Don De Rota and Sharon De Rota v Donna Golen

Issue 13 The main issue that concerned the landlord was the method by which the compensation for loss of rent was to be calculated in the circumstances of this case. 14 The landlord raised the issue of the application of section 107 Residential Tenancies Act 2010 (RTA) as one alternative and queried how the compensation was to be calculated if section 107 did not apply. Section 107 provides for pre-determined lump sum compensation that is 'caused by the abandonment' in lieu of any determination of actual rent loss. In short, if the tenant 'abandons' within the first half of a fixed term then 6 weeks of rent is payable by way of compensation. If the tenant abandons the tenancy in the second half of the fixed term then 4 weeks of rent is payable.

Jurisdiction 15 The Tribunal is a statutory body, established on 1 January 2014 by the Civil and Administrative Tribunal Act 2013 (NSW) section 7(2)(a) ('NCAT Act'). 16 Under Schedule 4 section 3 of the NCAT Act, the Tribunal's Consumer and Commercial Division has jurisdiction in relation to matters arising under the RTA. 17 This matter concerns an application for a termination order pursuant to sections 87 RTA; the Tribunal has jurisdiction to decide the matter.

Consideration of the issue 18 Section 107 RTA applies where the tenant has 'abandoned' the premises in the fixed term. An 'abandonment' has a particular meaning at law as described in Slatyer v Thorley [2013] NSW CTTT 510. For the reasons given in that decision by the presently constituted Tribunal, a tenant that vacates in the fixed term in accordance with a Notice of Terminated served by a landlord is not 'abandoning' the premises. Therefore section 107 has no application. 19 The issue of terminations for rent default in the fixed term now appears to be addressed in part by section 110 RTA: (1) A tenant who is given a termination notice by the landlord, or who gives a termination notice, may give vacant possession of the residential premises at any time before the termination date. (2) If a termination notice is given by a landlord, the tenant is not liable to pay any rent for any period after the tenant gives vacant possession of the residential premises and before the termination date. (3) Subsection (2) does not affect the liability of a tenant under a fixed term agreement to pay rent in respect of a period after the tenant gives vacant possession of the residential premises and before the end of the fixed term, if the termination notice is given by the landlord in accordance with section 84. 20 Section 110(1) and (2) are not expressed as being limited to Termination Notices given outside a fixed term i.e. in the periodic phase of a lease and so would apply to tenancies still within the fixed term. The exclusion contained in section 110(3) only relates to Notice given in accordance with section 84 RTA which deals with Notice to terminate at the end of the fixed term, which is not dependent on any breach by the tenant. Section 84 has no relevance to the present case. 21 Section 110(2) is a curious provision. On its face it excludes the tenant's liability only for rent and then only in the closed period between the date on which vacant possession is given and the termination date set out in the Notice (the gap period); but not thereafter. In the case of a periodic tenancy the tenancy ends at the date vacant possession is given (section 81(2) RTA) and so no issue arises from the drafting of section 110(2). But in the case of a fixed term tenancy the termination date in the Notice may be well before the end of the fixed term. In this event section 110(2) only protects the tenant from the obligation to pay rent in the gap period between the date of vacant possession and the termination date; but would not protect the tenant from the duty to pay compensation for lost rent in the period from the termination date until the end of the fixed term, or until a new tenant is found (whichever occurs first). 22 In the present case this translates as follows. The date vacant possession was given was 30 May 2014 which is also the 'termination date' in this case. The end of the fixed term is not until 25 November 2014. In this case section 110(2) does not provide any protection to the tenant for rent after 30 May 2014. 23 The loss of anticipated rent to the end of the fixed term by a landlord where the tenant vacates prior to the end of the fixed term in response to the landlord's Notice, is a species of loss by the landlord commonly referred to as a loss of bargain. 24 The motivation for this approach in section 110 may be explained by the kind of logic set out in [2.16.8] Anforth and Christensen 'Residential Tenancies Law and Practice in NSW' 4th Ed Fed Press, which predated the enactment of present section 110: The issue commonly arises in the Tribunal in the context of the early termination of a fixed-term lease, as to whether the landlord is entitled to rent until a new tenant is found (generally referred to as damages for loss of a bargain) or whether the right to rent ceases at the date of the early termination. The situation with abandonment is clearly dealt with by s 78 which provides an express right to compensation for loss of future rent until a new tenant is found. However, s 78 only deals with an abandonment and not with situations in which the tenant vacates in response to the landlord's notice of termination. Section 16 applies in these cases and it contains no express reference to loss of future rent until a new tenant is found. At common law if a notice of termination is based on a ground that would not amount to either a breach by the tenant of a fundamental term or a repudiatory breach by the tenant, for example a relatively minor rent default, then the landlord has no right to terminate the lease by issuing a notice of termination. If a statute provides the landlord with a right to terminate the lease for a non-fundamental or non-repudiatory breach, for example, for minor rent default, then the landlord's rights to damages are to be discerned from the statute and not from common law. Unless the statute itself provides a right to damages for loss of bargain in these circumstances, then the landlord's right is limited to the rent payable to the date of termination. A repudiatory breach is one that amounts to a declared intention by the tenant no longer to be bound by the lease. See the commentary at [2.53.1] for repudiatory breaches. The above is the common law position in relation to commercial tenancies - see Shevill v Builders Licensing Board [1992] HCA 47 - and there is no obvious reason why the same rationale does not apply to residential tenancies. In Gumland Property Holdings Pty Limited v Duffy Bros Fruit Market (Campbelltown) Pty Limited [2008] HCA 10 the High Court again considered a commercial lease case. It was accepted that the rent default by the tenant was minor and would not have amounted to either a fundamental breach at common law or a repudiation at common law. However, the lease itself contained the following clause: It shall be a fundamental obligation of the Lessee to ensure that the Lessor shall receive the rental provided for in the Lease during the full term thereof. The High Court held, on the proper construction of the lease, that this clause was sufficient to make the duty to pay rent a fundamental term such that any failure to pay rent, no matter how minor, entitled the landlord to terminate the lease for this breach and to recovery damages for loss of bargain damages (subject to the obligation to mitigate). The High Court held there was no rule of law that prevented parties agreeing that any particular clause in a tenancy agreement was to be a fundamental term including the duty to pay rent, with the consequence that a breach of this term entitled the lessor to terminate the lease and obtain loss of bargain damages. It is noted that the standard residual tenancy agreement in the RTA does not have a clause making the payment of rent a fundamental term. In the absence of any such a clause a landlord who chooses to rely on the statutory right to terminate a lease for minor (non-repudiatory) rent default or other minor breach is not entitled to damages for loss of bargain but is lonely entitled to rent to the date of termination. If, however, the rent default or other breach is so gross that it would have amounted to a fundamental breech or repudiation at common law then both at common law and under the RTA the landlord would be entitled to damages for loss of bargain. See Simpson v Woods and Jones (1997), where the Tribunal considered the issue of the date to which compensation in the form of rent arrears is payable when a tenant vacates the premises in response to a notice of termination, but vacates before the date nominated in the notice. The Tribunal held that rent was payable to the date specified in the notice: Section 53 Residential Tenancies Act 1987 indicates the grounds upon which a tenancy may be terminated. Paragraph (a) of section 53 only applies where a Notice of Termination is served and the tenants delivers up possession on or after the day specified in the Notice. As the tenants in fact delivered up possession on or after the day specified in the Notice. As the tenants in fact delivered up possession prior to the date specified in the Notice, para (a) does not apply. I do not think the premises were surrendered by the tenant within the meaning of para (g) of section 53 as there is no evidence that the landlord consented to receiving possession prior to the date specified in the Notice. The Notice itself required possession on the 19 July 1997 and did not offer the tenants the alternative of returning possession before that date. It appears to me that para (f) of section 53 applies, namely that the departure by the tenants prior to the date specified in the Notice constitutes an abandonment of the premises. See Hamilton v Mushrafi (2004), where the Tribunal found to the contrary. 25 In the light of the above authorities it may be that a landlord who evicts a tenant for a minor (non-repudiatory/non-fundamental) rent default may not be entitled to compensation for the loss of bargain in the form of rent until the end of the fixed terms or until a new tenant is found (whichever occurs first). This principle places no limitations on the landlord's right to heads of compensation other than those for loss of bargain. 26 Section 110 only deals with the duty to pay rent, it does not deal comprehensively with the tenant's duty to pay compensation for other breaches that occur during the tenancy. 27 The duty to pay rent is but one of the obligations placed on a tenant under a residential tenancy agreement. There are other obligations such as the duty to return the premises in same state of repair as it was received minus fair wear and tear (section 51 RTA). There is no suggestion in section 110 that a tenant who is evicted in either a periodic or fixed term is not liable for the damage caused to the premises during the tenancy etc. 28 In the present case the tenancy had only been in existence for six months and the tenant was in significant rent default when served with a Notice. The tenant made no payments at all for the last months indicating a form of rent strike. The tenant's rent default was not minor in the circumstances and the rent strike would undoubtedly be repudiatory. The landlord acted with all due diligence in mitigation of their losses. 29 The reality is that the landlord could not have advertised the premises prior to obtaining actual possession and when actual possession was obtained the premises were not in a condition to immediately be re-let. The rationale for this proposition is set out at [2.187.11] Anforth, Christensen and Taylor 'Residential Tenancies Law and Practice in NSW' 5th Ed Fed Press: In Hookway v Boxsell (2008) and Elvin v Meischke and Lee (2008) the ACT Tribunal dealt with circumstances where the tenants served the landlord with notice of their intention to vacate within the fixed term of the lease. The Tribunal outlined a rationale as to why it was not necessarily a breach of the landlord's duty to mitigate for the landlord: (a) not to advertise and secure a new tenant until such time as the tenant actually gave vacant possession; and (b) to advertise at a slightly higher rent in a rising rental market. No duty to advertise and enter a new tenancy before obtaining vacant possession from existing tenant If the tenant serves a notice of intention to vacate, whether in the fixed term or during a periodic lease, there is no guarantee that the tenant will in fact go ahead with that intention on the indicated date. The tenant may change his/her mind and decide to stay for the balance of the fixed term or indefinitely. If the landlord serves the tenant with a notice to vacate, there is likewise no guarantee that the tenant will vacate on the appointed date and there is no guarantee that the Tribunal will order termination on the landlord's subsequent application. In either scenario the landlord has no certainty of obtaining possession until the tenant actually vacates or the Tribunal orders the warrant to issue. This point is illustrated in McKenzie-Fox and Down v Tompkins and Brace (1999) and Aboulehaf v Skillion Flat Pastoral Co (2000) where the Tribunal was critical of tenants for vacating in response to a landlord's notice to terminate, and actually found the tenants to be in breach of their duty to mitigate their losses by giving vacant possession in response to the notice instead of relying on their right to resist the eviction by the landlord. If the landlord incurs the cost of advertising and enters a tenancy with a new tenant, on the expectation that the original tenant will have vacated on the date indicated by the tenant or that the Tribunal will order termination, the landlord takes the risk that possession will not be given by the original tenant by the time agreed with the new tenant for the commencement of the new lease. Thus the landlord may end up in the position of being in breach of contract with the new tenant from the first day of the new tenancy by reason of the landlord's inability to secure vacant possession from the original tenant for delivery to the new tenant. See [2.105.1] for further commentary and cases on this issue. The landlord's duty to mitigate in accordance with the general principles at [2.187.10] need only be reasonable; the duty does not extend to being required to expose himself or herself to a new liability to the new tenant for a breach of contract by reason of the inability to deliver vacant possession on time, or at all. To avoid being put in this position the landlord is not required to enter a new tenancy with a new tenant until the landlord actually has possession from the original tenant. Because the landlord is not required to enter a new tenancy with a new tenant until vacant possession is secured from the original tenant, there is doubtful utility is compelling a landlord to incur the cost of advertising for the new tenant until vacant possession is obtained. These costs may be entirely wasted if the landlord ultimately fails to secure vacant possession from the original tenant. Contrast Davtron P/L v Lum and McGregor (2005) where the Tribunal found that the landlord had failed in its duty to mitigate its losses following the proposed abandonment by a tenant, by refusing to sign a lease with the new tenant until vacant possession had been given by the abandoning tenant. To this extent this decision must be considered incorrect. But in this case the outgoing tenant agreed to provide an indemnity against any losses in the event he did not provide vacant possession before the new tenancy commencing. Whether this additional factor was enough to justify the Tribunal's findings is still doubtful. It is one thing for the incumbent tenant to offer the indemnity but it is quite another thing for the incumbent tenant to honour the indemnity or even have the capacity to honour it once the proposed new tenant secures judgement against the landlord for the losses incurred. The landlord's duty to mitigate cannot extend this far. The duty to mitigate losses does not require that the landlord take the first of any new tenant that presents. If the prospective tenant had a poor rental history or no obvious capacity to pay the rent, the landlord does not have to expose himself or herself to further detriment by accepting such a tenant as part of a duty to mitigate losses arising from the incumbent tenant's breach: Tjhia and Hioe v Bainbridge (2008). 30 The landlord's entitlement to compensation for loss of rent in the period 31 May 2014 until 13 June 2014 has two separate bases: (a) In its context the tenant's rent default was probably fundamental and the rent strike was certainly repudiatory; (b) In the alternative, the rental loss in this relatively short period was due to the time required to remedy the tenant's failure to comply with her obligations under section 51, which is separate and distinct head of compensation to the rent default itself. 31 The Tribunal was prepared to allow the lost rent to 13 June 2014 on either or both of the above bases. 32 Apart from the cleaning costs and the rental down time arising from that need, the landlord suffered other losses arising immediately and foreseeably from the tenant's breach. One of those losses is the need to re-let per se and the associated advertisement and re-letting costs. These costs are not in the nature of rent payments and do not arise immediately from the rent default itself. Historically landlord's routinely were awarded these losses as part of their claim where the tenant was evicted for rent default during the fixed term ([2.187.14] Anforth et al 5th Ed]. 33 When section 107 was enacted part of its intent was wrap up the advertising and re-letting costs with that of rent default for the balance of the fixed term in the lump sum formula's set out in section 107. Thus where section 107 applies the landlord implicitly recovers all or part of these advertising and re-letting losses. 34 But section 110 has no such equivalent lump sum provisions and does not purport to deal with any head of compensation other than rent arrears in the gap period. It does not address the issue of advertising fees and re-letting costs. It may be that these heads of compensation depend upon the kind of issues identified at paragraph 24 above i.e. whether the tenant's breach is repudiatory or fundamental. 35 In any event the landlord made no claim for advertising or re-letting costs and the Tribunal made no order on the point. (signed)

Civil and Administrative Tribunal of New South Wales

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 11 September 2014