Painsmith Landlord and Tenant Blog

A practitioners landlord and tenant law blog from PainSmith Solicitors

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.

Filed under: England & Wales, FLW Article, , ,

Solicitors and Costs

In Neil Hare-Brown and QCC v Tent and Alison Trent and Co, QCC had 3 commercial leases for a property in Fleet Street, London. However, QCC had “swapped” company names and this had potential adverse consequences for Trent the landlord. The possible consequences were:

1. as income had been directed by QCC to the new company, there was a risk that QCC would be unable to pay the rent.
2. the presence of the “new” company was likely to cause problems as it was a requirement of Alison Trent’s lender that the demised premises be contracted out of the Landlord and Tenant Act Part II (1954).
3. another company, QCC Interscan, had been permitted by QCC to use the premises in breach of covenant.
4. there was a security issue about electronic security fobs that had been issued to named personnel of QCC which had then been distributed to other individuals who had no right to enter the demised premises.

Upon discovering the issues Trent claimed that she was put to some considerable amount of work to put the situation right both in her capacity as landlord and solicitor. The work included the variation of leases and where necessary licenses to assign. Trent looked to QCC to pay the bills for this work and although QCC paid they did so under protest and now seek an assessment of the costs.

The question for the court was therefore could the landlords costs be assessed?

QCC argued that Trent had been appointed their solicitor upon her suggestion and that Trent had refused to acknowledge QCC’s request to use their own solicitor to draw up documents which left them with no other option than to permit her to do the work.

Trent argued that the costs that QCC was seeking to challenge related to costs due pursuant to leases and other commitments arising from applications under the leases, and breaches of the leases, by them. She further argued that the costs were due to her in her capacity as landlord and argued that she has never acted as solicitor for QCC or anyone connected with QCC.

The court held Trent could not, as she had done, require QCC to pay the costs to which she has been put as landlord arising from breaches of covenant and at the same time, deny that QCC had any entitlement to a detailed assessment of those costs under the Solicitors Act 1974.

The court acknowledged that whilst it is right to say that the invoices were not printed on the Solicitor’s headed notepaper, nonetheless, Trent had accepted in her witness statement that her firm acted for the Landlord. In these circumstances, the court was satisfied that there was a solicitor/client relationship between Alison Trent as landlord and Alison Trent & Co as solicitor and that the firm rendered invoices to Alison Trent which, in her capacity as landlord and party chargeable, she has passed on to QCC for payment as tenant and third party. It follows, in the judgment that QCC is in principle entitled to an assessment under s.71 of the 1974 Act.

We often get told on the helpline that the landlord is a solicitor and that attempts are being made to impose certain restrictions which in a landlord and tenant situation are simply inappropriate. We therefore thought some of you would enjoy the article.

Filed under: England & Wales, FLW Article, , , ,

Drafting….

The pitfalls of bad drafting – be warned!

In Perriam Limited v Wayne and Daly, the High Court had to decide whether Wayne and Daly were still liable pursuant to a Deed of Variation (“Deed”) they entered into.

Wayne and Daly were the guarantors under a commercial lease with Perriam. Perriam pursuant to the Deed was attempting to recover for dilapidations, unpaid rent and service charges amongst other things.

The decision with regards to the service charges etc is not relevant for the purposes of this article.

The Deed was executed on the 24th April 2007 and pursuant to clause 4.2 Wayne and Daly agreed that:

“the obligations of the tenant in the lease shall be varied so that there is no continuing obligation to repair, keep in repair or replace the external windows in the premises”.

Wayne and Daly argued before the High Court that the purpose of clause 4.2 was to release the commercial tenant, Ideas’ (now insolvent) and therefore them, from any continuing obligation in respect of the windows as at the 24th April 2007 and that meant that they were therefore not now liable.

Wayne and Daly further argued that the commercial purpose of the agreement was:

“So far as the external windows were concerned, the agreement was that there should be no continuing obligation in the sense of no ongoing liability to replace or repair whensoever the windows fell into disrepair and similarly no obligation to discharge any of the remaining repairing obligations. Mr Manning had the deed drawn up by his firm, Fox Hayes…We therefore signed the deed believing that we were thereby released from any ongoing personal liability to guarantee any of Ideas’ obligations under the lease and that Ideas were released from any liability to maintain external windows.”

The court was a little derogatory about the drafting of the Deed which included a catalogue of errors such as referring to Wayne and Daly as tenants and failing to draft a Deed which reflected the agreement reached by the parties.

The court therefore had to determine if Wayne and Daly were liable for the dilapidations. Upon listening to the arguments of both sides the court decided that in the absence of a date in clause 4.2 the intention of the parties was for liability to cease immediately upon the Deed being executed. That even on the reading of the wording of the clause this made common sense because there was no reference to a future event in the clause.

The court then went further and held that the wording of clause 4.2 meant that Wayne and Daly were no longer liable in respect of the windows. The basis for this decision was that the Deed failed to address the issue of the condition of the windows and where and when Wayne and Daly’s liability would end. That it strained common sense to pursue a claim for the windows when it was not mentioned in the Deed and in fact made it impossible to pursue due to the lack of a schedule of condition amongst other things.

Clause 4.2 did therefore operate in the courts interpretation as a release to Wayne and Daly, such that after the 24th April 2007, they had no liability for the condition of the windows. The clause therefore provided them with a complete defence to the claim for the costs of the dilapidations’.

When documents like this Deed are put before the courts the commercial reality and the obvious intention of the parties is usually the deciding factor. Therefore if you intended for something to happen then you are advised to ensure that a clause reflecting that intention is in the agreement. Badly drafted documents are common especially in our line of work but its unnecessary when templates can be purchased and advice sought. Cutting corners is simply to risky and potentially expensive.

Filed under: England & Wales, FLW Article, , , ,

Business Tenancies

Its been a while since we blogged on business tenancies so here goes.

In Somerfield Stores Ltd v Spring (Sutton Coldfield) Ltd the tenant held a supermarket and adjoining land under three commercial leases which expired in March 2008. The year before the expiry the tenant had served a section 26 notice pursuant to the Landlord and Tenant Act 1954 requesting a new tenancy. However the landlord served counter notices stating that it would oppose the grant of the tenancies under section 30 of the 1954 Act on the ground that the landlord intended to demolish or reconstruct the premises on the termination of the current tenancies. The tenant therefore applied to the court for the new leases.

The Landlord subsequently went into administration but the tenant was granted permission to continue with the proceedings and applied for summary judgement against the landlords ground of opposition. Initially the tenant’s application was refused but the tenant was granted permission to appeal.

At appeal the landlord contended that the date at which the landlord’s intention to demolish or reconstruct must be shown to exist is the date of the substantive trial of the landlord’s ground of objection, not the hearing of the application for the summary judgement. The tenant contended that the hearing of the summary application would establish whether the landlord had a real prospect of establishing a cause of action or defence at a future trial date not whether or not the intention exists.

The court held that the summary judgement would deal with the finding of fact only, that is whether the landlord intended to rebuild or not and you can not do this effectively using the summary judgement procedure. When a fact is contested the parties are usually cross examined but a summary judgement application is done on paper and as such the facts are going to be difficult to establish. Therefore the intention will not be established at the summary hearing and a further hearing will no doubt be required.

It was therefore in the courts view that the date at which the intention had to exist was the date of the trial. At a substantive trial evidence can be tested and facts found for the purpose of a final determination one way or the other of the landlord’s ground for opposition.

The logic behind this decision makes perfect sense from a litigation point of view. If the tenant was permitted to continue with the summary application as claimed this would simple raise costs for what is already a costly process and could no doubt result in tenants attempting to use this in order to force landlords to settle.

Filed under: England & Wales, FLW Article, , ,

Move to Monthly Rents in Commercial Leases

The British Retail Consortium has stepped up its campaign to force landlords to accept rent monthly in advance rather than on the usual quarter days as has previously been the practice. They have produced template letters for tenants to send to landlords to seek alterations in their leases to allow for monthly payment of rent.

It is, of course, one thing for large retailers who, irrespective of the financial situation retain enormous financial muscle, to demand changes to rent payment provisions and quite another for the average small retailer to do so. However, other than the slight inconvenience of collecting rent monthly there seems few sound reasons for landlords not to accept a move to monthly rent and most new commercial leases stipulate monthly rental payments. The fact that the government also backs such a change is also a powerful force.

More information including the various templates can be found at the rent monthly website.

Filed under: Uncategorized, ,

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