Unlukaplan v Habbouchi [2023] NSWCATCD 106 | Case summary

Material facts

The dispute arises from a residential tenancy agreement that was made on 15 June 2022 (the agreement). It is a fixed term agreement of 104 weeks' duration which was expressed to commence on 17 June 2022 and end on 13 June 2024. Prior to this fixed term agreement the tenants had occupied the property since September 2019 under another fixed term or periodic agreement (it is not clear which, but this is not material).
The landlord parties to the agreement are Bryce and Rosemary Westlake, the former owners of the property. Mr and Ms Westlake had appointed a Managing Agent trading as Starr Partners to manage the rental agreement on their behalf (Starr Partners). They later engaged Starr Partners to sell the property for them.
The rent payable under the agreement was originally $1,220.00 per week. However, it was a term of the agreement (clause 68.1) that the rent would increase to $650.00 per week from 22 July 2022.
In July 2022 Starr Partners notified the tenants that Mr and Ms Westlake intended to put the property on the market for sale.
In response to their inquiries the tenants were assured by representatives of the Managing Agent that the property would be marketed and sold on the basis that the sale would be subject to their existing tenancy.
The property was opened for inspection by prospective purchasers on two occasions (the dates are not in evidence). Mr Unlukaplan attended the second inspection.
Ms Trisha Habbouchi was present during this inspection and met Mr Unlukaplan and conversed with him about the property. She also observed his interaction with the selling agent, Mr Milad Chaar. In 'their' Affidavit dated 9 June 2023 Mr and Ms Habbouchi state the following about this: 10. Before leaving Mr Unlukaplan and Milad Chaar were talking at the front door in the presence of Trisha Habbouchi, Milad Chaar stated very clearly that there is a fixed term lease until June 2024 which he made clear to any potential buyers who came through the property. Milad Chaar also said to Mr Unlukaplan that Ismat Habbouchi and Trisha Habbouchi had no plans to move out of the property until the end of the lease. 11. Once Mr Unlukaplan left the property Milad Chaar spoke with us and said that Mr Unlukaplan was very interested in the property, we were assured that he knew about the fixed term lease, he said that Mr Unlukaplan has a Million Dollar property which he still needs to sell in Victoria and will not be in a hurry to move in.
Mr Unlukaplan made an offer of purchase which was accepted by Mr and Ms Westlake. There is no issue that the Contract for Sale of the property stated that the property was sold subject to existing tenancies.
Prior to settlement of the sale, acting on Mr Unlukaplan's instructions, Mr Chaar contacted Mr Habbouchi with an offer of $10,000.00 if the tenants would agree to the early termination of the residential tenancy agreement on or about the date of settlement to allow Mr Unlukaplan and his family to move into the property immediately. Mr Habbouchi refused that offer which resulted in Mr Unlukaplan making a further offer of $20,000.00. That offer was also refused.
Consequently, Mr Unlukaplan rented a 4 bedroom home for himself and his family in Sydney upon his move to NSW in or about October 2022. He did so through Starr Partners. That residential tenancy agreement is not in evidence. However, Ms Saros gave evidence that it is a Fixed-Term agreement that runs until sometime in October 2023. Mr Unlukaplan gave evidence that he was obliged to offer to pay 6 months rent in advance to obtain his rental property because he was not able to demonstrate a sufficient regular income. He contends he has subsequently paid a further 3 months rent in advance in order to maintain the tenancy.
In his Affidavit dated 22 May 2023, Mr Unlukaplan states the following in relation to these events: 1. During conversation with the sales representative from Starr Partners Real Estate, I was advised … that tenants were residing in the property. 2. I was advised I could ask the tenants to leave once I bought the property but I could only ask once I owned the property. I was unaware I couldn't break the lease. 3. I was aware that the … property had a two year lease, but I was not advised during this conversation that it was specifically a fixed term lease and that it could not be broken unless tenants agreed to vacate. 4. Due to circumstances and needing 6 bedrooms, I sold the home I was living in with my family in … Victoria to purchase the property … 5. Upon settlement of the above mentioned property, I contacted the realty managing the property (Starr Partners) and advised the representative managing the property that I now owned the property and wanted to break the lease with the tenant so it could be vacant for family and myself to live in as we had first intended; in which I was advised that this was not possible. I was advised by the property manager that I would probably need to offer the tenants money to move out of the house. I made an offer of $10,000 that was rejected and the realestate told me id have to offer $20,000 or more. That sort of shocked me but I was desperate, I did make the offer of $20,000 and it was turned down again. I didn't know what to do and I was without a home to move into. I had to quickly find a house to rent out.
Mr Unlukaplan contends that continuation of the residential tenancy agreement will cause him undue hardship on essentially three grounds, being: 1. inability of his present 4 bedroom rental property to meet the reasonable accommodation needs of his 6 member family, for whom he contends he requires a 6 bedroom home, 2. inability to afford private rental market payments due to a major reduction in income support payments to him and his wife because the property is treated as an asset for the purposes of the assets tests that applies in relation to eligibility for those payments (if he and his wife personally occupied the property the property would be an exempt asset under that test), and 3. inability to obtain alternative rental accommodation due to his income status and the general unaffordability of rent for properties of the size required by his family.
The details of this hardship are set out at paragraphs [6] to [13] of Mr Unlukaplan's Affidavit as follows: 6. Centrelink has since assessed this property as an asset/investment that I own and due to its value this has automatically cut off my Family & Parenting Allowance & disability support payments. 7. In addition to this financial loss, as a couple centrelink has assessed this property as part of an asset in which my wife also shared with me; therefore my wife['s] … disability pension has been reduced from $1,026.00 a fortnight to under $75.00 a fortnight. 8. I am a carer for my wife and I receive a carer allowance for this in which is $144.00 a fortnight. This is now my only income. 9. Our only income a fortnight as a couple is $220.00 a fortnight. 10. I have been forced to live in rent and have as a result paid rent totalling $29,6000 for a total of 9months for the home that my family and I currently live in. I do not have any savings or a income to pay the rent I am (sic - owe?) for the house I live in and I have taken the rent out on the mortgage. 11. We are now enduring psychological and financial hardship. My wife is disabled, I am her carer and I look after 3 children full-time & 1 part time, 4 children in total. 12. My wife need to sleep in [her] own room due to her conditions. I have an 18yr old son, 2yr old son, 10mth old daughter that lives with me full time and a 14yr old daughter who lives with me part time during the week and weekends. I need a six bedroom house to fit us all in. I sleep in the lounge room on with a single bed in the corner and when my daughter stays over she sleeps on the couch. This is another reason I need to move into my 6 bedroom house so my family can fit, as where I live only has 4 bedrooms & I can't rent another house I have no income and won't get approved to get a lease. 13. If we move into the property we [own] centrelink will pay our full payments again and we can stop withdrawing money from the equity in our home loan.
Mr Unlukaplan elaborated on these contentions in his oral evidence. Additionally, oral evidence was given by his Property Manager, Ms Saros, that her agency had received instructions from the owners of Mr Unlukaplan's current rental property to put it on the market for sale after the end of the fixed term. She gave evidence that she expected that the owners of the property would require vacant possession to be given at the end of the fixed term to facilitate this.
In support of his hardship claims Mr Unlukaplan has supplied the following documents in his evidence: 1. a Notice to him from Centrelink dated 21 March 2023 rejecting his claim for a Parenting Payment on the ground that Mr Unlukaplan and his wife's "assets are above the limit". The value of their assets is assessed as $904,251.00. 2. a Notice to him from Centrelink dated 10 May 2023 which advises that he has been granted a Carer Allowance in relation to his wife effective from 25 April 2023 and that his regular fortnightly payment will be $144.80, 3. a Centrelink Income Statement dated 8 May 2023 which states that Mr Unlukaplan receives a Family Tax Benefit Part A and B in the respective amounts of $32.90 and $75.18, 4. a Centrelink 2022 PAYG Payment Summary for Mr Unlukaplan which states that during the period 1 July 2021 to 16 June 2022 he received a Parenting Payments totalling $22,449.00 5. a Centrelink Notice dated 23 February 2023 that states that Mr Unlukapan's wife's Disability Support Pension was a regular payment of $1,026.50 including energy and pension supplement on that date 6. a Centrelink Notice dated 22 May 2023 which states that Mr Unlukapan's wife's Disability Support Pension will be paid under the assets test from 5 June 2023 and be reduced to a total of $74.50, including energy and pension supplement, 7. a Centrelink Notice to Mr Unlukaplan's wife dated 21 March 2023 which states, relevantly, that her Disability Support Pension will be $74.50 because she has been assessed as having 'total combined assets' of $904,251.00, 8. an Owners Statement issued to Mr Unlukaplan in respect of the period 30 March to 27 April 2023 which reports that rent of $2,600.00 was receipted from Mr and Ms Habbouchi in respect of that period, and after disbursements including agent fees a total of $2,209.50 was remitted to him. 9. a Trust Account Receipt dated 4 October 2022 issued to Mr Unlukaplan and his wife in respect of a $20,000.00 payment they made by way of 6 months' rent in advance for their current rental property. There is a second Trust Account Receipt dated 20 April 2023 in respect of a $9,600.00 they made by way of 3 months' rent in advance for that property.
I note that Mr Unlukaplan has not submitted into evidence his bank account or mortgage statements.
The tenants contend that the residential tenancy agreement should not be terminated before the end of the fixed term for the following reasons: 1. the property was sold subject to the existence of their tenancy, and Mr Unlukaplan knew that was the case. It is submitted that his evidence to the contrary of his is not to be believed, and that this application is no more than an attempt to circumvent the law that applies in relation to the sale of a property that is subject to an existing residential tenancy agreement, 2. Mr Unlukaplan's claims related to financial hardship are not to be believed because he sold his Victorian property for $1,035,000.00 on 3 September 2022, receives rental income from them at the rate of $450.00 per week, and he and his family drive at least two luxury cars, which are featured on his internet profile, 3. they would experience a loss of reasonably expected tenancy in circumstances where they had specifically sought and obtained a two year fixed term lease to meet specific family needs and support financial and personal goals, including the purchase of their own property at the end of the Fixed-Term, 4. they would incur unreasonable costs if they were required to move at this stage of their tenancy. These costs include: 1. removalist costs brought forward, 2. disruption to employment brought forward, 3. increased rental costs over the remaining 10 month period of the lease, 1. Ms Habbouchi is incapable of contributing to activities related to moving (property search, packing, carriage, unpacking etc) at this time due to her medical condition and emotional state. In this respect, it is submitted that Ms Habbouchi is receiving treatment for a life-threatening illness and is recovering from another distressing medical event (which is explained but should not be referred to explicitly in these reasons). These conditions mean that she is not capable of physical exertion and must rest, 2. Ms Habbouchi's medical conditions have resulted in the tenants incurring significant costs which have depleted their financial resources. Consequently, they do not have the financial capacity to move and this time, and would experience acute financial hardship if forced to do so by a termination order, 3. they would suffer unreasonable family disruption if they were required to move out at this stage of there tenancy. The dimensions of this are: 1. their family is a blended family of three children. The children have experienced disruption and distress because of prior family separation and require stability of place to support their transition into the blended family. This is particularly so for Ms Habbouchi's son who lives with neuro-diversity, 2. The Family Court's Parenting Orders in relation to Mr Habbouchi's two children require that they be provided with a stable home and each have their own room, 3. their three children are settled in local schools and have learnt how to catch buses to and from school. Their school placement is likely to be disrupted if the residential tenancy agreement is terminated because the tenants are unlikely to be able to afford a rental property of equivalent size in the catchment areas for these schools, 4. Mr Habbouchi's elderly parents are staying with them for 3 months through to September 2023. They are visiting Australia in part so that Mr Habbouchi senior can receive treatment for a recently diagnosed serious medical condition. 1. there is presently a crisis in the Sydney rental market not only in relation to rental cost but also availability. There chances of obtaining reasonably equivalent accommodation are not high.
In support of these contentions the tenants have submitted the following documents into evidence: 1. a prescription of medication issued by a Consultant Paediatrician dated 26 August 2020 related to Ms Habbouchi's son's nero-diversity, 2. Parenting Orders issued by the Family Court under the Family Law Act 1975 dated 10 September 2021 in relation to Mr Habbouchi's children, 3. a radiology report dated 12 January 2023 and a pathology report dated 14 July 2021 for Mr Habbouchi senior which establish his medical condition, 4. copies of airline tickets that establish that Mr Habbouchi's parents travelled to Australia from Lebanon in June 2023 and are presently booked to return to Lebanon at the end of August 2023, 5. a medical certificate dated 31 March 2023 that establishes that Ms Habbouchi experienced a distressing medical event on 30 March 2023. 6. 4 current advertisements for equivalent rental properties in the locality of the rented premises, which are advertised for rent at $1,100.00, $975,00 and $950.00(2), 7. quotations for the cost of removalist services, estimating the cost of removal at $6,200.00, $180.00 per hour, and $2,100.00 for professional packing only, 8. quotations for end-of-lease cleaning in the amounts of $800.00, $900.00 and $700.00.

Consideration

To determine the outcome of this application the Tribunal must pose and answer the following questions: 1. has the landlord established on his evidence that he would experience hardship if the residential tenancy agreement is not terminated? 2. if the answer to (a) is "yes", does this constitute hardship that is excessive in all the circumstances of the case? 3. if the answer to (b) is "yes" ought the Tribunal exercise its discretion to make a termination order terminating the residential tenancy agreement because of the special circumstances of the case? 4. If the answer to (c) is "yes" should the order for possession be suspended for any period of time to allow the tenants time to move from the property, and if so, by what period? 5. if the answer to (b) is yes, should the Tribunal make any award of compensation to the tenants arising from their loss of tenancy and if so, in what amount?
It is a fundamental principle of contract law that contracting parties must honour their promises and fulfil their obligations under the contract (Pacta sunt servanda). Courts and Tribunals must generally give effect to that fundamental principle because it provides the foundation for trust and confidence between the contracting parties. Without it, contracts would be meaningless because there could be no assurance that agreements would be honoured.
A residential tenancy agreement is a statutory form of contract to which this principle applies. That is no less the case because s 93 provides a statutory basis upon which this principle can be set aside. Having regard to the importance of this underlying principle there must be sufficient grounds to depart from this principle. While those grounds do not have to be extraordinary or exceptional the principle will not lightly be departed from. It must be in the interests of justice to do so.
Mr Unlukaplan is a successor in title to the property. He was not the landlord, or promisor, under the residential tenancy agreement when it was made. Mr and Ms Westlake were. Nevertheless, by operation of s 51 of the Real Property Act 1990 (NSW) he assumed responsibility for the fulfilment of Mr and Ms Westlake's obligations under the residential tenancy agreement upon the transfer of the property to him on its purchase. That included the promise of the fixed term.
It was always plainly apparent that he would do so. In this respect I accept the tenants' evidence that the property was marketed on the basis that it was available for purchase subject to the existing tenancy. There is no issue that the Contract for Sale signed by Mr Unlukaplan stated on its first page that the property was being purchased subject to the existing tenancy.
I reject Mr Unlukaplan's evidence that he was not informed or did not understand the implications of this. The front page of the Contract for Sale made this clear to him, and consistent with conveyancing requirements, the residential tenancy agreement would have been incorporated into the documents constituting that contract. Any solicitor or conveyancer acting for Mr Unlukaplan on the purchase also had a professional obligation to explain to him the implications of the purchase subject to the existing tenancy.
I am satisfied that what has really occurred in this case is that Mr Unlukaplan has purchased the property knowing the implications of the existing tenancy, with the intention and belief that he would be able to get out from under the agreement after purchase. That inference can be drawn from what Mr Unlukaplan states at paragraphs [2] to [5] of his Affidavit. It is also the inference I drew from various statements made by Mr Unlukaplan in his oral evidence.
Like any contract, the residential tenancy agreement could have been varied by agreement between the parties, including to alter its fixed-term. However, there was never any basis for Mr Unlukaplan's belief that the tenants would agree to such a variation in this case. In this respect, I accept the tenants' evidence that they were adamant in their communications with the selling agent that they intended to remain in occupation of the property until the end of the fixed term. I also accept their evidence that they witnessed the selling agent communicate that information to Mr Unlukaplan at the time of his first inspection of the property.
Mr Unlukaplan therefore finds himself in a situation of his own making. He never had any reasonable basis for his belief that he could move into the property following its purchase. His sale of his home in Victoria and the relocation of his family to Sydney were both undertaken without any reasonable expectation of occupation of the property before the end of the fixed term. The family inconvenience and disruption, and the financial hardship, Mr Unlukaplan contends for both arise directly from his choice to disregard the fact that he purchased the property subject to its existing tenancy.
That is, if Mr Unlukaplan requires a 6 bedroom home to accommodate the needs of his family, he knew or ought to have known that this 6 bedroom home would not be available to him until the end of the fixed term of the tenancy. He should have appreciated that he would need to source 6 bedroom accommodation elsewhere in the interim. The fact that he opted to rent a 4 bedroom home that does not meet his family's stated needs is therefore not a circumstance that I am prepared to give significant weight to in assessing his hardship. It is a situation of his own making.
I accept Mr Unlukaplan's evidence that he encountered difficulties in securing an appropriate rental property and may do so again in future if the residential tenancy agreement is not terminated having regard to the current Sydney 'rental crisis' which resonates both in terms of the availability and affordability of rental accommodation. However, two things must be said about this.
First, that circumstance flows directly from Mr Unlukaplan's reckless disregard of his obligations as a landlord under a fixed term agreement.
Second, it is a circumstance that will also be faced equally by the tenants if the residential tenancy agreement were to be terminated. There is no basis upon which Mr Unlukaplan's needs could or should be given priority over those of the tenants on this ground. While the Sydney rental crisis constitutes hardship for many tenants, that hardship cannot be excessive in all the circumstances in any way that is particular to Mr Unlukaplan. It is therefore not a factor to which I attribute any weight in the circumstances of this case.
While on this point, I note that much was made in oral argument about the potential loss of Mr Unlukaplan's current rental property due to the end of its fixed term in October 2023 and its owner's intention to sell it with vacant possession. Ms Saros gave evidence as to the intended sale under oath, based on hearsay she received during the hearing from a colleague by telephone. While I do consider this evidence, I attach little weight to it. No termination notice has been issued, no Agency Agreement for the sale has been made, no Contract for Sale requiring vacant possession has been prepared, and no marketing campaign has been commenced in respect of that property. The sale of the property at this stage is therefore a mere possibility. In considering this evidence, I am also struck by the convenience to the landlord's case of it arising mid-hearing. I am therefore satisfied that some scepticism should attach to it.
Turning now to the financial hardship Mr Unlukaplan contends for, being the significant reduction in his and his wife's income support payments, that is also a circumstance that arises directly from Mr Unlukaplan's reckless decision to purchase the property believing he could move into it immediately or soon after settlement despite the fixed term residential tenancy agreement. He knew or ought to have known that the property was an 'asset' and would not be an exempt asset for the purposes of the assets test unless he personally occupied it.
I have noted above that Mr Unlukaplan has not submitted any mortgage or bank statements. I therefore have no satisfactory evidence before me as to the equity Mr Unlukaplan has in the property. Centrelink has valued this asset at $904,251.00. On the evidence before me I do not know if that amount includes or excludes a mortgage. The tenants gave evidence, which was not challenged, that Mr Unlukaplan sold his home in Victoria for $1,035,000.00. They also gave evidence, which was not challenged, that Mr Unlukaplan owns two 'luxury' cars.
I put it to Mr Unlukaplan in the hearing based upon this information that he had substantial equity in the property. He did not deny that but was evasive in his answer as to what this equity was. Rather, his answer was to the effect that he should not be obliged to utilise his equity to meet his family's day to day needs because this would result in a reduction in his wealth which was not fair because he had worked hard all his life and it would deprive his children of their rightful inheritance.
In his evidence, Mr Unlukaplan resisted the proposition that his income included the rental income he received from the tenants. His position was that this income only serviced his mortgage and so somehow was not income at all. What was left unexplained was how Mr Unlukaplan proposed to service his mortgage without this rental income, even if his and his wife's income support payments totalling approximately $46,000.00 per annum would be restored. He has a family of 6 to sustain on that income. I draw an inference from this that any mortgage he has over the property is not large.
I accept the reduction in income support Mr Unlukaplan contends for at face value. He has established with documentary evidence to my satisfaction that he and his wife have a limited income from that source. However, the rental income he receives from the tenants must be considered. That is approximately $2,600.00 per month, or $31,200.00 on an annualised basis (but less commission and expenses). That is not an insignificant income. But more significant than that is Mr Unlukaplan's wealth because of his assets, principally, because of the equity he has in the property. While, the amount of equity is opaque for the reasons stated above I am nevertheless satisfied on this basis that despite his limited income, Mr Unlukaplan is a person of substantial financial means.
Mr Unlukaplan may wish to avoid a reduction in his wealth by moving into his property such that his and his wife's income support payments may be reinstated, and to avoid the cost of renting a 6 bedroom home for his family until the end of the fixed term, but a desire to minimise a reduction in wealth is not equivalent to financial hardship.
It follows from this reasoning that I am not satisfied that Mr Unlukaplan has established undue hardship that could attract the operation of s 93. I am satisfied that Mr Unlukaplan is a person of substantial wealth who is reasonably obliged to use that wealth to fund the consequences of the choices he has made until the end of the fixed term of the residential tenancy agreement. Section 93 is not a route for the avoidance the obligations of a property owner who purchases a rented property subject to a fixed term residential tenancy agreement.
Even if I were to be wrong in the conclusions I have reached as to whether Mr Unlukaplan would face undue hardship if the residential tenancy agreement were not terminated, I would not make a termination order in the exercise of discretion. That is because, for the reasons stated above, Mr Unlukaplan is in a situation of his own making.
Additionally, the tenants have advanced a compelling case as to the hardship they would experience if the residential tenancy agreement were to be terminated before the end of the fixed term.
They will face a crisis in the Sydney rental market in terms of availability and cost. I accept their evidence that the cost of equivalent properties is now at least $300.00 per week higher than their present rent. While they must face that situation at the end of the fixed term, they are in entitled to the financial benefit of the bargain they made until then.
Moving house also involves removalist costs. While the tenants will have to incur those costs at the end of the fixed term, they would be brought forward if a termination order was made now.
Termination of the tenancy would also generate non-economic loss to the tenants arising from their loss of tenancy, including inconvenience, disruption, distress and disappointment.
While the Tribunal does have the power pursuant to s 93(2) to order the landlord to compensate the tenants for a loss of tenancy, that order making power is constrained by s 187(4) of the Act, which prescribes a monetary limit of $15,000.00 on the Tribunal's order making power. The tenants' compensable loss in this case, on any reasonable assessment, would significantly exceed that amount. The increase in rental costs they would incur over the next 10 months alone is likely to exceed that amount. The Tribunal is thus not in a position where it is capable of adequately compensating the tenants for their loss of tenancy if a termination order were to be made.
I also accept the tenants evidence that Ms Habbouchi is presently not in a state of health where she is reasonably capable of contributing to the activities necessary to move, and that moving at this stage of her recovery would impact negatively on her psychological and physical well being.
Weighing the relative hardship of the landlord and tenants that would be associated with either not terminating or terminating the residential tenancy agreement, I am satisfied that now the tenants would experience the greater hardship. In the exercise of discretion that would deprive the landlord of the termination order he seeks even if undue hardship had been made out.

Unlukaplan v Habbouchi

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Judgment (9 paragraphs)

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