  Ultimately, the trial court granted summary 
judgment in Frenchtown’s favor on all issues. 
{¶7} 
On appeal, Lemstone maintained ten assigned errors.  The appeals 
court affirmed the trial court’s judgment in part but held that Frenchtown, as a 
commercial lessor, had a duty to mitigate damages when Lemstone abandoned the 
leasehold.  Accordingly, the appeals court remanded the case to the trial court to 
determine whether Frenchtown had properly mitigated its damages. 
{¶8} 
From the Seventh District’s judgment, Frenchtown filed the instant 
appeal.  This case is now before us as a discretionary appeal. 
Analysis 
{¶9} 
A certain duality inheres to leases.  Specifically, because they are 
contractual instruments by which parties convey interests in real property, they 
are arguably susceptible of both contract law and property law principles. 
{¶10} Under common law, a lessor bore no obligation to mitigate 
damages when a lessee abandoned the leasehold.  The common law allowed a 
lessor to “stand by and do nothing, arbitrarily refusing to accept any new tenant.”  
Solomon, The Commercial Landlord’s Duty to Mitigate Damages (Feb.1988), 
122 N.J.Law. 31. 
{¶11} Fundamentally, a duty to mitigate did not exist because leases were 
viewed as transfers of property interests.  The lessor did not simply permit the 
                                                          
 
2. 
At the time that Frenchtown sued Lemstone, the lease term had not expired.  Since 
Frenchtown’s complaint, the lease has expired, and claimed damages have reached $44,490.61, 
excluding interest. 
SUPREME COURT OF OHIO 
4 
lessee to occupy the lessor’s property; rather, the lessee owned an abstract portion 
of the land, albeit for a limited duration, and rent was a fixed obligation.  “Thus, 
when a tenant abandoned the leasehold, he was viewed as having vacated his 
estate,” not that of the lessor.  Rubin v. Dondysh (1989), 146 Misc.2d 37, 45, 549 
N.Y.S.2d 579. 
{¶12} Conversely, under the common law of contracts, mitigation is a 
fundamental tenet of a damage calculus.  Contracts are the mutual exchange of 
promises, with each party holding an expectation of certain obligations and 
benefits.  Thus, contract law acknowledges that mitigation, otherwise known as 
the doctrine of avoidable consequences, may justly place an injured party “in as 
good a position had the contract not been breached at the least cost to the 
defaulting party.”  F. Ent., Inc. v. Kentucky Fried Chicken Corp. (1976), 47 Ohio 
St.2d 154, 159-160, 1 O.O.3d 90, 351 N.E.2d 121. 
{¶13} As Frenchtown and Lemstone acknowledge, a “modern trend” is 
eroding the common-law approach of treating leases strictly as conveyances of 
real property.  Barker, Commercial Landlords’ Duty upon Tenants’ 
Abandonment—To Mitigate? (Summer 1995), 20 J.Corp.L. 627.  Many states, via 
legislative or judicial mandate, have addressed a commercial or residential 
lessor’s duty to mitigate.  Austin Hill Country Realty, Inc. v. Palisades Plaza, Inc. 
(Tex.1997), 948 S.W.2d 293, fn. 1.  Although relatively few jurisdictions have 
expressly determined a commercial lessor’s duty, the trend favors Lemstone.4 
                                                                                                                                                              
 
3. 
Lemstone counterclaimed that Frenchtown had breached the lease and tortiously 
interfered with its business relationship with its franchisees, and that a 1993 lease amendment was 
invalid. 
4. 
{¶a} 
States that have expressly determined that commercial landlords bear no duty to 
mitigate include Alabama: See Ex Parte Kaschak (Ala.1996), 681 So.2d 197; Minnesota: See 
Markoe v. Naiditch & Sons (1975), 303 Minn. 6, 226 N.W.2d 289; New York: See Holy 
Properties Ltd, L.P. v. Kenneth Cole Productions, Inc. (1995), 87 N.Y.2d 130, 637 N.Y.S.2d 964, 
661 N.E.2d 694; and Pennsylvania: See Stonehedge Square Ltd. Partnership v. Movie Merchants, 
Inc. (1998), 552 Pa. 412, 715 A.2d 1082. 
 
{¶b} 
States that are part of the modern trend include Arkansas: See Baston v. Davis 
(1958), 229 Ark. 666, 318 S.W.2d 837 (tenant who sublet property owed duty to mitigate upon 
January Term, 2003 
5 
{¶14} Previously, this court refrained from determining whether a 
commercial landlord has a duty to mitigate his damages.  In F. Ent., Inc., we 
considered “whether the trial court applied the correct rule as to measure of 
damages for breach of the contract * * *.”  Id. at 156, 1 O.O.3d 90, 351 N.E.2d 
121.  Because the parties did no more than contract to enter into a commercial 
lease, F. Ent., Inc. did not implicate the transfer of a leasehold interest.  Although 
we held that “recovery of damages by the prospective lessor is limited to only 
those damages arising from the breach which could not, by reasonable effort on 
his part without undue risk or expense, have been averted or reduced,” we did not 
specifically address the question raised herein.  Id. at 160, 1 O.O.3d 90, 351 
N.E.2d 121. 
{¶15} Further, in Dennis v. Morgan (2000), 89 Ohio St.3d 417, 417, 732 
N.E.2d 391, we addressed “whether, absent specific provisions in the lease, a 
landlord’s election to terminate a lease agreement releases a tenant from liability 
                                                                                                                                                              
 
sublessee’s breach); Colorado: See Schneiker v. Gordon (Colo.1987), 732 P.2d 603 (duty to 
mitigate requires lessor to mitigate breach of commercial lease); Connecticut: See Danpar Assoc. 
v. Somersville Mills Sales Room, Inc. (1980), 182 Conn. 444, 438 A.2d 708 (landlord that sued for 
damages caused by lessee’s breach is obligated to mitigate damages); Delaware: Del.Code Ann., 
Sections 5101 and 5507(d), Title. 25; Idaho: See Consol. AG of Curry, Inc. v. Rangen, Inc. (1996), 
128 Idaho 228, 912 P.2d 115 (lessor of real property is obligated to mitigate damages if lessee 
fails to pay rent and abandons the leasehold); Iowa: See Aurora Business Park Assoc., L.P. v. 
Michael Albert, Inc. (1996), 548 N.W.2d 153 (stating, “In Iowa ‘we are committed to the doctrine 
that when a tenant wrongfully abandons leased premises, the landlord is under a duty to show 
reasonable diligence has been used to relet the property at the best obtainable rent and thereby 
obviate or reduce the resulting damage.’ " [Citations omitted.]  Id. at 157.); Kansas: See Gordon v. 
Consol. Sun Ray, Inc., (1965), 195 Kan. 341, 404 P.2d 949 (nonconsensual surrender of leasehold 
entitles lessor to damages mitigated by reasonable efforts to relet); Nebraska: See S.N. Mart, Ltd. 
v. Maurices Inc. (1990), 234 Neb. 343, 451 N.W.2d 259 (failure to mitigate bars recovery to the 
extent that damages could have been avoided by reasonable efforts); New Jersey: See McGuire v. 
Jersey City (1991), 125 N.J. 310, 593 A.2d 309 (holding that commercial lessors are bound by the 
same duty of mitigation as residential lessors); Oregon: See U.S. Natl. Bank of Oregon v. 
Homeland, Inc. (1981), 291 Ore. 374, 631 P.2d 761 (lessor of real property owes duty to mitigate 
its damages upon abandonment of leasehold); Texas: See Austin Hill Country Realty, Inc., supra 
(barring contractual provision, lessor owes duty to mitigate its damages upon abandonment of 
leasehold); Vermont: See O’Brien v. Black (1994), 162 Vt. 448, 648 A.2d 1374 (lessor owes duty 
to mitigate its damages upon abandonment of commercial leasehold); and Wisconsin: See First 
SUPREME COURT OF OHIO 
6 
for rent not yet due at the time of eviction.”  We stated, “Lessees are potentially 
liable for rents coming due under the agreement as long as the property remains 
unrented.  The important corollary to that is that landlords have a duty, as all 
parties to contracts do, to mitigate their damages caused by a breach.  Landlords 
mitigate by attempting to rerent the property.  Their efforts to do so must be 
reasonable, and the reasonableness should be determined at the trial level.”  
(Emphasis added.) Id. at 419, 732 N.E.2d 391. 
{¶16} In Dennis, we noted that certain real property leases are susceptible 
of contract-law principles, including mitigation.  Because the duty to mitigate 
extends to lessors of real property, we need not explore the theoretical arguments 
that attempt to classify leases as conveyances of real property, as contracts, or as a 
hybrid of these two concepts.  Accordingly, the narrow issue before us is whether 
the duty to mitigate is applicable to commercial leases. 
{¶17} Frenchtown argues that failing to exempt commercial leases would 
create an incentive for tenants to abandon property, thereby encouraging 
vandalism and punishing the injured party.  These are long-standing arguments 
against treating leases as contracts but do nothing to distinguish commercial 
leases from other types of leases.  Further, there is merit to Lemstone’s argument 
that a rule that permits landlords to “stand by and do nothing” while still reaping 
the benefit of its lease agreement would encourage vacant properties at least as 
much as a rule disfavoring mitigation.  In fact, if Frenchtown did not take 
reasonable steps to relet its Frenchtown Square property following Lemstone’s 
abandonment, then it contributed to the problem it asks us to prevent. 
{¶18} In an attempt to distinguish commercial leases from other types of 
leases, Frenchtown argues that the overall mix of shopping-center tenants is a 
material aspect of the bargained-for performance in a shopping-center lease.  
                                                                                                                                                              
 
Wisconsin Trust Co. v. L. Wiemann Co. (1980), 93 Wis.2d 258, 286 N.W.2d 360 (landlord may 
accept surrender of leasehold and terminate lease or take possession and mitigate its damages). 
January Term, 2003 
7 
Essentially, by employing contract-law principles, Frenchtown argues that a 
proper mix of tenants creates a synergistic effect, and a rule that encourages 
abandonment will detrimentally affect not only the lessor, but also the other 
tenants.5  While we acknowledge that where two or more shops adjoin, a 
symbiotic relationship may exist, we decline to create a rule of law that 
distinguishes between single- and multishop commercial settings.  The duty to 
mitigate arises in all commercial leases of real property, just as it exists in all 
other contracts. 
{¶19} We emphasize that our holding does not require a lessor to accept 
just any available lessee.  The duty to mitigate requires only reasonable efforts.  
Thus, the tenant mix may reasonably factor into a lessor’s decisions to relet.  
Finally, whether the breaching tenant caused damages beyond the failure to pay 
rent is a measure of damages.  Our holding that contract principles apply to the 
calculation of damages extends to all damages provable by the lessor.  If the 
breaching tenant caused harm such that the lessor’s profitability is affected, then 
that harm is compensable to the extent it is proved.  This, as well as the 
reasonableness of introducing a replacement lessee, is a question for the trier of 
fact. 
Conclusion 
{¶20} As we stated in Dennis, landlords owe a duty to mitigate their 
damages caused by a breaching tenant.  That rule flows from the premise that 
modern leases are more than simply property-interest transfers; rather, leases 
possess contractual qualities that often include myriad covenants and duties and 
arise from a bargained-for relationship.  In a practical sense, lessors and lessees 
                                                          
 
5. 
If the overall mix of stores is as vital as Frenchtown asserts, we question why Frenchtown 
would opt for vacant premises and damages as opposed to pursuing a more profitable mix of 
stores. 
SUPREME COURT OF OHIO 
8 
contract for the use of property.6  Accordingly, barring contrary contract 
provisions, a duty to mitigate damages applies to all leases. 
{¶21} We see no valid reason to exempt commercial leases from the duty 
to mitigate.  A lessor has a duty to mitigate damages caused by a lessee’s breach 
of a commercial lease if the lessee abandons the leasehold.  The lessor’s efforts to 
mitigate must be reasonable, and the reasonableness should be determined by the 
trial court.  Failure to mitigate damages caused by a breach of a commercial lease 
is an affirmative defense. 
{¶22} Accordingly, we affirm the appeals court’s decision and remand 
this case to the trial court on the question of mitigation, and for a determination of 
damages. 
Judgment affirmed. 
 
MOYER, C.J., RESNICK, F.E. SWEENEY, PFEIFER, BRYANT and LUNDBERG 
STRATTON, JJ., concur. 
 
THOMAS F. BRYANT, J., of the Third Appellate District, sitting for COOK, J. 
__________________ 
 
David A. Fantauzzi, for appellant. 
 
Nadler Nadler & Burdman Co., L.P.A., Donn D. Rosenblum and Peter B. 
Grinstein, for appellee. 
 
Thompson Hine L.L.P., William C. Wilkinson, Dena M. Kobasic and 
Andrew H. Cox, urging reversal for amici curiae Simon Property Group, Inc., 
Glimcher Realty Trust, The Richard E. Jacobs Group, and Forest City Enterprises, 
Inc. 
__________________ 
                                                          
 
6. 
See Barker, 20 J.Corp.L 627, 644 (“In a commercial context, many covenants are 
negotiated and altered from lease to lease.  The increasing importance of covenants in commercial 
leases emphasizes that a modern commercial lease is predominantly an exchange of promises”).