Reichman and Dunn v Beveridge Gauntlett [2006]

Landlords are not under a duty to mitigate their loss (rent arrears) by finding a new tenant where the existing tenant has vacated the premises but has not surrendered the tenancy.

A firm of solicitors was the tenant of offices, with a term of five years from January 2000. In February 2003 the firm ceased to trade, so no longer had a need for the office premises. The firm did not pay the rent due in March 2003, or the water rates that were due after that date. In January 2004, the landlord brought proceedings against the firm’s partners for rent arrears. The partners argued that the landlords had not mitigated any loss that might arise from the tenants’ nonpayment of rent, which they could have done by finding a new tenant. It was contended that the landlords were fully aware of the plight of the firm which led to their ceasing to practise as solicitors, ‘but failed to forfeit the lease in order to mitigate their own loss’. The partners said that the landlords’ agent had indicated that they would accept the offer of someone who was their tenant of other premises to take a new lease of the firm’s premises, but had then said that they would not accept this. They argued that the landlords had failed to instruct agents to market the premises, to  accept the offer of a prospective tenant who wanted to take an assignment or a new lease and to accept an offer from one of the partners to negotiate payment in order for the firm to surrender its lease.
It was held that a landlord was not under a duty to mitigate their loss, and an appeal against this decision was dismissed. However, the partners then appealed further.

On appeal:
HELD: The Court of Appeal accepted the partners’ argument that a lease is a contract, and as such the usual rules in relation to mitigation of loss will apply where a party to a lease seeks to recover damages from the other for breach of covenant under the lease. However, the Court rejected the further arument that the same rule applies even where the landlord does not terminate the lease for breach of the tenant's covenants but merely sues for each instalment of rent as it falls due. The Court of Appeal also emphasised that there is no general principle of contract law that an innocent party must accept the conduct of the party breaching the agreement as having terminated the contract. The innocent party can hold the other party liable to continue to comply with the contract, aside from exceptional cases. This was not considered unreasonable becaise tenants are able to reduce their own liabilities by subletting or assigning their lease of unwanted premises. Damages were also considered an inadequate remedy for the landlord.

Citation: Reichman and Dunn v Beveridge Gauntlett [2006] EWCA Civ 1659