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Landlords and Tenants may sign up to a new tenancy of business premises full of optimism about the future. The Tenant of course has the opportunity to run its business without a large capital investment and the landlord is provided with a reliable stream of income.

However, when times get tough, some Tenants think if they simply abandon the premises, taking all their fixtures with them then the Lease comes to an end together with their liability to pay any further rent. However, such a Tenant would be very much mistaken.

Innocent
Under general principles of contract law an innocent party who suffers loss as a result of another party’s breach of contract is entitled to recover damages. However, the innocent party ordinarily has a duty to take reasonable steps to mitigate its loss.

The question that was in a recent court of Appeal Case (Reichman and Dunn –v- Beverdige and Gauntlett) asked of the Court in the above case is whether that principle applies to circumstances where a Tenant abandons premises. Can the landlord sue for the continuing rent arrears or must it take back the premises in order to mitigate its loss?

The Case confirmed that landlords have no duty to mitigate in such circumstances. The Tenant who signs up to a lease for a fixed period is not able to just walk away from its responsibilities. The Landlord has no obligation to accept the Tenant’s breach and bring the tenancy to an end.

Secure
Further, the Landlord may enter the premises in order to secure them after the Tenant has absconded without forfeiting the lease (although the Landlord must be careful here) as in most circumstances, if the Landlord accepts the keys from the Tenant, this will constitute a “surrender” of the Lease and will bring it to an end. Get legal advice before you do this.

Landlords who find that their premises have been abandoned by their Tenant they should do the following:

1. Take legal advice as soon as possible.

2. Refuse to accept a return of the keys. If the keys are handed to the Landlord or arrive at the Landlord’s offices in an envelope, write to the Tenant (if a company at its registered office address) and explain that you are holding the keys for safe keeping and you do not accept they have brought the tenancy to an end.

3. Consider why the tenant has abandoned the premises. Has it found alternative premises which it considers are more suitable to its business or is it insolvent? If there is really “no money in the pot” it may be better to surrender or forfeit the lease and re-let to a financially sound option rather than have to deal with an insolvency practitioner in due course.

4. If there are rent arrears, consider whether there are any tenant fixtures which have been left and which you can offset against the arrears.

5. Consider the state of the current letting market – would you get a higher rent if you re-let the premises to a new tenant such that it is in your interest to terminate the existing lease?

6. Consider whether the lease provides a guarantor of the Tenant’s obligations - if the Tenant cannot afford to pay the rent, the guarantor may be worth pursuing.

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