Mesne Profits

Definition

A wide definition of mesne profits is profits of land taken by a tenant in wrongful possession of the land.  The profit accrues from the time that the tenant took wrongful possession to the time of trial for an action of ejectment, or possession is given up.  So 'mesne' profits are nothing more than the name given to damages for trespass by unlawful occupation of land where the trespasser used to be a tenant.  The fact that s/he used to be a tenant is of vital importance and distinguishes the trespasser who enters land or premises without permission, e.g. a burglar or a 'squatter'.

While the burglar hopes to be a short-term trespasser, a squatter hopes to be a long-term occupant.  In both cases the freeholder is entitled to damages, either for the loss he has suffered, or the value of the benefit the occupier has received - Ministry of Defence v Thompson [1993].
In respect of the former tenant, the mesne profit is related to the fair value of the premises.  That is usually the market value, in other words the agreed rent.

The word 'squatter' has no special legal significance and was defined by Lord Denning in McPhail v Persons (Names Unknown) [1973] as "one who without any colour of right, enters on an unoccupied house or land intending to stay there as long as he can".

Possession proceedings

The importance to landlords and their agents is that, once the landlord has elected to forfeit the lease and start proceedings for possession, usually by the service of a Notice Requiring Possession (in the case of an assured shorthold tenancy) or a Notice to Quit (in the case of a common law tenancy), any further receipt of rent (as opposed to damages for unlawful occupation), may result in the inference that a new tenancy has been created.  It is, therefore, vital that any such payments be accepted as mesne profits (damages for unlawful occupation) so that no presumption of a new tenancy being created can arise.  The notable exception to this rule is for assured and assured shorthold tenancies where rent can safely continue to be accepted as rent until a possession order is granted by the court (since a statutory tenancy is deemed to exist until the tenancy is brought to an end by the court - Housing Act 1988 s.5(2)).

The Leadenhall case

The question of whether or not there was a new tenancy arose in Stirling v Leadenhall Residential 2 L Ltd in the Court of Appeal.  The facts of that case were that the defendant, an assured tenant, was in arrears of rent.  The landlord obtained an order for possession in June 1996.  The defendant was due to give up possession on 19 July 1996.  Shortly before that date he offered to pay off the arrears at £100 per month.  The landlord agreed to accept that payment off the arrears, together with the current rent.  When the tenant failed to fully comply with the agreement the landlord sought possession.

The tenant argued that there was a new tenancy in March 1998, following an increase in rent and therefore possession proceedings had to be re-commenced.  Both the District Judge and on appeal, the Circuit Judge held that no new tenancy had been created.  The tenant appealed to the Court of Appeal.

It was held, following the principles established in Street v Mountford [1985], that a person who was allowed to remain in another's property with exclusive possession and paying for the occupation, was a tenant and not a licensee.  The question then arose as to whether there was an intention to create something other than a tenancy.  Because of the exchange of letters in July 1996, no new or different terms had been arrived at between landlord and tenant after the date of the possession order in June 1996.  When the tenant was allowed to remain in possession after 19 July 1996, he was a trespasser, liable to pay the landlord mesne profits for his occupation of the property, and also liable to pay the arrears.  The landlord could have executed the order by obtaining and enforcing a warrant for possession at any time within six years.

New tenancy

But, although the relevant events and the exchange of letters leading to the agreement in 1996 was not intended and did not affect the legal relations between the parties in terms of the possession order, the position changed when the landlord sought and obtained an increase in the monthly payment for the use and occupation of the premises.  The increased payment could not be justified by reference to the possession order.  That created a new tenancy.

The effect of this case is that an agreement not to enforce the order for possession will not create a new tenancy, provided instalments for the payment of the arrears rent and mesne profits as damages for the unlawful occupation follow the court order for possession.  However, any variation as to the core terms of the former tenancy agreement, especially in relation to an increase in the 'rent', will be treated as a new tenancy.