Mitigation of loss

A recent Court of Appeal case has weakened the tenant's defence on the question of mitigation of loss.

Reichman -v- Gauntlett (13 December 2006) decided that where the tenant abandons the premises a landlord, suing for rent due, is not under a duty to mitigate his loss by re-letting.

The tenant argued that the landlord had a legal duty to re-let the premises, in order to thereby reduce the loss of rent which the landlord suffered as a result of the tenant's abandonment of the premises. But this argument failed.

There was, however, nothing to prevent the tenant re-letting the premises himself. The tenant in Reichman -v- Gauntlett had overlooked this option; but if you are a tenant in a similar situation then it's an option that is open to you.

Surrender of Lease

Another option open to a tenant in a similar situation is to surrender the lease, something which requires the landlord's agreement.

It is essential to record the agreement in writing. A draft deed of surrender that might be adapted for this purpose is on-line at http://www.consumeractiongroup.co.uk/forum/landlords-tenants/116775-deed-surrender.html

Summary of the Court of Appeal decision:

Reichman & Dunn -v- Beveridge & Gauntlett

Court of Appeal

13 December 2006

Landlord under no obligation to mitigate loss when seeking to recover rent due under a lease and tenant had abandoned the premises.

Source: Transcript [2006] EWCA Civ 1659

Miss Beveridge (B) and Mr Gauntlett (G) were in practice together as solicitors. They leased offices from Mr Reichman ® and Miss Dunn (D) for a term of five years from January 2000. In February 2003, B and G ceased to practise as solicitors and abandoned the offices. They did not pay the rent due on 25 March 2003 and made no further payments thereafter.

In January 2004, R and D sued for the rent arrears due. B and G served a defence contending that their landlords had failed to mitigate loss arising from any non-payment of rent, which they could have done by forfeiting the lease. B and G also argued that the landlords failed to instruct agents to market the premises; failed to accept an offer of a prospective tenant who wanted to take an assignment or a new lease of the offices; and failed to accept an offer from B to negotiate payment of a consideration for surrender of the lease.

The county court hearing considered whether it is necessary, as a matter of law, for a landlord to mitigate his loss when seeking to recover rent arrears. The judge held that a landlord was under no such duty. B and G appealed. The circuit judge dismissed the appeal. B and G appealed to the Court of Appeal.

Decision: Appeal dismissed

Held: There are very few cases where an innocent party to a contract (in this case R and D), having chosen not to accept a repudiation of the contract, was prevented from enforcing his contractual right to keep the contract alive and sue for any monies owed. This could only be prevented where damages would be an adequate remedy and where a decision to keep the contract alive would be wholly unreasonable.

The court considered whether R and D had acted wholly unreasonably in not finding a new tenant, rather than leaving it to B and G to propose one, or in rejecting a proposal made by B and G. The Court of Appeal decided that R and D had not acted wholly unreasonably.

Additionally, if market rent had been lower than the rent stated in the lease, damages would not be an adequate remedy for R and D if they had terminated the lease by way of forfeiture and re-let at a lower rent, because [as a consequence of forfeiting] they could not recover damages to compensate for the loss of rent.

Alternatively, if the market rent had been the same or higher, B and G could have taken their own steps to find an assignee. If they had done this, and R and D refused to accept them on reasonable terms, then B and G would have had a statutory remedy under the Landlord and Tenant Act 1985.

Finally, there was no authority to show that a landlord could recover damages from a former tenant in respect of loss of future rent after termination of a lease. Therefore, either damages were not an adequate remedy for the landlord, or the landlord would be acting reasonably in taking the view that he should not terminate the lease because he would not be able to recover such damages.

Advice & opinions on this forum are offered informally, without any assumption of liability. Use your own judgment. Seek advice of a qualified and insured professional if you have any doubts.