Does an Owner's Damage Award Depend on Proof of the Amount Lost?

November 9, 2010
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Q: I defaulted on a lease I signed with the owner of a strip mall when I couldn’t afford to open the store I had planned to operate in one of its spaces. The owner is suing me for much more than the lease was worth, claiming that it lost much more money as a result of the default. Does the owner have to prove how much it lost from the default?

A: The damage award that an owner will get for its tenant’s default varies from lease to lease, and is determined according to state law. However, generally, the owner must prove how much it has lost as a result of the default. That was what happened in a Nevada case where a tenant defaulted on the lease for space it rented for a store that it didn’t ultimately open. The owner sued the tenant for the lease violation and asked that the trial court award it more than $2.4 million in damages. The trial court ruled for the tenant because the owner could not prove it suffered damages in that amount. The owner appealed.

The U.S. Court of Appeals for the Ninth Circuit upheld the trial court’s decision. That was because the owner had used inflated calculations to support its damages claim, and the person who presented evidence about those damages did not know how the owner had determined the requested amount.

Also, the owner was selling the building where the leased space was located, which precluded its claim that it was entitled to money for future rent. It’s important to note, however, that the favorable decision for the tenant here didn’t reflect that it didn’t violate its lease; it merely reflected that the owner could not prove that that lease violation caused any compensable damage [Showcase Mall Joint Venture v. Boxing Hall of Champions LLC, March 2008].