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Repudiation by Landlord for Failure to Investigate a Suspected Defect

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The Court of Appeal in the recent decision of Brotherhood of St Laurence v Sarina Investments Pty Ltd [2024] VSCA 46 (26 March 2024) held that a Landlord had breached it’s maintenance covenant in the lease by failing to investigate a possible structural defect in the building despite being put on notice by the Tenant. Such failure amounted to a repudiation of the lease by the Landlord entitling the Tenant to terminate the lease.

This case is significant given that in the past, courts have been slow to infer that a Landlord has repudiated a lease.

Facts

The Tenant leased part of an office building and provided the Landlord with a consulting engineer’s report which identified possible structural defects in the building and recommended further investigations. Eight months later, the Landlord undertook remedial works and obtained it’s own report from the same consulting engineer who again recommended further investigations. The Landlord did not undertake any further investigations in response to these reports.

The Tenant claimed and accepted that the Landlord, by not undertaking any further investigations, had repudiated the lease and terminated the lease on this basis.

In response, the Landlord claimed that by doing so, the Tenant had repudiated the lease which it accepted, and the Landlord purportedly terminated the lease.

The Landlord issued proceedings claiming damages for lost rent and engaged a new structural and civil engineer to conduct further investigations. Ironically, such investigations resulted in the engineer’s finding that there was ‘nothing of structural concern’.

Key take-aways from this case for Landlords

1. A Landlord’s duty to maintain includes preventative measures as distinguished from a duty to repair which only arises on the occurrence of a defect. Such preventative measures will depend on the circumstances of each case and as outlined by the court:

‘[91]… may include investigating reasonably suspected defects. This may require obtaining expert reports in appropriate circumstances to determine whether remedial works are required. This does not require reading additional words into the maintenance covenant, rather, this obligation is inherent to a duty to maintain.’

Landlords should ensure that they have regular maintenance plans in place to identify and rectify possible defects.

2. Depending on the circumstances of the case, a Landlord may have an obligation to undertake further investigations in relation to a suspected defect.

Landlords should be careful to investigate any recommendations by their own contractors inspecting the leased premises or those provided by the Tenant. Such investigations should be attended to within a reasonable time frame.

3. Landlords have been put on notice that they may be held to have repudiated a lease in circumstances where they have failed to investigate suspected defects entitling the Tenant to terminate the lease.

Key take-aways from this case for Tenants

Tenants in the same circumstances will have more bargaining power in situations where they have vacated dilapidated premises:

(a) to sue their Landlord for relocation costs; or

(b) as a defence against a Landlord’s rent arrears and damages claim.

The MST Property and Leasing lawyers remain available to assist you with your property and leasing queries. Please contact Evelyn Marcou, Principal on (03) 8540 0243, Nasiya Goldberg, Senior Associate on (03) 8540 0727 and Linda De Villiers, Lawyer on (03) 8540 0246.