What are the obligations of a landlord to mitigate the loss if a commercial tenant requests a surrender of the lease within a month of the start date and never starts to trade?
Spare a thought for John Tabet who in December 2016, signed up a five-year lease of restaurant premises for a Yajm Vegan Pantry outlet at North Lakes, taking over a shop in which the former tenant’s business had failed.
Almost as soon as the ink was dry on the paper – in January 2017 – Tabet requested the managing agents find another party to take over the lease, saying he wanted out. The business had never started to trade and the premises were never fitted out.
After the expiration of the six-month free rent incentive period, landlord Dianne Kiddle drew down on the tenant’s bank guarantee to supplement short payments from the tenant.
Payments stopped altogether from December 2017 at which time the tenant notified the landlord through the managing agent that it was terminating the lease.
A Notice to Remedy Breach of Covenant seeking $30k in arrears was served in March 2018 and the landlord re-entered the premises the following month noting that some of the tenant’s furnishings were still on the premises.
Landlord Kiddle filed recovery proceedings in November 2018 against Yajm Vegan and the 5 individuals and a company that signed guarantees.
The premises were eventually re-let in March 2019 under a three-year lease commencing in May that year.
The lawsuit in the District Court in Brisbane claimed arrears up to the date of termination and damages from then for the difference between the rent it was entitled to receive under the lease and that which it was able to bank.
The parties failed to resolve the dispute at a mediation in August 2021 and the matter came before the court for a trial in February.
The first of only two issues in dispute was the contention of the tenant and guarantors that Kiddle had been obliged to mitigate its loss from the moment it had ceased payments and notified it wished to terminate.
Not so ruled Judge Michael Byrne QC.
Although the lessee had been in breach of the lease at an earlier time, the duty to mitigate applies only to the loss in respect of which damages are payable from the date of termination of the lease.
In this instance – he explained – Kiddle had correctly pleaded that no duty to mitigate applied in respect of monies due under the contractual terms of the lease, ie during the period prior to termination.
The circumstances were not such that the tenant could be said to have “abandoned” the premises or the lease and its conduct prior to termination conveyed “an intention to keep the lease on foot, or at least an acceptance that it was bound by it”.
He concluded that the landlord was entitled to recover the losses that it had pleaded.
Also in contest was the extent to which the landlord could recover legal costs in respect of the tenant’s breaches and the recovery proceedings.
Clause 8.3 conveyed a general indemnity in the landlord’s favour for all losses occasioned by a lessee’s default.
Clause 2.1 on the other hand entitled the lessor to “the recovery of reasonable costs and expenses” incurred in proceedings brought to enforce the lessee’s obligations.
Judge Byrne accepted that a contractual provision for the payment of costs on an indemnity basis is relevant but not binding on a court when determining what costs order should be made in a dispute between the parties.
He noted though that clause 8.3 did not seek to bind the court’s discretion on a costs order, but was concerned with the calculation of that component of the landlord’s loss that should form part of the judgment amount.
He was not persuaded that Mrs Kiddle could be compelled to rely on the less onerous of the two provisions in formulating the value of its loss.
