AIrconditioning-property-1900-x-500

Warm winter comfort for landlords

Mark McKinley and Eleanor Athanasiou

Failing to maintain an air-conditioner won’t cost the landlord its lease.

The Victorian Civil Administrative Tribunal‘s (Tribunal) decision in S 3 Sth Melb Pty Ltd v Red Pepper Property Group Pty [2019] VCAT 1684 has been overturned on appeal by the Victorian Supreme Court (Court). The Tribunal's original decision would have made some landlords nervous, but the Court has confirmed that failing to maintain landlord's installations such as an air-conditioner may not, by itself, amount to the landlord repudiating a lease.

Background

The tenant operated a Pilates and barre studio from the premises. Under the lease, the landlord was required to "install air-conditioning to service the premises". However it was later agreed between the parties the landlord would recommission the existing unit as opposed to installing a new one. The tenant was required to service the air-conditioning every 6 months via a maintenance contract at its cost.

Shortly after the lease commencement, the tenant notified the landlord of the failing air-conditioning and demanded on numerous occasions it be repaired. The landlord responded by stating it was the tenant's responsibility to service the air-conditioning. The tenant purported to terminate the lease due to the landlord's failure to install air-conditioning to service the premises in accordance with the lease terms.

The Tribunal's Decision

The Tribunal determined the landlord's obligation to provide air-conditioning to the premises was a fundamental term of the lease, and that the tenant was entitled to accept the landlord's repudiation and terminate the lease.

The Tribunal's logic was that, under the lease, the landlord agreed to install air-conditioning to service the premises. By failing to provide air-conditioning to service the premises, the landlord had fundamentally breached its obligation under the lease. In addition, not repairing the air-conditioning (when put on notice by the tenant) conveyed the message to a reasonable person the landlord no longer intended to be bound by its obligations under the lease.

On appeal

The Court overturned the Tribunal’s decision. It found that the landlord had not repudiated the lease, and so the tenant could not have validly terminated the lease on that basis.

The Court also found that:

  1. the Tribunal had incorrectly categorised the landlord's obligations – the reference to the landlord’s obligation to “install air-conditioning to service the premises” was not an ongoing obligation;
  2. the landlord had complied with its obligations to provide air conditioning to service the premises by recommissioning the existing unit;
  3. the tenant had not sufficiently notified the landlord of the type of repair needed, nor the time in which it was required to make such repairs; and
  4. a 10 week delay in the landlord acting on a request from the tenant was not a delay of such an inordinate degree. The Court found that a reasonable person in the tenant’s position could not reasonably infer the landlord had refused to be bound by its obligations under the lease.

Important points to take away

Whilst this case turned on a unique set of facts and the drafting of the landlord’s works in the lease, the Court’s decision serves as a useful reminder to both landlords and tenants.

Parties to a lease must be mindful of:

  1. The drafting of special conditions which relate to each party’s repair and maintenance obligations during the term of the lease and upon its expiry. Special conditions must be clear and non-ambiguous in stating either a landlord or tenant obligation;
  2. Adhering to their respective obligations under the lease, whether it be prior to its commencement, during the term or after its expiry; and
  3. Clearly communicating with the other party. If notice to the party is given under the lease, it must be drafted clearly so that the recipient understands what it must do and the time in which it must be done.

Russell Kennedy has the leasing expertise to assist both landlord and tenants in the drafting and negotiation of lease terms, and can assist with any leasing disputes.

Please contact Eleanor Athanasiou or Mark McKinley for more information.

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