Landlord’s failure to give vacant possession: tenant’s duty to mitigate and the calculation of damages

In Mega Yield International Holdings Ltd v Fonfair Co Ltd ([2013] HKEC 313, CFI) D entered into an option to grant a lease to P. The option was exercised but D was unable to give vacant possession of the site. Negotiations then began concerning a new lease between the same parties. These foundered because of an inability to obtain express agreement on whether the grant of a new lease would be without prejudice to  P’s claim against D in respect of D’s failure to give vacant possession pursuant to the original agreement. D then granted a new lease to a third party.

D argued that P had failed to mitigate its loss by accepting a new lease promptly. This failed. On the facts of the case, P’s actions had been those of an ordinary and prudent businessman ([46]).

As far as the calculation of damages was concerned, D argued that it was for P to show that it would have been able to recoup its loss or expenditure had the initial lease been performed. This failed: in a loss of bargain case the burden of proof is on D (the contract-breaker) to show that the loss or expenditure could not have been recouped even had the contract been performed ([71]).

The fact that some of the expenditure had been incurred by other companies on P’s behalf (other companies in the same group where the facts were such that a loss to one company would be equally felt by the other) was no bar to their recovery from D ([101]).

P could not recover the difference between the rental it would have paid and the rental payable under the lease of another site that it eventually entered into because the latter was not truly a substitute for the former. The same applied to expenditure on abortive attempts to acquire a lease of another site which would have been complementary to, not a replacement for, the site owned by D.

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