Repossession by Landlords for Unpaid Rent: Warsame v API Enterprises Pty Ltd

By Alicia Hill, Principal, and Darsh Chauhan, Law Clerk

Introduction

On 29 August 2022 Deputy President Riegler of the Victorian Civil and Administrative Tribunal (‘VCAT’) made declarative orders in the matter of Warsame v API Enterprises Pty Ltd.[1] This was a successful application by a landlord for an order to repossess the premises from which the tenant operated on the basis of their failure to make rent repayments.

Background

The tenant operated a panel-beating businesses from the premises of the landlord in Campbellfield (‘Premises’) pursuant to a first lease of two years’ duration from November 2015 with options to renew, and a second lease of one year’s duration commencing 15 July 2019 (‘Lease’). Following the expiration of the Lease, the landlord offered the tenant the opportunity to continue to rent the Premises on a month-to-month basis subject to the satisfaction of other conditions. The tenant nevertheless continued to occupy the Premises and on 22 December 2020 the landlord served a default notice upon him purportedly requiring him to make good his failure to pay rent and other outgoings in the sum of $8,572.16 within 14 days of service (‘Notice’).

The tenant contended in response to the Notice that the amount requested by the landlord in the repayment of rent was incorrect because it failed to account for the rent relief to which the tenant alleged he was entitled arising from a request he issued in accordance with the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (Vic) (‘Regulations’). He relied on an email sent to the landlord on 10 January 2021 in which he requested a 50% reduction in rent on the basis that his business had suffered a decline in turnover due to the effects of the COVID-19 pandemic.

On 9 January 2021 the landlord took possession of the Premises. The tenant successfully obtained an interlocutory injunction preventing the landlord from entering the Premises until a further determination was made as to the dispute (‘Injunction’). The matter was heard by the VCAT on 21 July 2022.

Issues and Decision

There were four issues for determination which were answered as follows:

Issue	Answer
Whether the tenant made a compliant request for rent relief under the Regulations	Unnecessary to answer
Whether the Notice by the landlord was lawful	Yes
Whether the Lease was a periodic month-to-month tenancy	Yes
Whether the landlord was entitled to an order for possession of the Premises	Yes

 Reasons for Decision

Validity of the tenant’s request for rent relief

As to the issue concerning the validity of the tenant’s application for rent relief, there were two reasons why the Deputy President found that question unnecessary to answer.

First, it was unclear whether the tenant had provided the appropriate documentation in respect of that request to the landlord.

Second, and more crucially, the period to which the rent relief application purported to apply was different to the period for which the landlord was claiming rent repayment. Therefore the validity of the request in the context of the primary issue relating to the entitlement by either the tenant or landlord to possession of the Premises became unimportant.

Lawfulness of the landlord’s Notice

Although some of the payments owed pursuant to the Notice were paid by the tenant after the Notice was issued, it was uncontested that a large proportion of arrears were still owing as at the time the landlord took possession of the Premises. On this basis, and in the absence of evidence contrary to the proposition that the Notice was unlawful, the Injunction was dissolved.

The Deputy President considered that evidence provided by the landlord of historical notices of default in respect of the tenant’s general propensity not to pay rent was difficult to reconcile with the landlord’s contention that the Lease came to an end upon the date he took possession of the Premises. This was because the acceptances by the landlord of rent payments made after those default notices would have constituted an admission of tenancy. However, neither party made submissions in this proceeding on that question, so it remained unanswered.

The nature of the tenant’s tenancy

The tenant contended that pursuant to section 21(1) of the Retail Leases Act 2003 (Vic) (‘Act’), which provides that a retail premises lease must ordinarily be for a term of at least five years, the Lease’s proper duration was for five years and not for 12 months in accordance with its terms.

The Deputy President rejected this submission on the basis of the application of section 21(2A) of the Act, which provides that in applying section 21(1), regard should be had to any period the tenant was continuously in possession of the relevant premises prior to the application of the Act to the lease. Because the tenant had occupied the premises since November 2015, the Lease came to an end at its date of expiry on 15 July 2020. The occupation by the tenant of the Premises since that time was on a periodic month-to-month tenancy as provided for in the Lease. The landlord was entitled to terminate that periodic tenancy on one month’s notice pursuant to a subclause of the Lease.

Order for possession

On the basis of the Deputy President’s answers to the issues above, it followed that the landlord was entitled to an order for possession of the Premises but subject to the following considerations:

• Although the Notice was valid, it remained unclear whether it terminated the tenant’s interest in the premises entirely given that the landlord’s acceptance of late rent repayments may have created a new month-to-month tenancy; and
• There was insufficient evidence to determine the extent to which the tenant had made rent repayments under either the Lease or the new month-to-month tenancy, as a result of which the tenant may have a claim in relief against forfeiture;

Nevertheless, it was considered inutile to determine those questions because the creation of any new tenancy could anyway be brought to an end by the service of one month’s notice by the landlord pursuant to the Lease.

Takeaways

This matter provides an example of the evolution of the status of a tenant in relation to a lease. Both tenants and landlords should take particular care to understand the rights and obligations which arise following the expiry of the term of a lease, which may be varied from the original terms of their agreements based on their conduct and their practical understanding with one another.

The case also serves as an effective reminder to landlords to consider the consequences of their acceptance of rent repayments made after they issue notices of default, particularly that the lease may still be afoot despite those notices.

If you have any questions regarding this decision or any matters raised by it, please feel free to get in contact with Alicia Hill of the MST Dispute Resolution and Litigation team on (03) 8540 0200, or by email at alicia.hill@mst.com.au.

[1] [2022] VCAT 1018.