Landlord and tenant – Mesne profits – Assessment – Property divided into flats – Agreement to let property to first defendant for subletting to individual tenants – First defendant retaining possession after expiry of tenancy – Keys to two flats subsequently returned to claimant landlord – Method of calculating mesne profits – Whether payable by reference to entire property or date on which individual flats returned to claimant – Whether occupants of individual flats individually liable – Claim allowed
The first defendant company acted as an estate agent and property manager. By a letter dated March 2004, the claimant agreed in principle to grant it a three-year tenancy of a residential property at a rent of £95,000 pa. The property had been divided into seven flats. The parties intended that, once the claimant had refurbished the flats, the first defendant would let them individually and manage the building. The claimant handed back five flats in September 2004 and the other two in May and September 2005, although no formal lease had been granted. The second and fourth defendants, who were the directors of the first defendant, each moved into a flat in the property; the second defendant shared his flat with his wife, the third defendant.
Various disputes arose between the parties as to the terms of the agreement and the obligations arising under it. In 2007, the claimant took the view that the term of the agreement had expired. In August 2007, it brought proceedings against the defendants for possession, together with claims for unpaid rent, interest and mesne profits. Certain matters were disposed of on a trial of preliminary issues. A further hearing was then held to determine, inter alia, the liability of the various defendants for mesne profits. That in turn, depended on when the three-year term of the agreement had started and finished and when the second to fourth defendants had vacated their flats. Issues were raised as to the correct basis for assessing mesne profits and how far such liability fell on any of the second to fourth defendants as individuals as opposed to the first defendant company.
Meanwhile, in 2009 the first defendant returned the keys to the two flats formerly occupied by the second to fourth defendants, who had by then moved out; none of the other flats had been returned by the date of the hearing.
Held: The claims against the first, second and third defendants were allowed; the claim against the fourth defendant was dismissed.
(1) On the evidence, the parties had agreed that the three-year period would commence on the handover to the first defendant of the first five flats in September 2004. Accordingly, the first defendant’s interest in the property had expired in September 2007 and mesne profits were payable from that date until the date on which the property was handed back. This was not a case where a retention of part of the property prevented the whole of it from being effectively used, such as to entitle the claimant to mesne profits in respect of the entire building even though part had been vacated. Instead, the property was divided into seven independently commercially exploitable units, which had been handed over individually at the outset, and could be returned individually in the absence of evidence that that would not be effective to transfer back to the claimant full and proper commercial control of any unit. Therefore, mesne profits in respect of the two flats formerly occupied by the second to fourth defendants were payable up to May 2009, when the keys had been handed back, while liability in respect of the remaining five flats would continue until each was vacated and returned to the claimant.
(2) The correct measure of mesne profits was the higher of the true compensatory loss to the landlord and the true value of the benefit gained by the defendant. The starting point in each case was the ordinary letting value of the property of which the owner had been deprived by the trespass, regardless of whether the landlord had shown that it would have relet the property in which the defendant had wrongfully remained: Swordheath Properties Ltd v Tabet [1979] 1 EGLR 58; (1978) 249 EG 439, Stoke on Trent City Council v W&J Wass Ltd (No 1) [1988] 1 WLR 1406 and Inverugie Investments Ltd v Hackett [1996] 1 EGLR 149; [1996] 19 EG 124 applied. That reflected a restitutionary approach under the principles of unjust enrichment, requiring that the value of the occupation from which the defendant had benefited should be awarded to the landlord rather than retained by the wrongdoer. In the instant case, a reduction to 95% of the open market letting value should be made. That would reflect the fact that the actual loss to the claimant for being unable to let the property, and the benefit to the first defendant in having possession of it, were each reduced to some degree by certain associated costs; the loss to the claimant was reduced by reason of the costs that it would otherwise have incurred in letting and managing the property, and there was no evidence that the first defendant had benefited by more than that amount.
(3) Any liabilities of the four defendants were concurrent and separate, based on discrete causes of action. Accordingly, although the claimant was not entitled to recover twice, it was entitled to separate judgments against the second to fourth defendants for separate trespasses, if established. On the evidence, the fourth, defendant had vacated the flat during the three-year period of the agreement and accordingly, was not liable. However, the second and third defendants were liable in respect of their flat from September 2007 until the dates on which they had personally vacated their flat, in November and May 2008 respectively, since liability for use and occupation was incurred solely by physical presence without lawful right. They were not liable for any subsequent period after personally vacating the flat because during that time, the only impediment to the claimant having the use and possession of the flat was the retention of the key by the first defendant, and that was not an act of the second and third defendants personally.
David Stancliffe, solicitor-advocate, of Southcombe & Hayley, appeared for the claimant; Dominic Happé (instructed by Colvin & Partners) appeared for the defendants.
Sally Dobson, barrister
