Three judges determined Thursday that a neurosurgeon who owns an elite training facility in Englewood should likely pay more money than he has for abandoning a lease.
Chad Prusmack opened Resilience Code at 99 Inverness Drive East in Englewood in 2017. It then stopped paying rent in October 2020, just three years into a 10-year lease, and moved out of the space in February 2021.
Its landlord, a Pennsylvania company called Tremitek, sued it in Arapahoe County for $790,000 — the amount Resilience Code would have paid in rent if it stayed through 2027. Resilience Code responded by accusing Tremitek of keeping the property unoccupied on purpose and refusing to sell it in order to maximize the damages that Resilience Code would have to pay.
A two-day trial was held in April 2022 before Judge Elizabeth Volz, who ruled that Resilience Code had to pay rent only through February 2021, or about $53,000. Volz found that Tremitek made its own situation worse when it “stubbornly refused to sell” its property.
Tremitek appealed that ruling to the Colorado Court of Appeals, which reversed it Thursday.
“When a tenant defaults on a commercial lease, a landlord has a duty to mitigate the damages caused by the tenant’s breach. Most commonly, a landlord fulfills that duty by making reasonable efforts to find a replacement tenant,” Judge Karl Schock wrote.
“But must a landlord that has listed the leased property for sale exercise reasonable efforts to accomplish that sale? We hold that a landlord has no such duty,” he said.
Two other judges on the three-judge panel agreed, making the ruling unanimous. They wrote that “no Colorado case” in history has required a landlord to sell its property in order to acquire what it is owed under a lease. Doing so would create “an escape hatch for the breaching tenant — one that shifts all loss to the landlord,” the Court of Appeals ruled.
“(Volz’s) analysis would place a landlord faced with a breaching tenant in a catch-22,” the judges determined. “It could either sell the property and relinquish its right to rent as a result of the sale, or not sell the property and relinquish its right to rent by failing to mitigate.”
The case now goes back to Volz, who must recalculate the amount that Tremitek is owed by Resilience Code in a way that is consistent with the Court of Appeals’ opinion. That includes deciding whether Tremitek made good-faith efforts to re-lease the property.
In a statement, Tremitek said it “is pleased that the Court of Appeals correctly recognized that a landlord, like itself, has no obligation to sell its property” in order to collect on a lease.
“Tremitek is hopeful that the district court’s forthcoming revised damage award will further restore its faith in investing in Colorado commercial real estate going forward,” it said.
Tremitek was represented by attorneys Christopher Groen and Risa Brown with the Denver office of Fox Rothschild, a national law firm.
Resilience Code was represented by Camille Papini-Chapla and John Wharton with the Denver office of Greenberg Traurig. They did not respond to a request for comment.