|Focus:||Defining 'fair wear and tear'|
|Services:||Property & projects|
This is the second instalment of our three part series examining standard lease terminology. Continuing with the make good theme from our August alert, this article looks at the term 'fair wear and tear'.
The term 'fair wear and tear' or 'reasonable wear and tear' arises in the context of a tenant's repair and maintenance obligations.
Irrespective of the type of premises leased, most commercial leases require the tenant to keep the premises in good repair, fair wear and tear excepted. The question for both landlords and tenants is what is 'fair wear and tear' and what is the scope of this exception? This issue predominantly arises at the end of the lease term when a tenant is looking to return the premises to the landlord in the condition agreed by the parties at the commencement of the lease.
What is 'fair wear and tear'?
There is no legislative definition of 'fair wear and tear'. It is clearly the "type of disrepair which the tenant would have otherwise had to make good had the exemption not applied"1, but this does not get us very far. It is commonly considered to be:
- changes which happen during the normal use of the premises or their fixtures or fittings; or
- changes which happen due to the natural ageing of premises or their fixtures or fittings.
For example, damage caused to carpet solely from people constantly walking on it may be fair wear and tear, whereas cutting pieces out of it to accommodate the tenant's fixtures might not.
The commonly accepted legal definition is the meaning given to the term by Talbot J in Haskell v Marlow (1928) 2KB 45 in a passage which has been endorsed subsequently by numerous courts:
The Alamdo Holdings case
The landmark Haskell v Marlow definition was considered by the New South Wales Court of Appeal in Alamdo Holdings Pty Limited v Australian Window Furnishings  NSWCA 224.
The Alamdo Holdings case concerned areas of dilapidated bitumen. The lease contained a covenant by the tenant to repair the premises and keep them in good order and condition during the currency of the lease, subject to a reasonable wear and tear exception. It was common ground that some areas were dilapidated beyond reasonable wear and tear and the dispute was whether the dilapidation of certain other areas fell within the exemption. The damage in those areas began in the form of cracking and, when it was not treated, water ran in under the asphalt skin and undermined the sub-surface and surface. This led to greater deterioration and potholes. The primary judge referred to some examples given by Talbot J in Haskell:
The majority view in Alamdo was that the dilapidation of the bitumen surface was more akin to the stone floor example and thus fell within the fair wear and tear exemption. The evidence accepted by the court was that the pavement was at the end of its useful and expected life. The court accepted expert evidence that the process by which the pavement fell into a holed and rutted state was no more or less than a working act of the forces of nature upon the kind of material concerned. However, one of the judges in a dissenting judgement, took the view that the failure to rectify the initial problem (the cracks in the bitumen) may well have constituted reasonable wear and tear but the failure to rectify that initial problem before greater damage resulted was more closely analogous to the fallen tile example, and therefore the deterioration was not within the reasonable wear and tear exception.
Reasonable Minds May Differ
The issue was more recently considered in the case of Fenridge Pty Limited v Retirement Care Australia (Preston) Pty Limited (No 3) (2014) VSC 90 where the meaning given to the term by Talbot J in Haskell was applied. In the Fenridge case, Hargrave J also considered the facts of the Alamdo case and the dissenting judgement. He took the view that Alamdo was merely an application of the principle in Haskell and "as the dissent shows, reasonable minds may differ on the application of the principle by reference to the examples given." Hargrave J concluded that "each case must depend upon its own facts".
The existence of a fair wear and tear exemption in a commercial lease does not interfere with the express repair obligations of the tenant in the lease. The issues that arose in the Alamdo case might well have been avoided had there been an express obligation on the tenant to scan the asphalt pavement at regular intervals for the first signs of any crack and then to immediately act to repair it to prevent it becoming larger or letting water through into the base course.
As with our conclusion in relation to last month's article concerning 'base building condition', parties should consider (and articulate) precisely what they mean in relation to repair and maintenance obligations in a lease. In the absence of precise language, it will be left to a court (or other referee, where provided for in the relevant lease agreement) to determine from expert evidence by analogy from the examples given above, as to whether any particular disrepair should fall within a reasonable fair wear and tear exemption.
Put simply, the question to be determined would be whether the disrepair is most akin to the dislodged tile or the worn stone floor. Setting out the tenant's specific repair and make good obligations and exceptions in the lease, in a careful and detailed manner, could prevent the question arising at all.
In the next and final instalment of this three part series examining standard lease terminology, we will compare the terms 'reasonable endeavours' and 'best endeavours'.
1Lang's Commercial Leasing in Australia (Vol. 1), Lang A, [29-090].
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.