Remedies

Tenant's set-off (or withholding sums due to the landlord)

If a tenant has a damages claim against a landlord, then although it can make a claim against the landlord or a counterclaim to a claim brought against it by the landlord in court proceedings, it can also seek to ‘recover’ its damages by setting them off against monies due to the landlord. Where such a remedy is possible, it is very convenient, because it avoids the usual problems associated with making a positive claim, particularly with regard to costs and delay.

However, in some leases there is a covenant by the tenant to pay monies to the landlord without set-off. In such cases, the tenant cannot avail itself of this remedy. Any lesser words, for example, to pay without deduction, are not sufficient to exclude the tenant’s right to set-off (see Connaught Restaurants Ltd v Indoor Leisure Ltd [1993] 2 EGLR 108). In such cases, a tenant will have to pay rent and make a separate claim for damages. Of course, it may be able to arrange things so that it can defer meeting the landlord’s claim until its own claim has been determined. It should, of course, seek specialist legal advice about such matters.

The right to set-off is easier to exercise if the tenant has carried out the work in default of the landlord having done so (see Tenant carries out the work). The tenant can also exercise a right of set-off in respect of its, as yet unquantified, losses.

Bearing in mind that the landlord may disagree with the tenant’s action, a prudent tenant will notify the landlord of the problems that have resulted in the tenant suffering loss, give them an opportunity to take remedial action and notify them that the tenant will exercise its right of set-off. The tenant should also be careful not to exaggerate its claim, as the landlord may demonstrate that there is still a net payment (of, say, rent) due to it and take enforcement action.

Repudiation and quitting the building

In contract law, where a party to a contract is in serious breach, it is generally open to the other party to accept that breach as repudiating the contract, that is, bringing it to an end. There has been significant debate over whether the principle applies to leases. Although the debate has not finally been resolved, it seems that the current prevailing view is that it does.

If so, then where a landlord is so seriously in breach of its obligations concerning the condition of the building occupied by the tenant that the tenant simply cannot derive any benefit from the building, it appears that the tenant can contend that the landlord’s breach is a repudiatory breach and that the lease is at an end, handing back the keys as evidence of its acceptance of the repudiatory breach. If the right exists, then the tenant must not delay in exercising it, as such delay may result in the right being lost.

As the law in this area is not clear and beyond doubt, the tenant should be advised to seek urgent specialist legal advice on the issue before it loses the right, should the right exist as a matter of law.