Repudiation
In Chapter 23 section 5 we considered the contractual aspects of leases and noted the consequences of the growing recognition that contractual remedies may be applied to leases. In the context of redress for breach of a leasehold covenant we have in Chapter 25 concentrated on the distinct proprietary remedy of forfeiture however we should not overlook the application of contractually based remedies and in particular repudiation.

We have already noted that where a landlord is in particularly serious breach of his or her obligation to carry out repairs, rendering the premises unfit for the purpose for which they were let, the tenant may accept the landlord’s repudiatory breach and treat the lease and their obligation to pay rent as at an end.¹

The question is whether this reasoning can equally apply to a breach by the tenant of their obligations for instance to pay rent. Where the property market is rising a landlord in these circumstances would probably choose to forfeit the lease, recover possession and re-let the property at a higher market rent. Where the tenant wishes to give up the lease and abandon the premises, a landlord may be happy to accept the tenant’s surrender of the lease so that the landlord can again take advantage of higher market rents.

However, if the property market is depressed and market rents are falling forfeiture or surrender is not such an attractive option since it will release the tenant from their obligation to pay the higher than market rent. Instead the landlord may consider two further possibilities flowing from the contractual nature of the lease. He or she may treat the lease as continuing and bring an action for recovery of the rent based upon the tenant’s covenant to pay rent. Alternatively, it may be possible for the landlord to elect to accept the tenant’s repudiatory breach and claim damages for the loss flowing from the breach i.e the loss of rent. The latter option has been accepted in a number of commonwealth jurisdictions² although the English courts have yet to fully embrace this route to redress.³

The difference in these two possible approaches lies in the obligation of the landlord to mitigate their loss by seeking to re-let the premises.⁴ It is clear that if the landlord is able to repudiate, then he or she must mitigate their loss by trying to re-let the premises even if they can only obtain a lower rent. The measure of damage recoverable from the defaulting tenant is then the difference between the old and new rental. However, a landlord is not obliged to mitigate his or her loss where they treat the lease as continuing and sue upon the tenant’s rental covenant. It is no concern of the landlord whether or not the tenant chooses to make use of their lease nor is the landlord obliged to re-enter should the tenant fail to pay the rent or abandon the premises. The court will only resist the landlord’s claim where the tenant can demonstrate that the landlord has no legitimate interest in insisting on continuing with the lease rather than finding another tenant.⁵ In Reichman v Beveridge⁶ the Court of Appeal declined to hold that a landlord had no legitimate interest in continuing a lease of 5 years which had less than 2 years to run when the tenants, a firm of solicitors, ceased practice and failed to pay the rent. The landlord’s actions could not be characterised as wholly unreasonable in the light of the tenant’s default. However the reasonableness of the landlord’s decision to treat the lease as continuing may be less easy to prove where the residue of the unexpired term is rather longer or a replacement tenant is readily available.

The English court’s hesitation in embracing repudiation by a landlord for a tenant’s failure to pay rent, with the consequent duty to mitigate any loss, seems difficult to justify both in terms of the advance of contractual principles and on policy grounds. Mitigation seeks to avoid a waste of resources whilst efficient land use is not supported by rules which encourage landlords to leave premises empty.

References:
¹See Hussein v Mehlman [1992] 2 EGLR 87 (County Court) and Chartered Trust Plc v Davies [1997] 76 P&CR 396.
²See for instance in Canada Highway Properties Ltd v Kelly Douglas & Co (1968) 17 DLR (3d) 710 and in Australia Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17.
³See Reichman v Beveridge [2006] EWCA Civ 1659 per Lloyd LJ at [20-28].
⁴Ibid noted at [2008] Conv 165.
⁵White & Carter (Councils) Ltd v Mcgregor [1962] 2 WLR 17.
⁶[2006] EWCA Civ 1659.