## Facts

- Jakob Schneiker held a primary lease for car-wash premises (rent $600/month; term through May 1983) and subleased the premises to Darrell Gordon and Gary Peterson effective April 1, 1980.
- The sublease required the sublessees to operate a car wash, keep the premises and equipment in good repair, and pay $1,900/month for a term matching the primary lease.
- The sublease included a repossession provision permitting Schneiker, upon vacancy and nonpayment, to retake possession and relet without terminating the sublease, with the sublessees remaining liable for the rent balance through the term.
- The sublessees stopped paying rent in July 1981, abandoned the premises in August 1981, and later returned the keys.
- When Schneiker attempted to take back and operate the property, the equipment was in disrepair and he could not afford repairs or operate the business.
- In February 1982, Schneiker surrendered the primary lease to the fee owner rather than continue paying primary rent while unable to operate or relet the premises.
- The sublessees sued for alleged misrepresentation about profitability; Schneiker counterclaimed for unpaid rent and related damages under the sublease.
- The trial court rejected the misrepresentation claim and limited Schneiker’s rent recovery to amounts due through the date he surrendered the primary lease; the court of appeals affirmed.

## Issues

1. Whether termination of a commercial sublease by abandonment (and the sublessor’s later surrender of the primary lease) extinguishes the sublessees’ future rent obligation, or whether the covenant to pay rent survives as a contractual duty supporting damages.
2. How contract remedies and property concepts apply to post-termination enforcement of a rent covenant in a commercial sublease.
3. Whether the sublessor’s surrender of the primary lease may be treated as reasonable mitigation rather than a complete cutoff of the sublessees’ liability.

## Decision

- The Colorado Supreme Court reversed the court of appeals.
- The court held that termination of the sublease ended the leasehold estate but did not extinguish the sublessees’ contractual covenant to pay rent.
- The sublessees were liable for contract damages caused by breach of the rent covenant, with damages measured by the rent reserved in the sublease and reduced by reasonable mitigation.
- The case was remanded for calculation of damages consistent with the surviving contractual obligation and mitigation principles.

## Legal Principles

- A commercial lease has a dual character: it conveys a possessory estate and also functions as a contract creating enforceable covenants.
- Termination of the leasehold estate by abandonment and surrender does not necessarily terminate contractual covenants; the covenant to pay rent may survive and be enforced through contract damages.
- After termination, the landlord/sublessor may recover damages for breach of the rent covenant, rather than “future rent” as an incident of continued possession.
- The landlord/sublessor must act reasonably to mitigate damages; mitigation may include surrendering an underlying primary lease when continued performance would be economically unreasonable.
- Damages may be measured by the rent due under the sublease, offset by amounts the sublessor avoids through reasonable mitigation (including primary-lease rent not incurred after surrender).

## Conclusion

The court held that although the sublessees’ abandonment terminated their possessory interest, their contractual promise to pay rent survived, allowing the sublessor to recover contract damages for the breach, reduced by reasonable mitigation measures such as surrender of the primary lease.


Schneiker v. Gordon, 732 P.2d 603 (Colo. 1987)