No termination right for tenant for water damage

 

In the recent decision of Broben & Anor v Hatfield [2016] QCAT 341 it was held that a tenant, who abandoned the premises due to ongoing water leakage, had repudiated the lease. Repudiation of a lease occurs where one party clearly shows an unwillingness or inability to perform the lease or some significant obligation under the lease.

The tenant operated a business of selling aquarium fish and products from the premises, where water often leaked through the roof during heavy or ongoing rain.  The tenant made complaints to the managing agent but was not satisfied with their responses. A significant rain event occurred about 6 months before the lease expiry date, causing damage to the tenant’s stock. The tenant started trading from another premises and handed keys to the premises back to the landlord.

In deciding whether the tenant committed an essential breach by abandoning the premises before the lease expired, the Tribunal considered whether the lease was terminated by agreement or validly terminated by the tenant. There was no evidence suggesting that the lease was terminated by agreement and although the landlord appeared to have accepted some responsibility for the water leak problems, there was no contractual right for the tenant to terminate in the lease.

The lease contained the usual clause allowing the tenant to terminate in circumstances where the premises are partially or wholly unfit for use or access and the landlord failed to reinstate the premises within a reasonable time, but this had not occurred as the tenant continued to occupy and trade from the premises despite the water problems. The Tribunal also accepted that there was no evidence that the lease was frustrated, fundamentally breached by the landlord’s failure to fix the water issues or that consideration totally failed.

As such, the Tribunal concluded that the tenant had abandoned the premises which is a breach of an essential term under the lease and a wrongful repudiation at common law. The landlord was entitled to accept repudiation, terminate the lease and claim for damages. The tenant’s bank guarantee was forfeited and he was ordered to pay rent until lease expiry, make good costs and other expenses.

This case highlights the need to carefully consider and document respective repair and maintenance obligations of the landlord and tenant when entering into a commercial lease, and to ensure these obligations are complied with before considering termination.

Gavin McInnes

Partner

Brisbane 07 3009 8444
Sydney 02 9307 8900
Email g.mcinnes@rclaw.com.au

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