Victorian Civil and Administrative Tribunal|2011-06-28

Hann-Woodlock v ADMR Pty Ltd (ACN 078 548 213) (Retail Tenancies) [2011] VCAT 1776 (28 June 2011)

Retail lease -shop front in poor repair - condition requiring Landlord to replace - not replaced - consequential difficulty of Tenant in accessing premises - delay by landlord in carrying out other work - roof of premises commences leaking after commencement of term - s. 52 Retail Leases Act 2003 - obligation of Landlord to maintain premises in same condition - failure of Landlord to repair leaks over period of Lease - nature of permitted and anticipated use - whether breaches by Landlord amount to a repudiation - acceptance of repudiation by Tenant - damages

ADMR Pty Ltd (ACN 078 548 213) care of Collins Commercial and Industrial, 2/47 Princes Highway, Dandenong 3175 is substituted as to Respondent herein in place of Dominic Pappalardo.
Declare that:
- (a) by its acts and omissions described in the attached reasons the Respondent has evinced an intention no longer to be bound by the Lease dated 23 November 2009 ("the Lease") of the premises situated at and known as 6/9 Bell Grove, Braeside ("the Premises") and has thereby repudiated the Lease;
- (b) the Applicant has by the issue of these proceedings accepted the repudiation;
- (c) the tenancy effected by the Lease came to an end on the date these proceedings were issued, namely 10 March 2011.
Order the Applicant:
- (a) to deliver up vacant possession of the Premises to the Respondent by 28 July 2011;
- (b) to continue to pay mesne profits to the Respondent in the same amount as the rental previously payable and outgoings as provided by the Lease, apportionable up to the date upon which she moves out of the Premises.
Liberty to apply in regard to amounts payable by either party in regard to the last preceding paragraph.
Order the Respondent to pay to the Applicant $11,595.50.

The respondent ("the Landlord") is the owner of a warehouse at 6/9 Bell Grove Braeside ("the Premises"). The applicant ("the Tenant") is an art teacher.
By a lease entered into between the parties in or about November 2009 the Landlord leased the Premises to the Tenant for 3 years with two options each for a further 3 years at a rental $13,767 per annum payable monthly in advance.
The permitted use of the Premises was "art studio/teaching mosaics, pottery, craft class".
The REIV form of lease was used with thirty-one additional typed conditions. Five of these additional conditions were inserted at the request of the Tenant. They were (paraphrased) that the Landlord would:

ensure that the Premises complied with building regulations and that the Premises were safe (Condition 25); 2. replace the existing fire exit door (Condition 26);

repair and repaint the shopfront and install a new front door and window including frames (Condition 27);

remove all debris from the rear of the Premises (Condition 28); and 2. replace all broken windows in the Premises and reseal the adjoining wall to the Premises (Condition 29).

The Tenant was unable to move into the Premises immediately because the Landlord failed to replace the existing fire exit door. This caused a delay of two weeks. As a result of a subsequent mediation between the parties, the Landlord agreed to repay two weeks rent to the Tenant. This has not been paid.

In December 2009 the Tenant notified the Landlord's agent that the roof was leaking. The agent sent someone to attend to the leak but on 15 January the following year there were further leaks. After five emails, a plumber was finally sent to fix the roof in March 2010.
Leaks reappeared in April and some further repairs were effected in May. There were further leaks in July and further work done in August.
The Tenant has tendered an extensive list of all the times that she contacted the Landlord or its agent to complain of the leaks, to the extent that Mr Willee suggested that she was being vexatious. What this list shows is that the Landlord did not deal with the problem either promptly or effectively.
Notwithstanding these numerous emails from the Tenant complaining of leaks the response by or on behalf of the Landlord was slow and, despite the various attempts by the Landlord's agent or plumber to rectify them, the roof continued to leak.
The leaks disrupted the Tenant's classes and students had to be moved to avoid dripping water when it rained. Some classes had to be cancelled. Art paper to the value of $405.00 was ruined and the Tenant has had to adopt a regular practice of covering her stock and equipment with waterproof material whenever rain is expected. Because the leaking is so widespread this activity has had to extend to most of the Premises.
I am satisfied that, with the roof in its present condition, it is impracticable for the Tenant to conduct her business in the Premises.

On 1 March 2011, a quotation was finally sought by the Landlord's agent to do more substantial repairs. The quotation was provided by the agent's plumber, a Mr Davis, and it is in the following terms:

This roof is in poor condition at entry half of roof.

Supply and fit new roof sheets to areas where previous repairs are leaking due to incorrect installation.

These quoted works are not guaranteed to rectify all leaks as new leaks may appear as roof deterioration in differing rain conditions".

It is apparent from both the description of the work and the modest amount quoted that this quotation is not for a complete replacement but only for supply and fitting of new roof sheets in certain areas. It is also apparent that the plumber is by no means confident that the proposed work will ensure that there are no further leaks.
The Landlord accepted the quote for this limited work and the plumber attended the Premises but did so without any notice to the Tenant. Upon the plumber informing the Tenant that he would be removing sheets from the roof the Tenant expressed concern as to what was to be done to protect her stock and wanted to know the extent of the work. The plumber did no work on that day but it is unclear whether this was because of the Tenant's concerns or because he was not proposing to start work on that day.
Thereafter some conversations occurred between the Tenant and the Landlord's agent in which the Tenant repeated her concerns about the extent of the work and the protection of her stock. She was also concerned that the work should be carried out so as not to interfere with her classes and expressed a preference for the work to be done on a Sunday. These seem to me to have been reasonable concerns. It was arranged that the agent would obtain instructions concerning these matters from the Landlord.
The response the Tenant received was an offer from the Landlord for her to move out of the Premises. After further discussions the Landlord offered to allow her a month's free rent in which to do so. The quoted work was never done and the roof continues to leak, the Tenant's classes continue to be disrupted and the Tenant still has to take protective measures to cover her stock and equipment.

In addition to the problems with the leaking roof and in breach of the condition in the Lease, the Landlord has not replaced the front door and window of the Premises including the frames. Photographs tendered show them to be severely deteriorated and the door is difficult to enter. I was informed that access to the Premises could not be obtained recently as a result of this problem.

There are other complaints, such as the failure of the Landlord to remove rubbish, repair a defective beam in the Premises or provide a serviceable fire extinguisher. These were ultimately remedied but well after they should have been. I consider the relevance of those matters below.

The Tenant concluded that she would need to relocate her business to other more suitable Premises and commenced these proceedings in order to recover damages for the cost of doing so.
The Application states in her application that it is:

"For relocation costs due to leaking roof for 15 months. Owner unable to repair the roof. I need to relocate my business as stock is being damaged and there are ongoing interruptions to trading due to leaks."

The damages she seeks are quantified in her claim at $14,733.43. The dispute between the parties was referred to the Small Business Commissioner who provided a certificate on 15 December 2010 that alternative dispute resolution under Part 10 of the Retail Leases Act 2003 had failed to resolve the dispute.

The matter came before me for hearing as a small claim on 27 May 2011. The Tenant appeared in person with her husband and Mr Willee of Counsel sought leave to appear on behalf of the Landlord and such leave was granted.
During the course of the hearing it became apparent that the then named respondent, Mr Dominic Pappalardo, was not in fact the Landlord, but a director of the Landlord. I therefore informed the parties that I would make an order substituting the Landlord as the respondent and that is paragraph 1 of the order attached to these reasons.

I heard evidence from the Tenant and her husband but there proved to be insufficient time on the allocated day to complete the hearing and so it was adjourned part heard. It eventually came back before me for hearing on 8 June 2011 when I heard the remainder of the Tenant's evidence and her cross-examination by Mr Willee. I then heard evidence from the rental manager of the Landlord's agent, Mr Taouk. The Landlord's director, Mr Pappalardo, attended the hearing but did not give evidence.
At the close of evidence and after hearing Mr Willee's submissions I informed the parties that I would provide a written decision because there were some difficult legal questions to resolve.

The Tenant claims the following sums as being the cost that she will incur in relocating a business.

Insurance of stock and equipment in transit $1,430.00

In the same manner as the existing Premises $2,024.00

Quotations for all of these sums were provided. The claim with respect to electrical work relates to the new premises and not to the existing Premises. However if the Tenant were to remain in the existing Premises, that expenditure would not be required. The wiring is required to provide power to potters' wheels and various other items of teaching equipment used by the Tenant in her business.
In addition to these sums the Tenant also claims $45.00 a week for loss staff time in covering stock to protect it from water. The total claim in this regard is $990.00, being for 22 weeks. It is apparent that the period of time spent by her in covering stock is more than that but that is all that is claimed. The stock was vulnerable to damage by water. Photographs tendered show the extent of the covering and the area of the stock which is substantial. The photographs also show that the leaking was in many places and not always in the same places, so that it would have been unwise of her not to have covered her stock and equipment to the extent that she did.
It is impossible to calculate her loss in this regard with any precision but it seems to me that it would be appropriate to allow the sum claimed as compensation for the time taken in this regard.
Finally, the Tenant claims one month's rental, amounting to $1,139.00 plus GST on that sum which she says it will take her to fully relocate her business. During the move it would seem that she would be paying rental or mesne profits on the present Premises as well as rental on the new premises. That seems to me to be an excessive period but 14 days should be allowed. There is also the two weeks rent that the Landlord agreed to pay her but did not. Four weeks rent plus GST is $1,156.50.
The total of all these claims amounts to $11,595.50 .

Mr Willee submitted that there was nothing in the Lease entitling the Tenant to any removal costs in the event that she moved out of the Premises. That is so, but the present claim is for breach of contract and what I have to decide is whether the Landlord is in breach of its obligations under the Lease and the consequences of that.
There are two types of consequence. The first being what loss and damage the Tenant has suffered as a result of that breach. The second is the effect that the breach and the Tenant's response to it have upon the continuance of the Lease.

Each breach of the various conditions set out above amounts to a breach of the Lease and a breach of contract. The most serious allegation however relates to the leaking roof.
As to the roof, s.52 of the Retail Leases Act 2003 provides as follows:

(1) A retail premises lease is taken to provide as set out in this section.

(2) The landlord is responsible for maintaining in a condition consistent with the condition of the premises when the retail Premises lease was entered into -

(a) the structure of, and fixtures in, the retail premises; and

(c) the appliances, fittings and fixtures provided under the lease by the Landlord relating to the gas, electricity, water, drainage or other services.

The effect of this section is to import a provision in the terms of subsection (2) into the Lease. A breach of that term will be a breach of the Lease and consequently a breach of contract.
There is no evidence that the Premises were leaking when the Lease was entered into or that the roof was then in a condition where it would admit water. The leaks first appeared in December. The term therefore applies Landlord is liable for effecting repairs to maintain the Premises in the condition they were in at the commencement of the Lease, that is, free of leaks.
The agent sent various persons to the Premises following the Tenant's complaints, although not promptly. The delay between complaint and visit on behalf of the Landlord varied. Whatever was done the leaks continued and so it seems clear on the evidence that the Landlord has not maintained the roof of the Premises so that it does not admit water. Liability in contract is strict. In any case, even if it were an answer for the Landlord to say that it has used its best endeavours I am not satisfied that it has in this case. It is therefore in breach of its contractual obligation under the provision imported in the lease by s.52(2).
Mr Willee submitted that the roof was not repaired because the Tenant refused to allow the repairs to be carried out. This relates to the visit by the plumber and to the concerns expressed by the Tenant to the plumber and to the agent. I do not find that the Tenant refused to allow the repairs to be carried out. She simply expressed quite reasonable concerns. It was the Landlord's decision not to have that limited scope of work done.
Further, s.53 of the Act provides:

"Landlord to give notice of alterations and refurbishments

A retail Premises lease is taken to provide that the Landlord must not start to carry out any alteration or refurbishment of the building or retail shopping centre in which the retail Premises are located which is likely to affect adversely the business of the Tenant unless -

(a) the Landlord has notified the Tenant in writing of the proposed alteration or refurbishment at least 60 days before it is started; or

(b) the alteration or refurbishment is necessary because of an emergency and the Landlord has given the Tenant the maximum period of notice that is reasonably practicable in the circumstances."

The Landlord did not comply with this section. Further, the Tenant did not refuse to allow the work to be carried out. She wanted to know what steps would be taken to protect her stock and she wanted to know the extent of the work to be done. She was at that time entitled to quiet enjoyment of the Premises and her requests in this regard were reasonable. Instead of addressing those concerns, the Landlord's response was to offer to end the Lease.

Where there is a breach of contract the general rule is that the innocent party is entitled to be put back into the position she would have been in if the contract had not been broken (see Tabcorp Holdings Ltd v. Bowen Investments Pty Ltd [2009] HCA 8).

As to repudiation of a lease by breach, the learned authors of Redfern and Cassidy "Australian Tenancy Law and Practice" state (at paragraph 17-115):

"Delay in carrying out the promisee's obligations may be so gross as to amount to repudiation of them. Fraud or negligence in the performance of a contract may be so gross as to amount to repudiation but will not necessarily do so. A series of minor breaches may be added together to demonstrate repudiation..................... Refusal to perform contractual obligations may, but does not always , amount to repudiation. To do so the party must demonstrate an intention to carry out the obligations imposed by the lease only in a manner substantially inconsistent with those obligations. The test is an objective one - how would the conduct appear to a reasonable person?"

In this case the breaches by the Landlord were numerous and extensive in both time and effect. Particulars given in evidence were as follows:
- (a) The fire exit door was not replaced until 5 December;
- (b) The debris was not removed until 20 December;
- (c) The shop front was never replaced. An agreement was reached on18 October 2010 - eleven months into the tenancy - that it would be replaced within 30 days. It was not;
- (d) The mezzanine beam, which was deficient and made the mezzanine unsafe and unusable, was not repaired for five months;
- (e) The fire extinguisher was not made operable for 60 days;
- (f) The delays in sending someone to attend to the leaks were three days for the first leak, thirty days for the next series of leaks, seventeen days for the next series of leaks and nineteen days for the next series of leaks. Despite all the visits the leaks were never adequately repaired and the roof continued to leak. Eventually, after initially agreeing to carry out limited repairs the Landlord offered for the Tenant to move out.
The Tenant could not move into the Premises at the start of the tenancy because various of these items had not been done and the Premises were unsafe.
I am satisfied that any reasonable person looking at this conduct of the Landlord would conclude that it demonstrates an intention on its part not to carry out some of the obligations imposed upon it by the Lease at all and to carry out the others only in a manner substantially inconsistent with those obligations. That amounts to a repudiation of the Lease.

Repudiation of a contract does not in itself end the contract. To have that effect the innocent party must elect to accept the repudiation and bring the contract to an end. In the case of a lease, the act constituting the election must demonstrate unequivocally an intention to treat the lease as being at an end.
In the present case, following an offer by the Landlord to end the Lease, the Tenant has issued proceedings in this Tribunal stating that she needs to move from the Premises and seeking to recover the cost of moving out from the Landlord. The material filed by her in support of her claim indicates unequivocally that she is unable to continue to operate her business in the Premises and that she does not propose to do so. Her claim for damages against the Landlord for moving out would not be maintainable unless the Lease were brought to an end following a breach by the Landlord. The commencement of these proceedings is therefore an unequivocal election by her to treat the Lease as being at an end.

Declarations shall be made as to the foregoing matters and an order shall be made for the damages as assessed.
The Tenant is still in possession and has paid rent up to date, although, since the Lease was determined at the date of issue of these proceedings it is mesne profits and not rent that she has paid since that date. Payment of mesne profits and any outgoings must continue to be paid and be adjusted between the parties as at the date she leaves. I have already taken the two weeks rental that she is entitled to into account in assessing the damages.
A final date by which she must move out needs to be fixed and I will specify one month from the date upon which this decision should be received.

Hann-Woodlock v ADMR Pty Ltd

At a glance

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Decision date

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Judgment (44 paragraphs)

Hann-Woodlock v ADMR Pty Ltd (ACN 078 548 213) (Retail Tenancies) [2011] VCAT 1776 (28 June 2011)

Parties