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Mitigation

We have heard that agents have been advised recently that a landlord is required to mitigate his losses when seeking to recover rent arrears, where a tenant abandons the demised premises. This is not correct, the landlord is in fact under no such obligation.

In Reichman v Beveridge the Court of Appeal dismissed the appeal of two tenants who had abandoned the office premises. The landlord took no steps to terminate the lease and sued for the rent arrears for the period that the premises were abandoned. The tenants argued that the landlord should have mitigated its loss by marketing the property or accepting the offer of a prospective tenant.

However the court held that the tenant’s argument should fail because the landlord had not acted wholly unreasonably in refusing to take steps to find a new tenant. The court also held that damages would not be an adequate remedy for the landlord as, if current market rent had been lower than that reserved by the lease, terminating the lease and re-letting the premises would leave the landlord with a shortfall in rent which it would be unable to recover. If, however, market rent was the same or higher, then it would have been possible for the tenant to take steps itself to find an assignee.

The rationale behind the decision is that landlord will be prevented from enforcing his contractual rights to maintain the contract and sue for the contract price only where an election to keep a contract open is wholly unreasonable, or where damages would be an adequate remedy.

Therefore whilst there is no requirement in most cases of L&T to mitigate, the advice is that you consider it. If for example your tenant is from abroad and for whatever reason abandons the premises is makes no sense to sue for the rent if there is no possibility of recovering it. What should be considered is for the tenant to be put on notice that whilst the landlord is not required to mitigate he will do so by replacing the tenant at the tenant’s expense and confirming that the tenant is responsible for the rent until a new tenant has been secured.

One Comment

  • David Smith 27th September 2011 at 1:59 pm

    Good summary. This is an interesting situation as England & Wales has rather gone out on a limb here. Other common law jurisdictions such as Australia and Canada take the view that leases are just a species of contract and obligations such as mitigation of loss apply to them. England seems to want to have its cake and eat it in that it is happy to apply contractual rights such as recission to leases but will not apply the obligation of mitigation.

    This is probably something that needs changing but it will be hard to get it past the Court of Appeal. I doubt the current Supreme Court would uphold the view of the Court of Appeal in Reichman were it to be challenged

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