An interesting legal point arose recently in a case that I conducted in the Local Court. The question centred around the damages that a landlord is entitled to recover from a commercial tenant that breaches a lease.
Six months into the lease the tenant stopped making rental payments. Nine months into the lease, the tenant surrendered the keys to the premises and moved out.
Court proceedings were brought by the landlord and when the matter came before the Tamworth Local Court, about six months of the original lease term remained yet to expire.
The court had to consider whether the landlord was able to recover from the tenant, rental payments for three separate periods:
- the time between the tenant ceasing to make rental payments and surrendering the keys;
- the time between the tenant surrendering the keys and the date the matter was brought before the court; and
- the time between the court date and the end of the lease which was not due to expire for a further six months.
Leases are contracts. There are two general contractual principles which have relevance.
Firstly, where a contract is unlawfully terminated by one party, the other party is entitled to recover damages so as to place him or her in the position that he or she would have been in, if the contract had been completed .
Secondly, the aggrieved party must take reasonable steps to mitigate his/her loss. You cannot claim for a loss that you have not attempted to avoid.
In respect to the first period of time, the application of the law is relatively simple. The tenant owes the landlord money just like a debt. The landlord cannot mitigate their loss because the tenant was still in the premises.
Establishing the landlord’s rights to damages in the second and third periods is a little more complex and requires further explanation which will be explored in an article next week.
If you have any questions regarding commercial leases, please do not hesitate to contact Everingham Solomons because, Helping You is Our Business.
Click here for more information on Clint Coles.