Compensation for relocation?

This article was included in the Winter 2011 issue of Informer- the real estate newsletter

A recent case has confirmed the limits of compensation payable by a landlord to its tenant for losses after the tenant relocated to alternative premises at the request of the landlord.

In Eaton Square Properties Ltd v Shaw, the defendant was the regulated tenant of residential premises let by the claimant landlord.  By 2000, the premises required substantial repair. Following lengthy negotiations between the parties, it was agreed that the landlord would permanently relocate the tenant to alternative accommodation. In exchange for the tenant agreeing to relocate for the landlord’s convenience, further negotiations ensued in respect of the works the landlord would carry out relating to the repair, decoration, fixtures and fittings at the new premises.

The tenant moved in to the new premises in September 2001, but a lengthy dispute then arose in respect of the proposed works at the new premises and the rent payable. In particular, the tenant claimed that the works at the premises were defective and that the landlord was in breach of its agreement to do those works expeditiously, to the agreed standard and with reasonable skill and care.

In 2009, the landlord brought a claim for possession against the tenant because of rent arrears. The tenant counterclaimed damages of £14 million, which she claimed represented the income the tenant would have received had she not been required to dedicate a significant amount of her time and energy in dealing with the housing dispute and had, instead, been able to channel her energies into a new business venture contemplated at that time. The landlord said that the tenant’s counterclaim for £14 million was not sustainable at law.

The court concluded that, in the absence of a concluded contract or undertaking between the parties, the landlord did not owe a duty in tort to protect the tenant from pure economic loss that was unconnected to the landlord and tenant relationship. In this case, the landlord’s duty was limited to complete the works properly and in accordance with the specification only. Accordingly, any entitlement the tenant may have to damages arising from a breach of these obligations would be assessed in the traditional way.

The case reinforces the principle that damages for economic loss can only arise out a duty of care. In the context of a residential landlord and tenant relationship, it is highly unlikely that a free standing duty of care in tort will arise outside of those obligations contained in the lease and any other contractual documentation subsisting between the parties. It is notable, however, that the court acknowledged in this case that the position would have been different if the premises concerned had been business premises. In those circumstances, the outcome of a claim for damages for economic loss would probably turn upon the facts of each case and any claim based upon a speculative business venture (such as the current case) would be based on ‘loss of chance’ which is likely to be assessed at a nominal figure in any case.

Article by Hannah Watson, Solcitor in Property Litigation at Fieldfisher.