Ardis International Kindergarten Ltd v Tang Kai Ming, Kenneth and Others  HKCU 2932
In the recent case of Ardis International Kindergarten Ltd v Tang Kai Ming, Kenneth and Others  HKCU 2932, the Court considered the extent of a landlord's obligation in relation to non-derogation / to provide a tenant with quiet enjoyment of the rented property.
The case concerned a tenancy dispute where a tenant ("Tenant") claimed against the landlords ("Landlords") for the return of rental deposits and damages, and the Landlords counterclaimed for arrears of rent and damages.
The Tenant entered into two written tenancy agreements ("Tenancy Agreements") with the Landlords of two properties ("Properties"). However, at the start of the tenancies, the Tenant discovered that there was no electricity supply to the Properties.
The Tenant then gave notice to the Landlords to terminate the Tenancy Agreements, demanded the return of the deposits and pre-paid rental, and commenced proceedings on the basis that the Landlords were in breach of the implied covenants of non-derogation and/or to provide the Tenant with quiet enjoyment of the Properties.
Legal Principles of Non-derogation / Quiet Enjoyment
In a nutshell, the principle of non-derogation from grant means that, "…if one man agrees to confer a particular benefit on another, he must not do anything which substantially deprives the other of the enjoyment of that benefit: because that would be to take away with one hand what is given with the other."
As stipulated in Platt & Ors v London Underground Ltd  2 EGLR 121 (the leading case on the implied covenant against non-derogation), "…it is well established that a landlord, like any grantor, cannot derogate from his grant…there is a close connection, indeed a very substantial degree of overlap, between the obligation not to derogate from grant, the covenant for quiet enjoyment, and a normal implied term in a contract".
The Court in this case held that the implication of obligations depends on the facts of each case, and the following general principles of implied terms1:-
"The proposed term (1) must be reasonable and equitable; (2) must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) must be so obvious it goes without saying; (4) must be capable of clear expression and (5) must not contradict any express term of the contract."
One of the key questions before the Court was "what were the acts (deliberate or otherwise) or omissions of the Landlords by which they have committed to derogate from the grant".
Seeing as it was undisputed that the Landlords had already applied to CLP Power Hong Kong Ltd. ("CLP") for independent electricity supply to the Properties before the signing of the Tenancy Agreements, the Court found that there was nothing further that the Landlords could do to ensure that CLP would complete the work and to supply electricity by the start of the tenancies.
The Court distinguished a case in which the landlord was found liable for breach of the covenant for quiet enjoyment for deliberately cutting off the electricity supply to the rented property. In the present case, the Landlords did not cut off the electricity supply, and there were no complaints that the Landlords had taken any deliberate action to delay the installation of an electricity meter or the supply of electric power to the Properties.
In the Court's view, "…a fair, reasonable or equitable implied duty would be a duty to facilitate the connection of electricity, but not to provide, install or connect electricity by the commencement date of the tenancy agreement, as pleaded by the [Tenant]."
Consequently, the Court found that there was no omission on the part of the Landlords. It followed that the Landlords were not liable for causing any substantial or material interference with or disturbance to the Tenant's full benefit and enjoyment of the Properties, and that therefore, there was no breach of the covenant to allow the Tenant quiet enjoyment of the Properties. By the same token, the Landlords were not liable for rendering the Properties unfit or substantially less fit for the purpose for which they were let to the Tenant, and so there was also no breach of the non-derogation covenant.
The Tenant's claim was dismissed and the Tenant was found liable for the Landlords' consequential loss and damage as a result of the Tenant's wrongful repudiation of the Tenancy Agreements.
Mitigation of Loss
Whilst the Tenant argued that any loss and damage suffered by the Landlords was caused by the Landlords' failure to mitigate their loss, the Court found, on the balance of probabilities, that the Landlords had established their attempt to mitigate their losses by having sought assistance from various estate agents to lease the Properties in the open market.
It is important to bear in mind that all cases are fact-specific. In reaching its findings, the Court in this case distinguished the facts of other similar (but not identical) cases - for instance, the case where the tenancy agreement contained an express written condition that the landlord had a duty to provide electricity, and the case where the landlord deliberately switched off the electricity supply. Innocent parties in tenancy disputes should bear in mind their duty to take all reasonable steps to mitigate (minimize) their loss.
1 Subject to exceptions
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