Rent Deductions

The tenant has the right to make deductions from the rent payable under certain circumstances: Televantos v McCulloch [1991] 1 EGLR 123.

Deductions can only be made if:

they are provided for by the lease;

they are provided for by statute;

the tenant has paid sums that the landlord has a duty to pay which enables the tenant to treat them as a counterclaim or set-off against the rent due. The tenant will have implied authority to pay such sums and deduct them as a set-off against rent if the landlord's failure to pay them would affect the tenant's peaceable enjoyment of the property.

Originally, any deduction from rent by way of set-off could only be in respect of a liquidated sum. Now it would seem that an unliquidated claim for damages for breach of covenant by the landlord can also be set off – for example, if the landlord has failed to fulfil his obligations under the lease to repair and the tenant has spent money on doing the necessary works.

It should be noted that:

The landlord's obligation to repair normally only arises on notice and so he should have been given notice of any disrepair.

The tenant must have actually paid out the sums he seeks to set off: Lee-Parker v Izzet [1979] 3 All ER 1099, unless he is relying on the equitable doctrine of set-off.


Equitable Set-offs Against Rent

There is no right of set-off if the tenant has not carried out and paid for the repairs but, in some circumstances, he may be entitled to rely on the doctrine of equitable set-off if he has a counterclaim-claim for damages against the landlord.

In British Anzani (Felixstowe) Ltd v International Marine Management (UK) Ltd [1980] QB 137, the tenant was able to set off £1 million against £540,000 rent arrears following the landlord's failure to repair two warehouses, even though the landlord's obligation was contained not in the lease but in a prior agreement to construct the warehouses and lease them to the tenant.

To rely on this doctrine, the tenant must show that the counter-claim is so closely connected to the landlord's claim for rent as to go to the root of it. The tenant's equitable set-off cross claim must relate to the quality of occupation or physical state of the premises: Inntrepreneur v Star Rider [1998] 16 EG 140. The tenant is not entitled to deduct rent simply because the premises have been damaged or are partially unusable, e.g. as a result of flood or fire. Unless the lease provides for suspension of rent in such circumstances (as leases often do), the rent will continue to be payable.

There may be an exception to this rule if the lease has been frustrated. In National Carriers Lt v Panalpina (North-ern) Ltd [1981] AC 675, the House of Lords held that the doctrine of frustration was capable of applying to leases. In the later case of Nynehead Developments Ltd v R. H. Fibreboard Containers Ltd [1999] 2 EG 139, the court held that a lease may be terminated by frustration where the landlord fails to control other tenants on his site. In that case the landlord had failed to take action to prevent other tenants parking their vehicles and skips on the tenant's forecourt. The court has also held that frustration has occurred where the landlord of a shopping mall fails to control a nuisance caused by another tenant: Chartered Trust plc v Davies [1997] 49 EG 135. However, frustration will in practice be rare.

A further exception may arise if the landlord's failure to comply with the covenants in the lease is so serious as to constitute a repudiation of the lease. If so, rent will no longer accrue: Hussein v Mehlman [1992] 32 EG 59, where a failure by the landlord to comply with the implied repairing covenants allowed the tenant to vacate the property and return the keys, bringing the lease to an end by acceptance of the landlord's breach). This is only likely to arise in exceptional cases.

A clause in the lease may expressly prohibit any set-off. This will prevent the tenant relying on a set-off (although he may still have a counter-claim). Such a clause does not fall foul of the provisions of the Unfair Contract Terms Act 1977 as it is within the exclusion for contracts relating to land in Schedule 1, para 1(b) of the Act: Electricity Supply Nominees Ltd v IAF Group Ltd [1993] 1 WLR 1059. But in Connaught Restaurants Ltd v Indoor Leisure Ltd [1994] 1 WLR 501, the Court of Appeal held that a provision in a lease that the rent should be paid "without any deduction" was, of itself, not sufficient, in the absence of any context suggesting the contrary, to exclude by implication a tenant's equitable right of set-off. Clear words were needed to exclude the tenant's remedy of set-off.

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