Tenancy at Will: Determination

Compulsory purchase - Compensation for loss of profits - whether appropriate to deduct sum on basis that time freed up by decline in appellant's business should have been spent on other activities - appeal allowed

Faraday v Carmarthenshire County Council; ChD; Lords Justice Peter Gibson, Sedley and Maurice Kay; 10 May 2004

The appellant ran an estate agent's business from premises that were compulsorily acquired by the respondent council and scheduled for demolition to make way for a bus station.

In his compensation claim, the appellant sought to recover lost profits attributable to the decline in his business caused by the proposed development.

The council argued that he should have mitigated his loss by relocating his business at an earlier date.

The Lands Tribunal determined that it had not been unreasonable for the appellant to continue in business for as long as he had done.

However, it ordered that a deduction be made from the compensation awarded on the basis that the appellant should have used the time freed up by the decline in his business to engage in some other activity.

No such submission had been made by the council.

The appellant appealed on the ground that procedural unfairness had occurred.

He contended that the tribunal was not entitled to base its decision on matters that had not been raised in the hearing.

The appellant also submitted that the evidence did not warrant the decision.

John Brooks (instructed by TG Jones & Associates, Swansea) for the appellant; Mark Spackman (instructed by the solicitor, Carmarthenshire County Council) for the respondents.

Held: The appeal was allowed.

Procedural unfairness arose from the tribunal's failure to refer back to the parties before adopting a point that had not been raised in the hearing.

Substantively, the tribunal's finding, that the decline in the appellant's business had freed up time that ought to have been devoted to another activity, was a mitigation point; it stemmed from the appellant's duty to act reasonably to mitigate his loss.

The tribunal did not have sufficient evidence before it to justify its finding on that basis.

More evidence would, for example, have been required as to the appellant's working practices, whether another activity was available and whether any such activity would have been sufficiently profitable to make it a reasonable course of action.

However, there was no reason why, in principle, a 'freed-up time' argument could not succeed in an appropriate case.

In the present case, the tribunal's order would be varied to include the sum previously deducted, plus interest.

Guarantees: Construction

Lease of commercial premises - claimant guaranteeing tenant's obligations - defendant undertaking to indemnify claimant - assignment of lease without landlord's consent - whether landlord's acceptance of new occupant releasing claimant from guarantee - appeal dismissed

Unicomp Inc v Eurodis Electron plc; ChD; Mr Justice Evans-Lombe; 7 May 2004

A subsidiary of the claimant company held a lease of commercial premises.

The claimant was guarantor of the subsidiary's obligations under that lease.

The guarantee contained a proviso that the claimant's liability would be unaffected by 'any neglect or forbearance of the landlord' in seeking to enforce the performance of the covenants in the lease.

The claimant entered into a share sale agreement with the defendant and an associated company, UH, whereby UH would purchase all the issued shares of the claimant's subsidiary.

UH covenanted that it would use reasonable endeavours to procure the release of the claimant's guarantee, and would, in the meantime, indemnify the claimant against any liability arising under it.

The claimant's subsidiary subsequently ceased trading, and a related company went into occupation of the premises and took over the payment of the rent.

This amounted to a breach of the lease covenant against assigning without the landlord's prior written consent.

UH later wrote to the landlord, seeking its consent and asking for the claimant to be released from its guarantee.

Meanwhile, the landlord continued to issue rent demands and accept rent payments.

Negotiations failed, and the landlord issued proceedings against the claimant to recover unpaid rent and interest pursuant to the guarantee.

The claim was compromised, with the claimant agreeing to pay a sum in consideration of the release from its liabilities as guarantor.

The claimant brought proceedings against the defendant to recover that sum.

The defendant sought to argue, in reliance on Holme v Brunskill (1878) 3 QBD 495, that by tolerating the new occupier and failing to forfeit the lease for breach of covenant, the landlord had materially altered the risk borne by the claimant under the guarantee.

Thus, the claimant was released from its liability under that guarantee.

The judge gave summary judgment for the claimant.

The defendant appealed.

Charles Harpum (instructed by Nicholson Graham & Jones, London) for the claimant; Jonathan Ferris (instructed by Sprecher Grier Halberstam LLP, London) for the defendant.

Held: The appeal was dismissed.

The conduct of the landlord, in failing to take action to enforce the covenant against assignment when it had become aware that another occupant had taken possession of the premises and was paying the rent, fell within the proviso to the claimant's guarantee.

Any prejudice to the claimant resulted from a 'forbearance' to enforce performance or observance of a covenant covered by the proviso, and so did not operate to release the claimant under the rule in Holme.