Burkes' Tips - Tip 5

 

To assist real estate agents in gaining greater knowledge and staying up to date around the sale, purchase, leasing and licensing of all things real estate, we will be releasing Burkes’ Tips on a regular basis. These will address critical issues that arise in real estate and provide insight into how agents can best negotiate their client’s commercial interests.
 
In this tip we address the ability of a tenant to terminate a retail lease where the landlord fails to meet its repair obligations. The Victorian Civil and Administrative Tribunal recently held[1] that a landlord’s failure to repair an air conditioning unit was a repudiation of lease by the landlord, allowing the tenant to terminate the lease.

Landlord's Behaviour

The lease contained a clause requiring the landlord to repair an air conditioning unit in the premises. Despite several requests by the tenant over a 4 month period, the landlord failed to meet its repair obligations.

The landlord’s failure to repair the air conditioning unit did not allow the tenant to forego or reduce the rent or other outgoings under the lease. The tenant was still bound by all the terms under the lease, including the payment of rent and make-good obligations. 

Conclusion
 
When a tenant is faced with a landlord who refuses to repair premises (either under the terms of the lease or under section 52 of the Retail Leases Act 2003 (Vic)), the tenant has the following options:

Undertake the repairs themselves and sue for the repair costs;
Apply to VCAT for orders for specific performance for the landlord to perform the repairs; or
Accept the landlord’s repudiation, terminate the lease and sue for damages.* 

*Tenants should proceed with extreme caution and seek legal advice relevant to their specific circumstances before acting on a purported repudiation as there are significant consequences for tenants who wrongfully end a lease.  If a tenant cannot show that the landlord has repudiated the lease, then the tenant’s purported termination could itself be a repudiation of the lease and this could expose the tenant to a damages claim from the landlord.
 
The decision is a wake up call to landlords to undertake repairs promptly where there is an obligation to repair.
 
Tenants should obtain legal advice when faced with a landlord’s refusal to meet its repair  obligations as this VCAT decision  may allow (in certain circumstances) a tenant to terminate a lease when the landlord has not fulfilled its obligations under the lease.
 
If you require further information or have any queries, please feel free to contact us.

[1]S3 Sth Melb Pty Ltd v Red Pepper Property Group Pty Ltd [2018] VCAT 1684