What you need to know

  When a landlord failed to repair an air conditioner, the Court held that the tenant could not terminate the lease or claim that the landlord had repudiated the lease.*

The way that the terms of the lease were drafted was an important factor in the Court's decision.

  Facts

  • The Landlord leased a retail premises to the Tenant, who wished to run a Pilates studio.
  • The lease contained special conditions as follows:
    • the Landlord must "..install air conditioning to service the premises .... within 8 weeks from the date of signing of the lease....".
    • the Tenant will service the air conditioning every 6 months via a maintenance contract at the Tenant's cost.
    • The Landlord was responsible to pay for capital repairs regarding the air conditioning.
  • Before the Tenant moved in, the Landlord installed some upgrades on an existing air conditioner and arranged for the air conditioner to be serviced, commissioned and tested.
  • A year later, the air conditioning stopped working and the Tenant demanded that the Landlord fix it.
  • In return, the Landlord asked whether the Tenant had met its service obligations, which the Tenant did not reply to. The Landlord took no action to repair the air conditioner.
  • Eventually, the Tenant stated that the Landlord, by failing to meet its repair obligation, repudiated the contract and that the Tenant was accepting the repudiation and terminating the lease.

Court findings

  • The air conditioning was important for the tenant to function as a Pilates studio.
  • The special conditions did not give rise to a continuing obligation to repair the air conditioner on the part of the Landlord as:
    • The requirement to install the air conditioning was within 8 weeks – this was specified in the lease.
    • While the contract specified the Landlord was responsible for the costs of 'capital repairs' regarding the air conditioning, this does not imply that the Landlord would also be responsible for a continued obligation to repair the air conditioner.
  • The Landlord did not breach the lease by failing to install a new air conditioning unit – a reasonable person would have expected an 'effective and operational air conditioning system' but not necessarily the installation of new equipment.
  • The special conditions were not fundamental terms and therefore did not give the Tenant the ability to terminate the lease.
  • No formal notice of default was served.

Conclusion

  This case demonstrates that special conditions in leases need to be carefully drafted so that everyone is clear of their obligations. You should seek legal advice:

  • When entering into a lease to ensure the terms are drafted in accordance with the agreement.
  • If a dispute arises with regards to the lease.

Although it may seem costly to consult a lawyer, it is far more costly if the lease isn't drafted clearly and you end up in litigation, as demonstrated by this case.

*Red Pepper Property Group Pty Ltd v S 3 Sth Melb Pty Ltd [2019] VSC 41

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