Legislation cited: Residential Tenancies Act 1997 ss 49, 53, 59, 83

Residential Tenancies Act 2010 (NSW) s 33

Cases cited: Commissioner for Social Housing v Pesi [2015] ACAT 58

Commissioner for Social Housing v Moffatt [2015] ACTSC 4

1. On 23 June 1999 the parties with the applicant as lessor and the respondent as tenant entered into a residential tenancy agreement in relation to premises at Kambah, ACT.
2. On 6 March 2012, in matter AA 38/2011, the ACT Civil and Administrative Tribunal (the ACAT) made a Conditional Termination and Possession Order (CTPO). This order required the tenant to pay the lessor the sum of $777.48 for arrears of rent by instalments of $30 per fortnight commencing 16 March 2012. This order also required the tenant to pay to the lessor rent as and when it fell due, in accordance with the residential tenancy agreement. The order provided at clause 3:

If the tenant fails to comply with any of the conditions set out in order 1 above:

1. the tenancy terminates at 12 noon on the day after the tenant's failure to comply with the condition;
2. the lessor is entitled to vacant possession of the premises on termination of the tenancy;
3. all rent payable including any rent which has accrued from the date of this order is payable immediately.

1. The tenant failed to make the payments as required on 30 March 2012, and as a result of that failure to comply with the conditions set out in the order, the tenancy terminated at 12 noon on 31 March 2012. The amount of $894.78, being arrears of rent accrued until 16 March, became due and payable immediately.

The effect of the failure to comply with the conditional order

1. I canvassed the legal effect of a breach of a CTPO in Commissioner for Social Housing v Pesi [2015] ACAT 58 (Pesi) and set out below the relevant extract from _Pesi_at paragraphs 5 and following:

(5) Section 49 of the Residential Tenancies Act 1997 (ACT) [the Act] regulates the termination of the tenancy where the tenant has failed to pay rent.

(6) Where a conditional termination possession order has been made by ACAT and the tenant breaches that order by either failure to pay rent or failure to pay the arrears by instalments, the effect of that breach is twofold: the tenancy terminates on the day after the breach, and any outstanding rent becomes due and payable immediately.

(7) Section 42A of the Act provides that where there is a breach by the tenant of a conditional termination and possession order, the lessor may apply to the registrar for a warrant of eviction. Section 42B provides that an application under section 42A must be decided as if it were an application under section 49 for a termination and possession order.

(8) In Commissioner for Social Housing v Moffatt [2015] ACTSC 4, Mossop M examined the words of the Act to determine the effect on the tenancy agreement of a breach by the tenant of a conditional termination and possession order. Mossop M stated at paragraph 43:

The starting point to interpretation of a statute should be with the words of the provision itself. The interpretation which promotes the purpose of the legislation must be preferred. Reference should be had to the broader legislative context of the Act, and, where relevant, also to extrinsic materials which provide evidence of the legislature's intended operation or purpose.

After an examination of the provisions of the Act Mossop M concluded:

64. [T]he entirety of the RTA as I have considered it, is consistent with a conditional termination and possession order being self-executing. I have been unable to find any provision in the RTA which is inconsistent with a conditional termination and possession order being self-executing. While I do not consider that there is any ambiguity in subsection 49(4) to be resolved by reference to extrinsic material, I note that reference to the [Community Law Reform] report confirms that such an order was intended to be self-executing.

65. It follows that I am satisfied that a conditional termination and possession order is self-executing in the sense that it terminates a residential tenancy agreement, although this does not mean that all of the rights and obligations of the parties under that agreement end at the time of termination.

(9) The Act provides that the Tribunal may make a termination possession order if the tenant has failed to pay rent that has become payable under the residential tenancy agreement when the lessor has served a termination notice on the tenant on the basis of the failure to pay rent and the tenant has not vacated the premises in accordance with that notice.[1]

(10) If the Tribunal is of the opinion that the tenant has agreed to and is reasonably likely to pay the rent that has become payable, as well as pay future rent as it becomes payable, then instead of making a termination and possession order, the Tribunal may make a conditional termination and possession order. The conditions imposed under such an order are that the tenant shall pay the rent as and when it falls due, and that the tenant shall pay an identified amount of arrears by instalments, as specified in the order. Section 49(4) provides that if the tenant fails abide by that order then, the tenancy terminates at a stated hour on the day after the day when any rent becomes payable, and is not paid and the lessor becomes entitled to possession of the premises and all rent payable to the date of termination is payable immediately.

(11) Thus, where the tenant breaches a conditional termination and possession order by either a failure to pay rent that has become payable (that is the arrears identified in the order) or by failing to pay rent as it becomes payable, there are two important consequences:

(a) the tenancy terminates at the time set out in the conditional termination and possession order; and

all rent payable until the termination of the tenancy becomes payable immediately.

(b) If the tenant does not vacate the premises then the lessor may make an application pursuant to section 42A for a warrant of eviction. The purpose of that warrant is to enable the lessor to recover vacant possession of the premises.

1. In this matter, the lessor did not make an application to the tribunal for a warrant of eviction and the tenant continued to reside at the premises. The tenant continued to make rental payments which were accepted by the applicant. The applicant continued to request information in relation to the calculation of rental rebates, and provided a rental rebate to the tenant. In accordance with the decision in Commissioner for Social Housing v Moffatt [2015] ACTSC 4 and the principles set out in Pesi, a new tenancy between the parties arose by implication from the facts. That implied tenancy commenced on or about 31 March 2012.
2. The Tribunal had before it a copy of the rent account maintained by the applicant lessor. The Tribunal also had the benefit of the written submissions of the applicant lessor, which provided a timeline of significant events including the pattern of payment by the tenant; an increase to the market rent; the calculation of rental rebates and where necessary, adjustments to the rent account maintained by the applicant lessor; the issuing of the notice to remedy and notice to vacate; and information about the communication between the tenant and the lessor.
3. In the period from 3 April 2012 to 24 May 2013 the tenant made payments of rent, plus $30. These payments were made more or less on a regular fortnightly basis. On 10 May 2013 the tenant came into credit on her rent account: that is the rent account maintained by the lessor shows that the tenant had, by the payment of instalments of $30 reduced the rent arrears to $0. After May 2013 the tenant continued to make more or less regular payments and the account was satisfactorily maintained until April 2014. Thereafter the payments became infrequent and the account fell into arrears.
4. On 24 September 2014 the applicant issued a notice to remedy the rent account. Rent arrears were $975.83. On 24 November 2014 the applicant issued a further notice to remedy. Rent arrears were $1343.43. The tenant failed to remedy the breach of the residential tenancies agreement constituted by non-payment of rent. On the 11 March 2015 the respondent served a notice to vacate on the tenant. Rent arrears were $2466.63.

Were the notices to remedy and the notice to vacate valid?

1. Two issues fell to be determined by the Tribunal:
   • (a) did the notices to remedy and the notice to vacate properly state the amount of rental arrears; and
   • (b) if there was a failure to correctly state the amount of rental arrears was this a significant defect in the notice, which the Tribunal should exercise its discretion to correct?
2. The respondent made submissions that a new tenancy had arisen by implication from the facts. The Tribunal ought to set the commencement date of the implied tenancy at 1 April 2012, and that the rental account should begin again. The outstanding amount of rent owed at the time of termination of the original tenancy, $894.78 had become due and payable, and the lessor had taken no administrative or legal steps to collect that debt.
3. The respondent submitted that the application should fail as the notices relied upon were invalid because:
   • (a) the notice to remedy of 24 September 2014 stated that the tenant was in arrears of $723.03, but included the debt which crystallised upon breach of the CTPO. The rent account ought to be seen as $171.75 in credit as at that date;
   • (b) the notice to remedy of 24 November 2014 stated that the tenant was in arrears of $1090.63. If the debt which crystallised upon breach of the CTPO is taken into account, the arrears figure was $195.85;
   • (c) the notice to vacate of 11 March 2015 stated that the tenant was $2466.63 in arrears. If the debt which crystallised upon breach of the CTPO is taken into account the arrears figure was $1571.85.
4. The submissions of the respondent are based upon the premise that the Tribunal should draw an inference from the conduct of the tenant in paying amounts over and above the rent payable fortnightly in accordance with the terms of the residential tenancy agreement, that the tenant was paying rent in advance. The respondent argued that the lessor is required to allocate payments made to the rent account to rent only; and that the lessor does not have the power to allocate money paid by the tenant to an existing arrears debt. The tribunal notes that, unlike section 33(3) of the Residential Tenancies Act 2010 (NSW) (the NSW RT Act), the ResidentialTenancies Act 1997(ACT) [RT Act] does not contain a provision that prohibits a lessor from knowingly appropriating rent paid by the tenant for the purpose of any other amount payable by the tenant to the lessor.
5. The respondent made oral submissions in relation to the difficulties created by the accounting method of the applicant. The rental account maintained by the lessor continued to show a running balance of the debit amount and related to the tenancy which terminated upon breach of the CTPO as well as the implied tenancy which arose following the breach. The respondent argued that tenants can pay money towards debts separately and that the Commissioner has multiple accounts for different things: tenant responsible maintenance, past arrears debts and vacated debts and that the Commissioner is, in a position to set up different accounts for the payment of different debts.
6. The tenant has not provided evidence about her intention, or any explanation for paying rent in the manner that she did.
7. The applicant submitted that although there had been a breach by the tenant of the CTPO in April 2012, the tenant had continued to make rent payments and arrears payments in accordance with that CTPO. The lessor said that the Tribunal ought to look at the pattern of payments, and, as far as possible, identify the intention of the tenant from the pattern of payments. The tenant made more or less regular fortnightly payments in a dollar amount that represented a fortnight's rent, plus $30. The tenant continued to make those payments until the rental account maintained by the lessor showed a credit amount. The applicant invited the Tribunal to conclude that the tenant intended the payments to be rent, plus an amount towards what she viewed as arrears, but which, as a result of the breach of the CTPO, was a crystallised debt.
8. In written submissions the applicant argued that the decision of ACAT in Pesi has limited application to the facts of this case. In particular the applicant made the following submissions:
   • (a) The tenant continued to make rent and arrears payments in accordance with the terms of the CTPO until the date of expiry of the CTPO in March 2013. The applicant notes that the repayments by the respondent being $330 per fortnight, demonstrate an intention to comply with the CTPO - specifically $30 per fortnight towards arrears and $300 rent.
   • (b) The respondent went into credit on her account on 24 May 2013 and continued to fluctuate in and out of credit until April 2014.
   • (c) In June 2012 there was a rent increased from $400-$430 per fortnight and a corresponding rental rebate adjustment; the tenant continued to pay a fortnightly amount of $330; in January 2013 the tenant was advised that her payments were not sufficient, and from 28 February 2013 the tenant increased her fortnightly payments accordingly.
9. The Tribunal notes that the rental account maintained by the lessor shows that from the end of May 2013, when the account had been returned to a credit balance, the tenant began to pay an amount of $330 on the majority of fortnights. It is noted that there are some few payments of $350, $300 and $360 and that the account fluctuated between debit and credit until April 2014.
10. This is one of many cases that have come before the tribunal where there has been a failure by the tenant to comply with the conditions of a CTPO, but no action taken by the applicant to obtain a warrant of eviction, or to collect the crystallised debt. In oral submissions the applicant said that the Tribunal should infer, from the conduct of the tenant and the pattern of payments, that the tenant intended to pay rent as and when it fell due, and to repay the debt that had arisen from rental arrears - in other words, to comply with the CTPO.
11. . The applicant said that this inference could be drawn from the objective facts and from the absence of any explanation by the tenant as to the reason for a pattern of payment that reflected the terms of the CTPO. The Tribunal finds that the tenant has, by the making of payments of an amount that represented rent plus $30, at more or less regular fortnightly intervals, repaid the debt in the amount of $894.78, which became due and payable upon her breach of the CTPO. It follows from this that when the rental account came into credit, the rent was effectively reset to zero. It is noted that on 10 May 2013 the rental account was $50.77 in credit. Arrears relating to the current tenancy which has arisen by implication from the facts are properly calculated from that point of time. In reaching this finding, the Tribunal has taken into account the following factors:
    • (a) It is open to parties to reach an arrangement for the repayment of any debt owed by instalments. There is some evidence before the Tribunal that these parties proceeded on the understanding that the tenant was obliged to continue to pay $30 a fortnight until her debt was paid.
    • (b) The consistent pattern of payment of rent, plus $30 by the tenant at more or less regular fortnightly intervals for the period of time prior to the expiration of the CTPO.
    • (c) The tenant ceased making payments of an extra $30 at a time that coincided with the expiration of the CTPO and with the rental account coming into credit.
    • (d) The evidence of discussions between the lessor and the tenant in relation to the payment of the extra amount.
    • (e) The absence of any explanation from the tenant as to why she made payments of an amount that represented rent, plus $30 at more or less regular fortnightly intervals for the period of time before the expiration of the CTPO and until the rental account was in credit.
12. The uncertainty about tenancies which have terminated as a result of a breach by the tenant of a CTPO, and where the lessor has not acted promptly is undesirable. Lessors should consider either promptly and appropriately using the remedies available pursuant to the RT Act after a breach occurs or entering into clear and certain agreements with tenants against whom they have decided not to pursue such remedies. As a result of my finding that the tenant has repaid the debt, the notices to remedy and the notice to vacate correctly state the amount of arrears owed by the tenant and are therefore valid.
13. I nevertheless make the following brief comments in relation to correcting defects in notices. Each case will turn to be decided on its own peculiar facts. Section 59 of the RT Act provides that where a lessor has served a termination notice, which is not in the form approved under the Act, and the tenant does not vacate the premises, the lessor may apply to ACAT for a waiver of the defect in the notice, or in the service of the notice and for the making of termination and possession order. Section 53 (2) provides that ACAT must not waive a defect in a termination notice, or its service and make a termination and possession order unless satisfied that the defect did not, and is not likely to, place the tenant in a significantly worse position than the tenant would have been in had the notice been in, and served in, accordance with the standard residential tenancy terms.
14. In Pesi I noted that there are few decisions which deal with the purpose of notices to remedy or the circumstances under which the Tribunal should exercise its power to correct a defect in a notice. Section 83 of the RT Act provides that the Tribunal may make an order correcting a defect in a notice or in the service of the notice. The case law indicates that the tribunal must, in exercising its discretion to correct a defect in a notice, consider whether the tenant would be disadvantaged by such a correction. The tribunal ought not to assist a lessor, where the defect in the notice is such that a tenancy would be terminated, despite unlawful actions or imperfect processes on the part of the lessor.
15. In this matter, two notices to remedy and one notice to vacate were served. Had the submissions of the respondent been accepted, the defect in each notice would have been an overstatement of the amount of arrears owing:
    • (a) The notice to remedy of 24 September 2014 showed arrears of $723.03, but if the debt had not been regarded as repaid then the tenant would have been $171.75 in credit. This notice would not be valid.
    • (b) The notice to remedy of 24 November 2014 shows arrears of $1090.63, but if the debt had not been regarded as repaid then the tenant would have been $195.85 in arrears. The tenant was, which ever arrears figure was taken, more than seven days in arrears at the time of the notice. The notice would prima facie be valid.
    • (c) The notice to vacate of 11 March 2015 shows $2466.63 arrears but if the debt had not been regarded as repaid then the tenant would have been $1571.85 in arrears. The tenant made only two payments of rent in the period between receipt of the notice to remedy and the serving of the notice to vacate and thus fell a further 15 weeks into arrears.
16. In determining whether to correct a defect in a notice to remedy or a notice to terminate, the Tribunal ought to take into account all relevant circumstances. The quantum and the relative amount of arrears are but one factor. In this matter other factors that should be considered include that:
    • (a) the tenant was aware of her obligations to pay rent;
    • (b) there had been one CTPO made and complied with;
    • (c) the tenant would have understood from the notices to remedy and the notice to vacate that she was in arrears;
    • (d) the tenant would have understood that an application to the tribunal was likely to be made by the lessor should she not remedy the arrears;
    • (e) by March 2015, as a result of her failure to make any significant payments of rent over a three month period she would have understood that she was significantly in arrears of rent; and
    • (f) there is no evidence that the tenant took any steps to address the arrears, or to contact the lessor.
17. The Tribunal concludes that in all the circumstances, the tenant was not able to demonstrate that she would have been placed in a significantly worse position by the correction of any defect as to the amount of arrears. There is no evidence, or suggestion, that the lessor's conduct has been improper or unlawful. This is not an appropriate case for a refusal to correct a defect as to the amount of arrears in notices to remedy or vacate.
18. This is an application for termination and possession on the basis of non-payment of rent. A considerable period of time has elapsed since the hearing of the matter. The Tribunal is of the view that it would be a denial of natural justice to make a final order without hearing further brief submissions from the parties in relation to the provisions of section 49 of the RT Act. The Registry will make contact with the parties to arrange for the application to be re-listed for that purpose.