In brief - Landlords risk breaching the lease by failing to perform repairs
A landlord's failure to effect repairs to leased premises may result in the tenant being entitled to compensation for any losses that it incurs as a result, particularly if the tenant's business is affected. The landlord also risks breaching the lease and having the tenant terminate it.
Lost stock, loss of profits and rent abatement
The Administrative Decisions Tribunal of NSW recently awarded a tenant a total amount of $28,186.27 which represented an amount for lost stock and loss of profit while the business had been closed and after the business was reopened.
The amount also represented an abatement of rent which was paid by the tenant to the landlord while the premises could not be used. The court also ruled that the landlord was to pay the tenant's costs of $2,400.
The effect of this decision is that a landlord must carry out its repair obligations to premises when they are required by the lease. If the damage to the premises is exacerbated by the passing of time, the financial detriment could be even worse for a landlord, who then needs to compensate the tenant for any disruption to its business.
Eather v Nguyen
In Eather v Nguyen [2011] NSWADT 80, the tenant had complained to the landlord about the condition of the floor in the premises. The condition of the floor in the premises made it impossible for the tenant to keep the premises clean and comply with the food regulations for the bakery operated at the premises.
The lease required the landlord to repair and maintain the floor to the condition at the commencement of the lease. The relevant authority served an order under food and health legislation, requiring the premises not to be used until the defects including the floor had been rectified.
The floor required replacement and this was the landlord's responsibility. Ultimately, the tenant could not use the premises for months whilst the landlord replaced the floor. This meant that the tenant's business was closed for that duration.
Neglecting repairs to premises can be costly for landlords
A landlord needs to ensure that it exercises its rights to inspect the premises regularly and keeps up to date with repairs. This includes not only those repairs required by the landlord, but also those required by the tenant.
This avoids the situation where necessary repairs are neglected, resulting in the deterioration of the premises, the closure of the business and a compensation claim being made by the tenant while the works are being done.
Depending on how a lease is drafted, such a situation may also give rise to a tenant terminating the lease for the landlord's breach of lease for failure to effect repairs to the premises.
For more information about commercial and retail leasing, please see the website of CBP Lawyers or contact Chris Rumore at acr@cbp.com.au or Adelina Tama at awt@cbp.com.au
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.