Legal Updates

Commercial Property – Office Lease – Non Payment of Rent

In the recent case of Reichman and Another v Beveridge and Another [2006], the defendants were tenants as well as a firm of solicitors. Their offices were under a lease dated August 2000. The claimants in the case were the landlords. The term of the lease ran for 5 years from January 2000. The defendants ceased to practice as solicitors in February 2003 and therefore had no further need for the offices. They therefore did not pay the rent or water rates which became due on March 2003, and did not pay anything thereafter.

In January 2004, the claimants sued them. The second defendant argued that the claimants had failed to mitigate their losses due to any non-payment of rent. He argued that the claimants were fully aware that the defendants were having difficulties which led them to cease practicing and that if the claimants had forfeited the lease they would have mitigated their loss. The first defendant adopted the same position.

The first defendant went on to argue the following:

•  The claimants had failed to instruct agents to market the premises;
• The claimants had failed to accept the offer of a prospective tenant who wanted to take over the lease; and
• The claimants had failed to accept an offer made by the first defendant to negotiate a cash payment for the defendants to be released from their obligations under the lease.

The district judge first considered whether it was necessary for a landlord to mitigate their losses when seeking to recover arrears of rent. It was held that the landlord was under no such duty. The defendants appealed to the Court of Appeal.

The second defendant argued before the Court of Appeal that a lease was effectively a contract, as well as creating an estate in land. Over recent years, the courts have considered the rights and obligations conveyed on the parties to a lease by reference to principles of contract law. The second defendant tried to convince the court that this should be applied to the situation where a tenant breaches the terms of his lease by not paying the rent which is due. 

The defendants appeal was dismissed. It was held that the landlords were not under any duty to mitigate their losses.

There is no case in English law where a landlord has been able to recover damages from a tenant in respect of loss of future rent after the lease which bound the tenant had been terminated. The landlord could very easily take the view that if the lease is terminated, they may not be able to recover such damages.

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© RT COOPERS, 2006. This Briefing Note does not provide a comprehensive or complete statement of the law relating to the issues discussed nor does it constitute legal advice. It is intended only to highlight general issues. Specialist legal advice should always be sought in relation to particular circumstances.