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Barrister Philip H. Barton, of Foley’s List, in the conclusion to his two-part series, discusses damages for breach of lease. This article explores damages under the Retail Leases Act 2003 (Vic). Part 1 looked at Victorian, Commonwealth and UK case law.
Philip will present on the topic, Co-ownership Disputes at the 15th Annual Property Law Conference on Wednesday, 6 March in Melbourne. He previously spoke on Breaches, Damages and Compensation: Legislation, Strategies, Practice and Procedure, at the Retail and Commercial Leasing Conference.
The Act provides that a retail premises lease is taken to include certain matters related to liability of a landlord for repairs (s. 52) and to compensate a tenant for interference in substance with its business (s. 54). Although the Act tends not to use the word “damages”, but uses phrases such as “reasonable compensation for loss or damage” (s. 54(2)) or “the amount of the loss or damage” (s. 80(1)), the Supreme Court and VCAT continue to apply common law concepts.
The principles were well illustrated in litigation between Versus (Aus) Pty Ltd v ANH Nominees Pty Ltd which attracted three VCAT hearings and a Supreme Court appeal. Versus took a lease of premises from which it retailed high quality lingerie. Upon taking occupation it found, and then for some years repeatedly complained about, a wet wall, a dilapidated toilet, and an inoperative tap (so there was no drinking water at the premises).
Further, during the lease considerable construction works occurred on the adjoining premises, to which the landlord agreed with no regard to the lessee’s rights or a proper plan to protect the leased premises, and ignoring the lessee’s complaints. Due to these works and consequential flooding the takings of the business plummeted and never recovered. Versus had to vacate and close the business (it turned out permanently) to accommodate the lessor’s request to repair and refurbish the premises. Mould rendered the premises unsafe and unfit for occupation.
In Versus (Aus) Pty Ltd v A.N.H. Nominees Pty Ltd [2011] VCAT 2273 the Tribunal awarded damages for loss of net profits due to breach of the covenant of quiet enjoyment, breach of s. 54 and failure properly to maintain the premises, and other minor amounts.
After this decision the parties mutually understood that the lessor would make the premises safe for re-occupation. This did not occur. The lessee commenced a second VCAT proceeding claiming losses after those covered by the previous case. The remediation works commenced and various remediation timelines were then not met. The lessee eventually advised the lessor that its failure to rectify the premises constituted repudiation by it of the lease which the lessee accepted “bringing the Lease to an end”.
The lessor disputed that it had repudiated the lease but nonetheless accepted that the lease was at an end. In Versus (Aus) Pty Ltd v A.N.H. Nominees Pty Ltd [2014] VCAT 454 the Tribunal held that the lessor had not repudiated the lease: its failure to make the premises fit for occupation did not in the circumstances evince an intention that it was unwilling to perform its obligations under the lease. Rather, the parties had mutually abandoned the lease. Damages for loss of profit were assessed.
Versus (Aus) Pty Ltd v A.N.H. Nominees Pty Ltd [2015] VSC 515 was an appeal from the second VCAT decision. Croft J set aside the VCAT orders and remitted the proceeding to the Tribunal. His Honour chiefly:
(1) Discussed how damage to premises for which a landlord was responsible under s. 52, arising during the original term of the lease, may lead to liability for loss suffered during the renewed term;
(2) Held that the Tribunal had misapplied the law of repudiation by failing to recognise that a persistent failure to perform a contract may constitute repudiation even though the party in breach may genuinely intend to fulfil their obligations at a later time.
In Versus (Aus) Pty Ltd v A.N.H. Nominees Pty Ltd (Remitted) [2017] VCAT 859 the Tribunal held that even applying the law of repudiation as directed by Croft J the landlord had not repudiated the lease. There was no evidence establishing that the condition of the premises when the tenant purported to terminate the lease was different from when the lease was first entered into.
The Tribunal also held that compensation under s 54(2) was unavailable because the defect related to a condition of the premises giving rise to moisture and mould which was reasonably apparent to the tenant when renewing the lease. But nonetheless, although the landlord had not breached the lease, the tenant was entitled to compensation on the ground of an estoppel based on Walton’s Stores (Interstate) Ltd v Maher(1988) 164 CLR 387. The tenant had altered its position to its detriment based on an assumption that remedial work was going to be done, reasonably induced by the assurances and conduct of the lessor. Damages for loss of profit were awarded.
Philip H. Barton has practised as a barrister for many years. He practises in Commercial Law generally and particularly in Property Law and Probate. He has written numerous articles, including in the Australian Law Journal and approximately annually in the Law Institute Journal. He is the author of the caveatsvictoria.blog. Contact Philip at pbarton@vicbar.com.au
