By Evelyn Marcou – Principal, Property Law, MST Lawyers
When tenants fall behind on rent, it’s not uncommon for them to try to reduce those arrears by offsetting them against a claim they have against the landlord. To prevent this, landlords often include ‘no deductions’ clauses in lease agreements. But a recent case before VCAT suggests these clauses may not always protect landlords—especially when statutory rights under the Retail Leases Act 2003 (Vic) (RLA) are involved.
In AMTB Pty Ltd v Chan (Building and Property) [2025] VCAT 236, the Tribunal found that a tenant may still rely on an equitable set-off despite a ‘no deductions’ clause, where the claim arises from a landlord’s breach of statutory repair obligations. (The full decision text is available on the Australasian Legal Information Institute (AustLII) website.
Key takeaways
- ‘No deductions’ clauses may not prevent equitable set-off where the tenant’s claim is based on a breach of statutory obligations under the RLA 2003.
- VCAT can grant injunctions to stop a landlord from terminating a lease, even where rent is in arrears, if a valid counterclaim exists.
- Section 94 of the RLA 2003 voids lease terms that attempt to contract out of obligations or remedies implied by the Act.
- Equitable set-off can reduce a tenant’s rent liability, not just act as a delay tactic—making it a powerful legal defence.
- Landlords should ensure compliance with their maintenance and repair obligations to avoid being exposed to such claims.
Equitable set-off: what is it?
Equitable set-off is a legal defence that allows a tenant to reduce their rent liability where there’s a sufficient connection between the landlord’s claim for rent and the tenant’s counterclaim for damages. It’s not just about convenience—this kind of set-off can actually reduce the amount of rent legally owed.
Examples of when equitable set-off may apply include:
- The rent is only owed because of the landlord’s breach.
- The landlord is preventing the tenant from getting the benefit of the lease.
- The landlord’s breach directly causes the tenant’s financial loss.
The rise of ‘no deductions’ clauses
In response to tenants asserting set-off rights, landlords have increasingly relied on clauses requiring rent to be paid “without deduction or set-off.” These are usually enforceable—except where they conflict with statutory obligations that parties cannot contract out of.
The case: AMTB Pty Ltd v Chan
The tenant, who operated a nightclub on the second floor of a leased premises, relied on a stairwell and a lift to provide access. The lift was frequently broken and eventually inoperable from mid-2024, leading to a drop in patronage and revenue. The tenant stopped paying rent in October 2024, and by December was issued with a default notice for more than $80,000 in arrears.
The tenant applied to VCAT for an injunction to stop eviction, arguing that the rent arrears should be reduced via an equitable set-off—due to losses caused by the landlord’s failure to repair the lift, a breach of section 52 of the RLA 2003.
The lease included a strict clause requiring rent to be paid:
“… clear of all deductions or abatements of all or any kind whatsoever…”
The landlord relied on this clause and previous VCAT decisions to argue that the tenant had no right of set-off. However, the tenant pointed to:
- Section 52 – requiring landlords to maintain plant and equipment;
- Section 94 – rendering lease terms void if they attempt to override the Act.
The Tribunal agreed the tenant had an arguable case and granted the injunction, noting that the key issue was whether the lease’s ‘no deductions’ clause could override a statutory right of set-off resulting from the landlord’s breach.
Why this matters
This case provides a strategic path for tenants facing financial distress caused by a landlord’s failure to meet statutory obligations. If they can demonstrate a legitimate breach—such as a failure to maintain essential equipment—they may be able to stay in the premises and reduce their rent arrears, even in the face of a ‘no deductions’ clause.
For landlords, the case is a reminder to ensure compliance with repair and maintenance obligations under the RLA. Relying solely on strong lease wording may not be enough to prevent counterclaims or equitable set-off.
How MST Lawyers can help
Leasing disputes can quickly become complex when statutory obligations, equitable principles, and lease terms collide. Whether you’re a landlord seeking to enforce your rights or a tenant seeking relief from unfair conditions, MST Lawyers’ Property & Leasing team can help you navigate the law with clarity and confidence.
Need tailored advice on lease disputes or commercial leasing obligations?
Contact us today to protect your position.
Disclaimer: This article is for general information only and is not legal advice. You should obtain professional advice based on your individual circumstances.
VCAT Official Website
VCAT Home: https://www.vcat.vic.gov.au/
Decisions and Orders: https://www.vcat.vic.gov.au/the-vcat-process/decisions/decisions-and-orders
