A lease creates an estate in land, but it is also a contract. One of the ordinary principles of contract law is that parties to a contract must take reasonable steps to reduce any damage caused by another party’s breach of contract, and to prevent the damage from getting worse.
Arguably, therefore, if a tenant moves out before a lease has expired, the landlord should take reasonable steps to “mitigate its loss” by reletting the property and crediting any rents received from the incoming tenant against the rent due from the former tenant for the remainder of the lease. This was the argument that was put to, and rejected by, the Court of Appeal in Reichman v Beveridge [2006] EWCA Civ 1659; [2007] 01 EG 92 (CS).
The court agreed that the rules concerning mitigation of loss will apply if one of the parties pursues an action for damages for any breach of the lease. However, it reminded the tenant that a landlord is unable to recover damages for any future loss of rent after forfeiting a lease. Ironically, the actions of a landlord that attempts to relet might suffice to forfeit the lease, and put paid to any further obligations in respect of future rent. The Court of Appeal had no doubt that the landlord would have found another tenant had the market been buoyant enough to support a letting at an equivalent or higher rent. The court noted that this course of action was also available to tenants. However, the tenant had abandoned the premises, although he could have reduced or offset his liabilities by advertising the lease for sale and assigning or subletting the premises to someone else. The landlord was not bound to accept possession merely because the tenant offered it, and the principles that govern actions for damages do not apply in circumstances in which a landlord elects to allow a lease to continue, and pursues an action for rent that falls due – in debt.
The case draws attention to the fact that damages will not always provide an adequate remedy for landlords that re-enter premises and let them to someone else. Landlords will therefore continue to preserve the liabilities of tenants and guarantors, unless the property market is buoyant, and premises that have been abandoned will continue to remain empty until a lease ends and premises can safely be brought back into use.
The Court of Appeal agreed that it might be a logical development to hold that a landlord, having forfeited a lease, can recover damages for loss of any future rent, but there was much to consider and this was a step too far under English law as it stands. It is unfortunate that the case post-dates the publication of, and so was not considered in, the Law Commission’s recent report on “Termination of Tenancies for Tenant Default” (Law Com 303), which recommends a new statutory scheme for terminating tenancies where tenants are in default.
Allyson Colby is a property law consultant
