Lease Defaults and the Efficient Mitigation of Damages
28 Pages Posted: 5 Apr 2002
Date Written: June 2006
The traditional law of leases imposed no duty on landlords to mitigate damages in the event of tenant breach, whereas the modern law of leases (based on contract principles) does. An economic model of leases in which absentee tenants may or may not intend to breach shows that the primary benefit of the traditional rule is to promote tenant investment in the property by discouraging landlord entry. In contrast, the advantage of the modern rule is to prevent the property from being left idle by encouraging landlords to enter and re-let abandoned property. The results of the model accord well with the historic use of the traditional rule for agricultural leases where absentee use was presumably valuable; and also with the emergence of the modern rule for residential leases, where the primary use of the property entails continuous occupation.
Keywords: Lease, default, mitigation
JEL Classification: K0, K1
Suggested Citation: Suggested Citation