Claims for Trespass: Valuation of a Trespass Claim Relating to Commercial Premises (Restaurant EC3 Ltd v Tavor Holdings Ltd – 2024)

The High Court sets out relevant considerations when valuing a trespass claim relating to commercial premises, as part of its decision relating to a claim for unlawful re-entry and unpaid rent.

The background

Restaurant EC3 Ltd v Tavor Holdings Ltd [2024] related to commercial premises, of which the appellant was the commercial tenant, and the respondent was the landlord and petitioning creditor. Rent under the 15-year lease was payable by the tenant in the sum of £95,000.

The landlord served a statutory demand on the tenant, which was not paid in full. The landlord subsequently re-entered the premises.

Following the issue of winding-up proceedings, the tenant brought a cross-claim, arguing that re-entry by the landlord was unlawful, that the landlord was trespassing, and claiming an order for possession of the premises and damages.

The tenant sought damages resulting from the landlord’s alleged trespass comprising (amongst other heads of loss) loss of profits, or mesne profits in the alternative. At first instance, the court found that the tenant’s claim for loss of profits did not give rise to a genuine dispute as the tenant had not been operating from the premises, and this decision was appealed.

The tenant argued that the judge had been wrong to find that the claim for mesne profits had no value, on the basis that any claim for mesne profits was offset by the rent due, and claimed that the petition sum was owed in full.

The decision

The High Court dismissed the tenant’s appeal, concluding with reference to One Step (Support) Ltd v Morris-Garner [2018] that damages for trespass are compensatory, rather than restitutionary.

Of particular interest to JB Leitch’s landlord and managing agent clients will be the judge’s comments regarding the valuation of the trespass claim. The judgment states that, “In order to place a reasonable economic value on the rights which have been invaded, it seems to me that one must take account of the cost to the company of maintaining those rights.”

The tenant asserted a continuing right of possession against the landlord, which was dependent on the continued payment of rent. In order to assess the economic value of the tenant’s right of possession in line with the compensatory principle, it must be assumed that the tenant had continued to pay rent during the trespass period. Without making this assumption, the tenant would be over-compensated. Where rental value is equivalent to the passing rent, no loss is suffered. Where market rent has increased during the period of trespass, as compensatory damages the tenant may recover the difference between the rent payable under the lease and the market rent.

Advice and action for landlords

This decision will be of interest to landlords, determined in the landlord’s favour and setting out how damages may be calculated and valued in a claim for trespass.

It was imperative to avoid the tenant being over-compensated, and accordingly it should be assumed that a tenant which asserts its rights of possession continues to pay the rents due. Where the rental value is equivalent to the market rent, the tenant can be assumed to have suffered no loss.