The Christchurch earthquakes have resulted in many insurance
issues. One of the more unexpected ones is whether leases have come
to an end because of damage to the building, or prevention of
access to it. This turns on whether the premises are untenantable.
Coverage for Landlords under business interpretation policies
usually turns on this.
The High Court's recent decision in Russell v
Robinson (1 April 2011) provides us with a timely reminder of
the meaning of the word 'untenantable' as it applies to
The case involved a four year lease, on the ADLS form (4th
edition 2002), of the first floor of a three storey building. On
the first day of the lease, a serious fire broke out as a result of
work being undertaken for the tenants. There was extensive
structural damage, floors were burnt through, partition walls were
damaged and the electrical and air conditioning systems were
destroyed. The estimate for the restoration of the premises was
9-10 months, and in the end reinstatement was completed within 10
Two months after the fire, the landlord gave notice to the
tenant terminating the lease pursuant to clause 26.1 of the ADLS
lease on the basis that the premises were 'untenantable'.
The tenant disputed this and following rejection of its claim in
the District Court, appealed to the High Court.
The tenant's main argument was that as it wished to continue
leasing the damaged premises then the premises could not properly
be described as 'untenantable'.
However, the High Court found that for the purposes of clause
26.1(a) the word 'untenantable' is to be interpreted
objectively. The test is whether the reasonable landlord or tenant
would consider the premises untenantable, not the actual landlord
or tenant's subjective view of this.
Both the District Court and the High Court Judges reviewed the
authorities and applied the following general principles:
Untenantable means substantial interference with the
tenant's ability to enjoy, use and operate in the
Within the context of clause 26, the interference requires some
degree of permanence. Merely transitory or temporary interference
will not make a building untenantable. In this case, the inability
to use the premises whilst they were repaired, for a likely period
of 9-10 months, was sufficient to be more than temporary or
The tenant does not have the option to terminate the lease in
these circumstances. Clause 26(1)(a) provides that the lease shall
terminate at once where the damage is such as to render the
premises untenantable. This is automatic and not dependent on
either party taking any steps.
Clause 26(1)(b) provides for termination at the option of the
landlord if in the reasonable opinion of the landlord the premises
require demolition or reconstruction. This does not require the
whole of the building to be destroyed and is dependent on the bona
fides and reasonableness of the landlord's opinion as to the
extent of any necessary demolition or reconstruction.
This is a useful checklist for landlords and tenants of premises
in Christchurch that are damaged or inaccessible. Each case will
turn on its own facts.
Insurers should apply these principles when considering whether
the earthquake has made their insured's premises untenantable,
triggering cover for loss of rent .
This publication is intended as a general overview and
discussion of the subjects dealt with. It is not intended to be,
and should not used as, a substitute for taking legal advice in any
specific situation. DLA Piper Australia will accept no
responsibility for any actions taken or not taken on the basis of
DLA Piper Australia is part of DLA Piper, a global law firm,
operating through various separate and distinct legal entities. For
further information, please refer to www.dlapiper.com
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The failure of a party to call a witness does not necessarily give rise to an adverse inference being drawn in accordance with Jones v Dunkel (1959) 101 CLR 298. An unfavourable inference is drawn only if evidence otherwise provides a basis on which that unfavourable inference can be drawn.
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