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In a leasing dispute, an important question to ask is what ‘damage’ you or the other party may have suffered. ‘Damage’ does not necessarily mean physical harm or illness. Instead, it can refer to a variety of consequences, including financial loss as well as the loss of rights, opportunities or reputation that results in one party being in a worse situation than they would have been if the other party’s action had not occurred. This is why compensation that is granted to one party for the wrongdoing or failure by another is commonly referred to as ‘damages’ in the legal world.

Suppose you find yourself in a potential or existing leasing dispute. In that case, you need to evaluate who has suffered damage and how compensation (if any) should be calculated, before taking further action. You should also evaluate what actions you or they have taken to prevent the damage and reduce its impact. Courts generally ask if any of those steps taken were reasonable or whether a party should have taken more preventative action. 

This article will discuss the importance of identifying, assessing and preventing damages in a leasing dispute and how these factors can influence your strategy.

Types of Damage

In a legal sense, suffering ‘damage’ is not limited to physical harm to a person, property or the premises. Instead, damage can refer to several types of negative outcomes (usually some sort of cost or loss) for a person and a business.

The type of damage that you suffer may differ greatly based on the specific circumstances of your lease and the dispute. However, some common types of damages are set out below. These demonstrate how you may suffer damage in different ways depending on whether you are a landlord or a tenant.

Type of Damage

For a landlord

For a tenant

  • Actual Cost / Expense

Lost rent, outgoings or other missing payments.

Overpayment of rent, outgoings and other payments.

  • Lost Future Opportunity

Missed opportunity for a replacement tenant or sale of the property.

Missed opportunity to renew the premises or find an alternative lease.

  • Actual Cost / Expense 
  • Lost Revenue

Physical damage to the premises.

Reduced usability of the premises and its utilities.

  • Lost Future Opportunity
  • Lost Revenue

Additional time and attention given to the tenant instead of other business interests.

Interruption resulting in lost revenue or less business growth.

How Damage Leads to a Dispute

Damage From a Breach

A party will claim they have suffered damage as a result of the other party breaching the lease. For example, the breach may be the other party: 

  • doing something they are not allowed to do (such as using the premises for an improper purpose); or 
  • failing to perform an obligation (such as not paying rent). 

Hint: Not all instances of a party to a lease suffering damage will lead to a dispute. If you believe you have suffered damage as a result of the other party’s actions or inactions, you should notify them. If they acknowledge the damage and you can agree with them on an appropriate resolution, you can avoid a dispute altogether.

Even if you cannot agree with the other party on the definitive cause of the damage, you should still try to find common ground to agree on how to resolve the issues. A solution may not be able to undo the damage, but it should appropriately compensate the injured party.

Tip: Focusing on creative solutions to a disagreement is generally more effective in dispute resolution than focussing on how or why the issues happened in the first place. Whilst a lawyer’s role as an advocate is to put forward a strong legal argument, proposing solutions can provide an equally rewarding path to a win-win outcome.

What Leads to a Dispute

A dispute may arise if the other party:

  • denies responsibility for causing the damage; 
  • says that you are at fault for causing the issues;
  • refuses to acknowledge that you have actually suffered any damage;
  • disagrees with the amount of compensation you are claiming; or
  • thinks they have suffered more damage than you.

The causes of disagreement can be: 

  • a lack of awareness; 
  • insufficient evidence; or 
  • plain ignorance. 

Some disputes can even arise when one party may not genuinely disagree with you. However, they might not want to be responsible for compensating you for financial reasons. This may result in the other party arguing that your claim of damage is incorrect or overstated.

Note: The concept of ‘offsetting’ is relevant to lease disputes as a way to find the net outcome to compensate for the damage suffered. In regular legal disputes, it is standard practice to offset or reduce the amount of compensation owed to one party by the amount of damage suffered by the other. However, some leases expressly prohibit offsetting. So even if the tenant has suffered damage that entitles them to compensation, they are not allowed to withhold the equivalent amount from rent payments.

How Courts Assess Damage

The appropriate method of calculation will depend on the type of damage. Importantly, the courts will always ask the party seeking compensation to provide evidence to prove their loss.

Actual Costs or Expenses

The easiest damages to measure are costs and expenses already incurred. Suppose the damage is a direct result of a breach of the lease by the other party. Then, your actual financial loss is the most straight-forward way to quantify your damage. 

Evidence of the expenses is important and may include:

  • copies of invoices to third-parties that you want the other party to pay for (such as to repair the premises);
  • details of your internal expenses to address issues caused by the other party (such as employees or professional advisers such as lawyers and accountants); and
  • financial documents demonstrating what should have been paid as opposed to what was actually paid.

Lost Revenue

Lost revenue typically means a reduced amount of goods or services sold. Therefore, suppose there was some impact on your business caused by the other party. In that case, you must demonstrate how that impact directly resulted in you earning less income than you should have.

When assessing this damage, you will also need to take into account:

  • the significance of the interrupting event; and
  • whether other factors caused the decrease.

Example: If the landlord fails to fix an issue at the premises in accordance with their obligations, that may affect your business operations. A tenant must prove that their revenue was noticeably lower than the average for the relevant period of time. A landlord may argue that the downturn was not due to the interruption and was, in fact, caused by other factors.

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Lost Future Opportunity

Lost opportunity refers to the consequence of a breach where you have less income in the future than you would have if the breach did not occur. This could mean missing out on new customers or projects due to the other party’s breach of the lease. 

This damage is difficult to prove. You will need to show the loss of opportunity was a direct result of the breach and not too remote. Additionally, you must show that the opportunity was a real and genuine possibility and not merely speculative. 

Hint: When predicting future losses, a court will consider reliable data about your business performance. However, courts often reduce future estimates by a nominal percentage as a way to ‘predict’ that your future success is not necessarily guaranteed. Judges are usually prudent not to unfairly punish the party at fault.

Experts in your field may be able to help project or estimate your earnings and growth as a way to quantify the value of a lost opportunity.

Mitigation of Loss

Whenever one party claims compensation for damage suffered, they must show a court what steps they took to minimise their loss. In law, this is referred to as mitigation and is common in many commercial disputes. 

Mitigation has various practical examples, including:

  • taking proactive steps to resolve an issue once identified early;
  • creating temporary solutions to a problem; or
  • notifying the other party promptly of an issue following a breach.

If a court believes that a party did not take sufficiently appropriate steps to mitigate their loss, that party is considered to be partly responsible for that loss. This may not prevent them from receiving compensation. However, a judge may reduce the amount of compensation they are entitled to.

Tip: If the other party’s breach of the lease is causing you damage, take immediate steps to minimise the damage you suffer and ask them to fix the issues as soon as possible. Once the other party is aware of their obligation to step in, you are less likely to be blamed for contributing to the loss.

Key Takeaways

Proving damages can be a complicated process for tenants and landlords. There are many types of damages that can be relevant for lease disputes, including:

  • financial loss from actual costs or expense;
  • lost revenue;
  • lost future opportunities; and
  • physical damage or reduced usability.

Lease disputes tend to focus on the cause of the damage and if one party is entitled to be compensated for that damage. Parties also need to consider whether someone contributed to their loss or failed to take appropriate steps to mitigate their loss. Evidence in the form of invoices, financial documents and expert commercial opinions may be necessary to quantify the damage suffered in financial terms.

If you need assistance with understanding the damages suffered by you or the other party in a lease dispute, contact LegalVision’s dispute resolution lawyers on 1300 544 755 or fill out the form on this page.

Frequently Asked Questions

What are ‘damages’?

Damages can refer to a variety of consequences, including financial loss and the loss of rights, opportunities or reputation that results in one party being in a worse situation than they would have been if the other party’s action had not occurred.

What is mitigation of loss?

This refers to the requirement on behalf of the party who is claiming compensation, to show the court they took steps to minimise their loss.

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