Rent arrears – equitable set-off – tenant not entitled to withhold rent to cover a claim against original landlord – Landlord and Tenant (Covenants) Act 1995

Edlington Properties Ltd v J H Fenner & Co Ltd [2005] EWHC 2158 (QB); [2005] 43 EG 189 (CS) (20 October 2005)

This case raises a number of issues where there has been an assignment of the reversion and a tenant has a claim against the original landlord. It also considers the implications on the old law arising from the Landlord and Tenant (Covenants) Act 1995. The background law was explained in British Anzani (Felixstowe) Ltd v International Marine Management (UK) Ltd [1980] QB 137. The principle was established that set-off is permitted if the tenant can show that money expended by him on discharging the landlord’s covenants will, in appropriate circumstances, operate as a partial or complete discharge of the tenant’s obligations with regard to rent so as to afford him a defence for unpaid rent. Where the tenant has suffered damage by breach rather than money paid out or expended, an equitable set-off is available. In general terms there has to be a close reciprocity in the terms of the lease and the nature of the tenants’ cross-claims. It has not been the law that when A is sued for money owed to B, A can set off against B money owed to him by C, however close the relationship between A, B and C might be. In Muscat v Smith [2003] EWCA Civ 962, the Court of Appeal held that a tenant was entitled to an equitable set-off against arrears of rent due to his current landlord, damages he had suffered as a result of breaches of repairing covenants committed by the landlord’s predecessor in title.