The Court of Appeal has confirmed that landlords are under no obligation to mitigate the loss of unpaid rent by seeking a new tenant or otherwise.
In the case in question the tenants were a firm of solicitors who had taken offices under a 5-year lease from January 2000. The firm ceased to practice in February 2003. In January 2004, the landlord sued for unpaid rent and water rates. The tenants argued that the landlord should have taken its own steps to minimise its losses for instance by negotiating a surrender with them or finding a replacement tenant.
The Court of Appeal disagreed. It concluded:
- Where the landlord’s action was the recovery of a debt such as rent arrears then the rules of mitigation do not apply. Mitigation only applies where damages are sought, for instance, for the breach of a lease covenant.
- In a very limited category of cases equity would intervene to prevent an innocent party enforcing its contractual rights. This was not one of those cases because the landlord could not recover damages for loss of future rent if the lease were terminated.
- A landlord would not be acting unreasonably if it chose not to find a replacement tenant but was entitled instead to view this as an outgoing tenant’s responsibility.
The decision keeps it straightforward for landlords seeking to recover rent from tenants who no longer need the property as they are able to recover outstanding rents through debt proceedings and are not obliged to take steps to find a new tenant. It is not so helpful for tenants with surplus property as they remain liable and also responsible for finding an assignee, subtenant or a new tenant.
We often advise in these circumstances that the parties agree a joint marketing strategy - usually led by the landlord perhaps with the tenant bearing the cost. Even if the tenant remains bound by the lease a vacant property is not desirable over the longer term.
Further reading: Reichman v Beveridge, The Times, January 4, 2007.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 15/01/2007.
