McKinney v Lizza

NCAT Consumer and Commercial|2021-07-29

Outline

The tenants (the applicants) entered into a residential tenancy agreement with the landlords (the respondents) which covered a house in Bangalow, but not the 'granny flat' or studio unit (the studio) at the rear of that house. The weekly rent was $500. The applicants entered into a second residential tenancy agreement with the respondents which included the studio unit (the studio). The weekly rent increased, by $450, to $1,000.
The applicants seek compensation of $5,850 based on an allegation that there was a false representation by the now previous real estate agent that they would be able to let the studio using Airbnb, a company which operates an online market for short-term rentals. That claim is based on section 26(1) of the Residential Tenancies Act 2010 (the RTA).
That amount of $5,850 was calculated as thirteen weeks, from 09 May 2021 to 09 August 2021, at $450 per week, being the difference between the rent under the second agreement and the rent under the first agreement. For the reasons indicated below, the Tribunal has determined that the applicants are not entitled to such compensation.

History of the proceedings

On 06 May 2021 the applicants lodged this application which sought an order for either a transfer of the tenancy for the studio or approval to sub-let that studio. After the respondents lodged a cross-application (RT 21/20505) on 11 May 2021, seeking a termination order, the applicants amended their application on 23 July 2021 to only claim compensation.

The hearing

The 29 July 2021 hearing was conducted over the telephone due to the COVID-19 pandemic. Ms McKinney spoke for the applicants and Ms Maher-Bull represented the respondents. As the applicants had agreed to vacate the premises on 09 August 2021, the cross-application was withdrawn. It is thus only necessary to consider the compensation claim.
The documents admitted as evidence during the hearing were those received from the applicants on 02 July (Exhibit A) and 16 July (Exhibit B) plus the respondents' documents received on 26 July (Exhibit C). After identifying the documentary evidence there was cross-examination of two witnesses for the respondents, Mr Barbarino and Mr Alvarez. In view of the change to a claim for compensation less than a week before the hearing, although Ms KcKinney was ready to make oral submissions, the Tribunal did not require Mr Maher-Bull to make oral submissions but instead made orders for written submissions to be lodged: by 07 August 2021 (applicants) and by 21 August 2021(respondents).
The applicants included additional documents with their submissions, which have been marked for identification (MFI 1). Those pages have not been admitted as evidence as they (1) were filed after the hearing, (2) relate to events occurring after the hearing, and (3) are not relevant to the real issues. Further, it would be procedurally unfair to permit a party to rely on evidence provided after the hearing.
Despite being provided with ample opportunity to lodge them, no written submissions for the respondent have been received and it is not necessary to delay finalising this application by waiting for such written submissions as the outcome is clear from the evidence and the applicants' submissions.

Jurisdiction

It is clear there was a residential tenancy agreement between the parties. As a result, the RTA applies, and the Tribunal has jurisdiction to deal with the subject matter of these proceedings and make orders under the provisions of the RTA, notably section 187(1)(d) which provides the Tribunal with the power to award compensation.

Relevant law

Section 26(1) of the RTA provides: A landlord or landlord's agent must not induce a tenant to enter into a residential tenancy agreement by any statement, representation or promise that the landlord or agent knows to be false, misleading or deceptive or by knowingly concealing a material fact of a kind prescribed by the regulations.

Applicants' evidence

Exhibit A contained: 1. Copies of emails sent and received. 2. The second tenancy agreement (dated 23 December 2020). 3. A termination notice dated 22 April 2021, requiring vacant possession by 07 May 2021. 4. Pages relating to Airbnb activity which shows income received.
The documents in Exhibit B relate to the cross-application and thus do not require further consideration. There were no witness statements or statutory declarations in the applicants' evidence despite the orders dated 22 June 2021 saying that all evidence from a party's witness(es) should be in the form of a statement, statutory declaration, or affidavit.

Applicants' submissions

It was submitted that in October 2020 the applicants were offered a tenancy of the house for $550 per week on the basis that the studio would be included when the existing tenant of that studio vacated in January 2021 and the rent would then increase to $1,000. The reason given was said to be the respondents did not want separate tenancies.
The applicant's case is that they were granted permission to use Airbnb to rent the studio at the rear or the property both verbally and by email and that they relied on that representation when they signed the first lease, of the house for $550 per week, which was for a term of 90 days to coincide with the end of the then existing lease of the studio.
On 02 December 2020, at an inspection attended by the then real estate agent and an owner (Michael), it is claimed that nothing was said about the local council and that the applicants were never asked about their purpose for renting the studio. The applicants said they explained they could not afford the increased rent if they could not sub-let the studio.
After receiving an email on 22 March 2021 which asked the applicant to stop advertising the studio for rent, there was an inspection attended by the real estate agent and an owner (Tony) who asked when was the last booking for the studio? The response was 07 May 2021. It was said the agent and owner left without further explanation.
On 26 March 2021, confirmation was received that (1) the applicants would not be permitted to sub-let long term, (2) the studio would not be removed from the lease, and (3) the rent would not be reduced. The applicants said they then began to look for alternative accommodation and sent an email on 16 April 2021 after obtaining legal advice.
The applicants indicated that the 22 April 2021 response was a 14-day termination notice which alleged breaches not previously raised with them. As a result, they filed their application on 06 May 2021 and claim: "We could not fulfill our intentions that we made based on the false representation we received from the real estate [agent]."

Respondents' evidence

Exhibit C comprised: 1. A statement from Ms Maher-Bull. 2. The first tenancy agreement (dated 23 October 2020). 3. The second tenancy agreement (dated 23 December 2020). 4. Statutory declarations of Mr Lizza, Mr Barbarino and Mr Alvarez. 5. Copies of emails exchanged on 05 November 2020. 6. A copy of a planning certificate dated 20 June 2015. 7. A copy of the file of the previous real estate agent in relation to both the application and cross-application.
The statement Ms Maher-Bull dated 22 July 2021 indicated that in June 2021 Mr Lizza indicated he wished to change the real estate agent for the subject property due to the previous real estate agent acting contrary to the respondents' instructions and council approval by providing written approval to the applicants to "Airbnb the granny flat".
Mr Lizza was not cross-examined. His statutory declaration suggested that the former real estate agent had not mentioned Airbnb, only that mother of Ms McKinney would occupy the studio. He suggests that, before the second agreement was signed, he was notified by neighbours of the applicants that they intended to sub-let the studio, using Airbnb.
The agent's same day reply to his 05 November 2020 email, which expressed the view that the applicants would not be suitable to sub-let the studio, was that "they are going to use it for their mother visiting from the UK". That was consistent with that agent's earlier email, sent on 21 October 2020 which said; "[Ms McKinney's] mother comes out to Australia from England for several months each year and she will be occupying the back unit when here".
It appears that Mr Lizza sent an email to that agent on 25 January 2021 which included the words: "I'd like to bring to your attention again that the studio … is not for holiday accommodation. (The current tenants have it on Airbnb.)". Further, that on 03 March 2021 he sent an email to that agent complaining that it appeared permission to sub-let the studio using Airbnb had been given by that agent to the applicants. This email included the words: "On at least three occasions we have said it is not possible and Michael [Barbarino] even stated this to your staff member who did the inspection early in December."
Mr Barbarino's statutory declaration said that he attended an inspection of the property with a real estate agent on 02 December 2020 and that the applicants were present. He claimed he said to the applicants that they could not sub-let the studio due to council requirements and that Ms McKinney responded that the studio would be used by her mother who was coming to Australia shortly.
When cross-examined, Mr Barbarino maintained his evidence that the council restriction was discussed and that the property could not be used for Airbnb rentals. In answer to questions as to why his evidence was not provided earlier, he indicated that he was not asked to prepare a statutory declaration by the previous agent, only by the current agent.
In re-examination, Mr Barbarino said he went to this meeting because he had been informed by neighbours that holiday rental was going to happen and that he did not wanting that to occur in secret, based on approval given by the previous agent.
Mr Alvarez, in his statutory declaration, said he was also present during the inspection on 02 December 2020. He recalled Ms McKinney saying the studio, which was then empty, would be used once her mother arrived from England and that Mr Barbarino said that the studio could not be sub-let due to council requirements. His evidence was that McKinney replied that she understood and that the studio would only be used for her mother. When cross-examined, he confirmed his evidence.

Respondents' submissions

As indicated above, it was not necessary to obtain and consider written submissions from the respondent.

Consideration

From the evidence, having regard to the submissions, the following chronology summarises the events relevant to the issues in these proceedings, using the letters A to denote the applicants and R to indicate the respondents' real estate agent at that time: 11 Jun 16 Local council planning certificate issued, including prohibition on use of premises for "Tourist and visitor accommodation" 21 Oct 20 A asked: "I just wanted to check before we proceed that we have approval from the owners to allow us to Airbnb the property when we take over the lease for both dwellings" R replied: "that has been approved" R told Mr Lizza that the applicants would use the studio for her mother when she comes to Australia from England 23 Oct 20 First lease signed, rent $550 per week, 90-day term 05 Nov 20 R told Mr Lizza that the applicants would use the studio for her mother when she comes to Australia from England 25 Nov 20 R to A, advising of inspection on 02 Dec 20 02 Dec 20 A attended inspection with R and two of the owners, Mr Alvarez, and Mr Barbarino. 21 Dec 20 R to A, advising rent increase to $1,000, email exchange then resulted in agreement for that to start 26 Dec 20 23 Dec 20 Second lease signed, rent $1,000 per week, 55-week term 25 Jan 21 Mr Lizza informed R that the applicants were wrongly using Airbnb to sub-let the studio for holiday accommodation 26 Feb 21 R to A, indicating complaints from neighbours about Airbnb renting the studio, that the owners had instructed for advertising the studio to "cease immediately", and offering "Should you wish to vacate the property they are more than happy to release you from your obligations under the fixed term lease." R to A, indicating the owners could not reconsider as there was a Council requirement. 01 Mar 21 Mr Lizza to A, seeking confirmation she was told on or after 25 Jan 21 that there were to be no holiday rentals. Reply indicated nothing received until 26 Feb 21. A copy of the 21 Oct 20 emails exchanged between A and R on 21 Oct 21 was sought by Mr Lizza and was provided by A. 02 Mar 21 A to R, saying bookings stopped but studio currently occupied, and other guests have bookings R to A, suggesting advertisement can be removed but existing bookings retained. A to R, indicating removal of listing. 03 Mar 21 Mr Lizza complained to R that the studio was being sub-let, using Airbnb, indicated that had been said on at least three occasions, including at the 02 Dec 20 inspection 24 Mar 21 R to A, indicating owners will not approve sub-letting and will not split the site into two tenancies but indicating "the owners are willing to release you from your obligations under the tenancy agreement on handover of possession of the property". 13 Apr 21 R to A, advising that new tenants have been approved, based on the understanding A had another property A to R, saying they do not have another property and need to sub-let to help with the rent 22 Apr 21 Date of termination notice 07 May 21 Date for vacant possession specified in termination notice 09 May 21 The last day for which A received studio rent income 09 Aug 21 Agreed dated for A to vacate
There is a dispute as to what was said during the inspection which occurred on 02 December 2020. Neither applicant provided any evidence in the form of a witness statement, statutory declaration, or affidavit. Instead, the applicants chose to rely solely on documentary evidence.
On the other hand, the respondents provided statutory declarations from two owners which was not damaged by cross-examination. The 03 March 2021 email from Mr Lizza provides support for that evidence. In these circumstances, the Tribunal accepts that the applicants were told of the council prohibition on 02 December 2020.
The Tribunal makes the following findings of fact: 1. On 11 June 2016 the local council issues a notice prohibiting the use of the studio for tourist or visitor accommodation. 2. On 21 October 2021 the real estate agent at that time acting on behalf of the respondents, represented to the applicants that the respondents would allow them to sub-let the studio using Airbnb. 3. On 23 October 2020 the applicant entered into an agreement to rent the house, in front of that studio, for $550 per week. 4. On 05 November 2020 that real estate agent advised the owners that the applicants would use the studio for her mother when she came from England to Australia. 5. On 02 December 2020, during an inspection at the premises, the applicants were advised by one of the owners that they could not sub-let the studio due to council requirements. 6. On 23 December 2020 the applicants entered into an agreement to rent the house and the studio for $1,000 per week. 7. On 25 January 2021 on of the owners advised the real estate agent that the applicants were using Airbnb to sub-let the studio for holiday accommodation. 8. On 26 February 2021 that real estate agent advised the applicants they should cease advertising the studio immediately. 9. At the same time, the respondents offered to release the applicants from their obligations under the 23 December 2020 agreement on handover of possession of the property. 10. On 22 April 2021 a termination notice was sent to the applicants. 11. That termination notice required vacant possession to be given on 07 May 2021. 12. The applicants received income for sub-letting the studio up to 09 May 2021. 13. The applicants subsequently agreed to vacate the premises (house and studio) on 09 August 2021.
If they are to succeed in their claim for compensation based on s 26(1) of the RTA, the applicants need to establish the following matters: 1. A representation was made. 2. That representation was false, misleading, or deceptive, 3. The landlords or their agent knew that representation was false. 4. Induced by that representation, the applicants entered into a residential tenancy agreement. 5. That they suffered loss or damage as a result. 6. The amount of that loss.
From the above findings of fact, it is clear a representation was made, that the representation was false, and that the landlords' then agent knew that representation was false.
However, on 02 December 2020 the applicants, after the 21 October 2020 representation but before they entered the second agreement on 23 December 2020, were told by the owners that sub-letting for holiday accommodation was prohibited by the local council.
If the applicants chose to enter into the second agreement after what they heard from an owner three weeks before, they cannot be said to have been induced by what was said by the owners' agent just over two months before, on 21 October 2020. That is because they chose to proceed, not in reliance upon what the landlords' agent said, but despite what they were told by the owners.
For the sake of completeness, it is noted that the applicants' case appeared to be expressed on the basis that they were induced to enter into the first agreement by a false representation. However, that agreement came to an end and was replaced by the second agreement. Further, the applicants do not appear to have suffered any loss by reason of entering the first agreement, which only obliged them to pay $550 per week, since their claim is for the $450 rent increase for 13 weeks after the first agreement had come to an end.
Even if there was no evidence of what the respondents' Mr Barbarino and Mr Alvarez claim was said on that topic on 02 December 2020, or if that evidence was not accepted, the applicants' claim would still fail for the reason set out below.
When a party is claiming compensation, they are required to take reasonable steps to mitigate, ie minimise, their loss. The principles applicable in this case, which were set out in Bhandari v Laming [2015] NSWCATAP 224 at [56], may be summarised as follows: 1. It is for the respondents to show the applicants acted unreasonably: TC Industrial Plant Pty Ltd v Robert's Queensland Pty Ltd [1963] HCA 57. 2. The steps required of the applicants should not be set too high: Banco de Portugal v Waterlow and Sons [1932] AC 452 at 506. 3. Damages will be reduced to what the loss would have been if the applicants acted reasonably: Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313 at [187].
The applicants received rent from sub-letting the studio up to 09 May 2021 and now claim compensation for the following 13 weeks, being period from that date until the date they agreed to vacate the premises, namely 09 August 2021.
However, they were advised on 26 February 2021 that they would be relieved of their obligations under the lease if they vacated the premises and, had they done so on or before 09 May 2021, they would have suffered no loss. The period from 26 February 2021 to 09 May 2021 provided them with a period of just over ten weeks to find alternative accommodation. That period is considered by the Tribunal to be a reasonable period for the applicants to find alternative accommodation. The failure to accept that offer, made on 26 February 2021, was a failure on the part of the applicants to mitigate their loss.
Further, on 22 April 2021 the applicants were served with a termination notice which requested vacant possession no later than 07 May 2021. Had the applicants complied with that notice, they would have suffered no loss. The applicants chose to contest that termination notice and now claim a loss for a period commencing after the date for the provision of vacant possession specified in that notice. As a result, there was another failure by the applicants to mitigate their loss. In other words, the applicants only incurred a loss because they chose to contest that termination notice up until shortly prior to the hearing which took place on 29 July 2021.
As the applicants (1) have not established that they were induced to enter the second agreement by a false representation made by the respondents' then real estate agent, and (2) as the applicants have failed to mitigate their loss, their claim for compensation fails.
Fairness requires it to be recorded that there is nothing in the evidence which suggests any improper conduct on the part of either the owners or their current real estate agent. It is clear from the evidence that a false representation was made by the landlords' former real estate agent, being a representation made not only despite a council prohibition but also contrary to the instructions of the owners.
The Tribunal notes that on 21 October 2020 the former real estate agent told the applicants that the respondents had approved using Airbnb for the studio but on 05 November 2020 the same agent told the respondents that the applicants had said the studio would be used by the mother of one of the applicants.

Orders

Accordingly, the order that will be made to finalise this application is: 1. The application is dismissed.

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: 10 November 2021

At a glance

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Judgment (12 paragraphs)

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