Friday, 9 September 2011

Can a landlord's failure to comply with s.52 consitute repudiatoryconduct?

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Does a landlord's failure to comply with its obligations under s.52 of the Retail Leases Act 2003 to maintain premises in "a condition consistent with the condition of the premises when the retail premises lease was entered into" constitute repudiatory conduct?

This issue was raised in C & A Delaveris Pty Ltd  v Bretair Pty Ltd  [2009]VCAT 1663 [28], [79] and [80] but not ultimately decided.  The implication of a statutory obligation as a lease covenant “invites the application of the full range of the general law principles with respect to competing covenant obligations” (Croft and Hay Retail Leases Victoria, para  [70,005]).

In Delvaris the Tribunal considered the relationship between the usual “no deductions” rent covenant and a statutory repair covenant.  The tenant withheld rent because of a failure to carry out urgent repairs.  Delvaris concerned ss25 and 47 of the predecessor to the 2003 Act but those provisions are the same as ss.52 and 94 of the 2003 Act.   Section 94 renders void any provision that is contrary to or inconsistent with the Act. In refusing an application for possession the Tribunal said at [84]:
“It is in accordance with well established practice to allow a setoff of the liquidated sum incurred by a tenant in meeting a repair obligation owed by the landlord and reducing the rental liability accordingly Lee-Parker v Izzet [1971] 1 WLR 1688, 1692-3 per Goff J. The amount of the outlay is liquidated and so the complication relating to unliquidated setoffs do not exist.”

 By reason of s.94 of the Act, where set-off and similar arguments are raised with respect to s.52, the section’s terms or operation cannot be abrogated by lease provisions such as a rent clause that requires the payment of rent "without deduction". Deputy President Macnamara said the following about this issue at [79]:
 “It seems to me arguable first, that the withholding or at least delay of the payment of rent was justified and secondly, that there were no threats of illegal action which could be regarded as economic duress in the circumstances. It will be recalled that the covenant to pay rent under this lease was a covenant to pay ‘without deductions’
The authorities are not at one as to whether the inclusion of these words is sufficient to prevent any equitable setoff being relied upon to impeach the demand for rent. For the reasons which I gave in Wytell Pty Ltd v Glowinski [2006] VCAT 454 the balance of authority in Victoria favours the view that the words ‘without deduction’ exclude a tenant from relying upon equitable set offs to impeach the demand for rent. 
Here, however, the covenant which the tenant alleged was being breached was one which in accordance with Section 25 of the 1998 Act as amended, the lease was ‘taken to provide’, that is, it was a statutory implied covenant. 
Section 47 of the 1998 Act provides that a provision in a retail lease is void to the extent that it claims to ‘exclude the application of any provision of this Act’. In my view, the inclusion of the words ‘without deduction’ in the covenant to pay rent is avoided by Section 47 to the extent that it limits the effect that the statutory implied covenant to repair would otherwise have, hence a breach of the repair covenant would be available as a setoff in the present case….it is clear that withholding rent in the circumstances described or delaying its payments was not a flagrant breach of the terms of the lease and obviously illegal. 
More pertinently since this step was taken to compel the lessor to do what I have held it was obliged to do any way under the terms of Section 25.”


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1 comment:

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