Ray White Victoria Point v Simons
[2018] QCATA 162
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- Unreported Judgment
- Ray White Victoria Point v Simons[2018] QCATA 162
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Ray White Victoria Point v Simons[2018] QCATA 162
Ray White Victoria Point v Simons[2018] QCATA 162
QUEENSLAND CIVIL AND ADMINISTRATIVE TRIBUNAL
CITATION: | Ray White Victoria Point v Simons & Anor [2018] QCATA 162 |
PARTIES: | RAY WHITE VICTORIA POINT (appellant) |
v | |
VICKIE SIMONS and GARY SIMONS (respondents) | |
APPLICATION NO/S: | APL092-18 |
ORIGINATING APPLICATION NO/S: | MCDT13/18 Clevelend |
MATTER TYPE: | Appeals |
DELIVERED ON: | 29 October 2018 |
HEARING DATE: | 12 October 2018 |
HEARD AT: | Brisbane |
DECISION OF: | Member Gordon |
ORDERS: |
|
CATCHWORDS: | LANDLORD AND TENANT – RESIDENTIAL TENANCIES LEGISLATION – OBLIGATIONS, PROHIBITED MATTERS AND PROTECTION FOR LESSEES – RENT – where tenants left the rented premises before the end of the fixed term – where the lessor claimed compensation for loss of rent on the break lease – where the lessor sought to relet the premises at the same rent as before – whether the lessor failed to take ‘all reasonable steps’ to mitigate the loss – the meaning of ‘all reasonable steps’ – whether the onus to show a failure to mitigate is on the tenant or is neutral Residential Tenancies and Rooming Accommodation Act 2008 (Qld), s 19, s 91 to s 93, s 173, s 277, s 302, s 303, s 304, s 305, s 306, s 307, s 308, s 331, s 362 Queensland Civil and Administrative Tribunal Act 2009 (Qld), s 147 Banco de Portugal v Waterlow and Sons Ltd (1932) AC 452 Dein v Place Estate Agents [2018] QCATA 78 Sallur & Anor v Howse & Anor [2014] QCATA 340 The Daily Pty Limited v Wallis [2013] NSWADT 152 Uelese v Minister for Immigration and Border Protection (2015) 256 CLR 203 |
APPEARANCES & REPRESENTATION: | |
Applicant: | Self-represented |
Respondent: | Self-represented |
REASONS FOR DECISION
- [1]This is an appeal from the decision of an Adjudicator sitting at Cleveland. The Adjudicator was asked by Ray White Victoria Point as agents for the lessor to determine the correct amount of compensation arising from the loss of rent on the tenants’ break lease.
- [2]The tenants, Vickie and Gary Simons, had a fixed term tenancy which would have expired on 14 February 2018. They vacated the premises on 10 November 2017 having given the lessor notice of their intention to do so a month earlier.
- [3]A new tenant was found and accepted on 17 January 2018, but the new tenant did not go into occupation and start to pay the rent until 9 February 2018 being some 13 weeks after the tenants vacated.[1] In the claim, the lessor sought compensation from the tenants for loss of rent up to the day before 9 February 2018. The break lease fee (being the cost of reletting) was waived by the lessor, presumably because of the closeness of the break lease to the end of the fixed term.
- [4]At the hearing before the Adjudicator, the main issue was whether the property manager had taken all reasonable steps to find a new tenant for the premises, and had thereby mitigated the lessor’s loss caused by the break lease.
- [5]In this appeal I have had the advantage of a transcript of the proceedings. From this, I can see that the Adjudicator was concerned that 13 weeks had passed before a new tenant started to pay rent. The Adjudicator accepted the evidence that the premises were advertised online in the usual way (on three websites in this case) and that a sign was placed outside the premises. But he took the view that the lessor should have reduced the rent to find a new tenant. Since that had not been done, he decided that the lessor’s loss of rent should be limited to one month from the date the tenants vacated.[2] Hence he ordered that the rental bond, which represented four weeks’ rent, should be paid to the lessor to conclude the matter.
- [6]In this appeal it is contended by Ray White that the Adjudicator ignored the fact that the tenant had left as Christmas approached which was a difficult time for reletting, and did not take into account the evidence given about the rental market being slow at that time.
- [7]In saying that, the lessor’s loss of rent should be limited to one month from the vacation date and then ordering the bond to be paid to the lessor, the Adjudicator overlooked the fact that the tenant had in fact paid the rent to 8 December 2017.[3] Therefore by releasing the rental bond to the lessor, the Adjudicator inadvertently allowed the lessor rent to 5 January 2018 – a period of 8 weeks from the vacation date instead of the one month intended. Bearing in mind the resulting order was based on a factual error of some significance, the appeal would need to be allowed on that basis alone.
- [8]In his reasons, the Adjudicator placed great emphasis on the need to reduce the rent to find a tenant. He pointed out that if this had been done, then the difference between the rent payable in the tenancy agreement and the rent payable from the new tenant could be recovered as damages from the outgoing tenants.[4]
- [9]Since the Adjudicator expressed the view that the lessor ought to recover only one months’ rent since the date of vacation, he must have been of the view that the rent should have been reduced within the one month period in order to find a tenant. From his order, the Adjudicator must have been of the view that had this been done, the new tenant would have been found by 10 December 2017. The Adjudicator must have found therefore, that the premises were on the market at a rent which was too high at least over the latter part of the one month period and that this was the reason why a new tenant had not been found within that time.
- [10]In his reasons given at the hearing, the Adjudicator did not refer to the evidence given by the agent about the letting difficulty caused by new developments coming on the rental market in November and December that year and ‘saturating’ the market,[5] nor to the fact that reletting was being attempted as Christmas approached. This means that it is unclear whether he took this these factors into account or not. It would appear however, that he did not take them into account because otherwise it is likely that his finding would have been that it was these factors and not the high rent level which caused the problem reletting the premises. The fact that a new tenant was found for a 12 month tenancy at the same rent level in the middle of January 2018 when the market stabilised would have pointed strongly to this. Overlooking the factors meant that the Adjudicator failed to take into account the case but forward by the property manager.
- [11]The question also arises in this appeal whether the Adjudicator set the lessor’s duty to mitigate too high.
- [12]The duty to mitigate is in section 362 of the Residential Tenancies and Rooming Accommodation Act 2008 (Qld) (‘RTRAA’). The relevant part of the section reads (referring to loss or expense incurred by the lessor because of an act by the tenant):-
- (3)The lessor …
- (a)must take all reasonable steps to mitigate the loss or expense; and
- (b)is not entitled to receive compensation for any loss or expense that could have been avoided by taking the steps.
- [13]The use of the words ‘all reasonable steps’ does not impose an obligation on the lessor greater than would be the case if the common law principle of mitigation applied, which requires only that an aggrieved party should take steps which a reasonable person would take to minimise loss or damage or at least so as not to increase it.
- [14]This is because it is easy to contemplate reasonable steps which are both reasonable but also inconsistent with each other. For an example relevant to this appeal, it may be reasonable for a lessor in a break lease situation to place the premises on the market either at the same rent as before, or with the rent reduced by $30 per week. Since both approaches are reasonable, an obligation to take ‘all reasonable steps’ strictly construed would require the lessor to do both at the same time, which of course is an impossibility.[6]
- [15]If there is a delay in reletting premises, a reason for this will often be found in hindsight but this does not mean that the lessor acted unreasonably at the time by not following a different course. Senior Member O'Callaghan and Dr J R Forbes pointed out in Sallur & Anor v Howse & Anor [2014] QCATA 340 that the aggrieved party’s conduct should not be examined very critically. They cited the words of Lord Macmillan in Banco de Portugal v Waterlow and Sons Ltd (1932) AC 452 at 506:-
When a sufferer from a breach of contract finds himself in consequence of that breach ... the measures which he may be driven to adopt to extricate himself ought not to be weighed in nice scales at the instance of the party whose breach of contract has occasioned the difficulty. ... he will not be held disentitled to recover the cost of such measures merely because the party in breach can suggest other measures less burdensome to him might have been taken.
- [16]In other words, the aggrieved party will not act unreasonably simply because the party in breach can suggest that another and more beneficial course should have been followed. The question is whether the aggrieved party acted unreasonably in taking the course decided upon.
- [17]The fact is that where a tenant breaks the lease at a time when the local rental market is temporarily depressed as happened here, the lessor faces a dilemma. If the lessor were to reduce the rent by $20, $30 or $40 per week as the Adjudicator suggested in order to secure a new tenancy[7] then the new tenant would be paying that much less than the true market rent over the whole of the new fixed term. There are minimum periods and conditions which apply to an increase in rent,[8] so getting the rent back to market rent would be difficult and in any case could cause loss of the new tenant on renewal due to ill will.
- [18]It might be said that the lessor’s loss arising from receiving the reduced rent over the new fixed term is all recoverable from the outgoing tenants, even if those losses go beyond the end of the outgoing tenants’ fixed term, but this is not at all obvious. This is because it is arguable that any losses incurred by the lessor beyond the original fixed term are not caused by the break lease, but are caused by the lessor’s decision to let the premises at a lower rent.
- [19]The lessor’s dilemma arising from this is greater the shorter the period left in the outgoing tenant’s fixed term.
- [20]For these reasons placing an obligation on the lessor to reduce the rent in order to secure a tenant and reduce immediate losses, where there is a danger of suffering longer term losses which may not be recoverable from the outgoing tenants is probably setting the duty to mitigate too high.
- [21]In Dein v Place Estate Agents [2018] QCATA 78 Member Howe expressed it this way:-
[31]Further, it should be noted, in break lease situations, it is not always the case that a lessor must immediately reduce rent to attract a new tenant. If the rent under the tenancy agreement is a reasonable rent in the circumstances, the property may appropriately be relisted at the same rent. If the property does not rent within a reasonable period, then it may be appropriate to reduce the rent claimed. If the rent is reduced to entice another tenant, it may be the case that the difference between the rent previously payable under the old tenancy agreement and the lower rent payable under the new tenancy agreement is able to be claimed by the lessor from the old tenant for the balance of the term of the old tenancy.
- [22]Even where a lessor puts premises on the market at a higher rent than in the existing agreement this will not automatically be a breach of the duty to mitigate. It is necessary to consider the state of the market. The higher rent may be right for the market.[9]
- [23]In Dein, it was suggested that the burden is on the party in breach to show the failure to mitigate. Although this is the position at common law, I note that it is absent from section 362 which applies the duty to mitigate to residential tenancy agreements. I would prefer to say that having regard to the words of section 362(3)(b), the tribunal is bound to consider the question of mitigation when asked to assess the correct level of compensation and therefore neither party has any particular burden in this respect.
- [24]This would seem to make practical sense in hearings under the RTRAA in the tribunal where the scope for obtaining disclosure of documents and information prior to the hearing is very limited, where parties are generally not represented and often have limited knowledge of their rights, and where the tribunal generally acts inquisitorially in hearings concerning residential tenancy matters.
Disposing of the appeal
- [25]Appeals in minor civil disputes can only be brought with the leave of the Appeal Tribunal. Such leave will only be given if there is an arguable case on appeal. Such appeals are only arguable if the decision maker is in error in law, or has made a factual finding which could not be made on the evidence. In the circumstances of this case leave to appeal should be given and the appeal allowed for the reasons given above.
- [26]The question whether a lessor is in breach of the duty to mitigate and therefore is unable to recover all their losses is a question of fact. In so far as I have found that the Adjudicator approached this question incorrectly this is a question of law. Hence the appeal has been resolved as a question of mixed law and fact.[10] In those circumstances section 147 of the Queensland Civil and Administrative Tribunal Act 2009 (Qld) requires me to decide the appeal by way of rehearing.
Rehearing
- [27]A lessor’s claim for rent or loss of rent because of the tenant’s departure before the end of the fixed term can be considered in these steps:-
- (a)Do the terms of the tenancy agreement affect the legal position which applies upon the tenant breaking the lease? The legal position is that subject to the lessor’s duty to mitigate loss by taking reasonable steps to find another tenant, the outgoing tenant would be liable to pay rent for the remainder of the fixed term. Because of section 173 of the RTRAA, which renders void certain terms of an agreement, it would be difficult for a tenancy agreement to impose a greater obligation on the tenant than that. However it is perfectly possible for the tenancy agreement to reduce the tenant’s obligation – as I have found happened in this case.
- (b)Was there a separate agreement between the lessor and the tenant as to the consequences of the break lease? It is common for property managers to provide a tenant who wishes to break the lease with a contract to sign. Usually the terms provide for termination of the tenancy as from a certain date[11] and for rent to be paid until the happening of an event – usually a new tenant being found or the end of the fixed term, whichever happens first. The question arises whether such an agreement is also subject to section 173 of the RTRAA.[12] In that respect, section 19 of the RTRAA must be taken into account. It states that a reference to an agreement in the Act is ‘for a residential tenancy, a reference to a residential tenancy agreement to which this Act applies’. Therefore, although outside the scope of this appeal, it would appear that section 173 of the RTRAA does not apply to a separate agreement reached between the lessor and tenant about the result of the break lease.
- (c)Has the residential tenancy agreement terminated and if so when? This may be important because only when the tenancy ends will the lessor’s claim change from a debt claim for rent to a claim for compensation for loss of rent – a matter which may affect its recoverability and may affect when the lessor’s duty to mitigate starts. In this respect, section 277 of the RTRAA needs to be considered. This prescribes the only ways in which a residential tenancy agreement can end. Of particular relevance for a break lease is that although a fixed term tenancy can come to an end if the tenant makes a written agreement with the lessor[13] or abandons the premises,[14] it will not come to an end if the tenant leaves the premises in circumstances which do not amount to abandonment.[15] Giving a notice of intention to leave on Form 13 and the giving of vacant possession on or after the handover day is capable of terminating the tenancy.[16] However this is only effective if the notice contains a ground contemplated by the RTRAA.[17] Merely expressing in the notice a desire to leave the premises would be insufficient.
- (d)Has the lessor taken the reasonable steps required by section 362 of the RTRAA to mitigate the loss because of the break lease? If not, the lessor not entitled to receive compensation for any loss that could have been avoided by taking the steps.[18]
- (a)
- [28]I shall now run through these steps in this rehearing on appeal.
- [29]As for (a), there were special terms in this tenancy agreement dealing with a break lease. These were contained in clause 6(3) of ‘Addendum – Special Terms’ and Clause 4 in a second document called ‘Addendum A’. These special terms were incorporated into the residential tenancy agreement.
- [30]Clause 6(3) of ‘Addendum – Special Terms’ stated:-
6(3) Should the agreement be terminated by the tenant or by a tenant’s breach of the agreement before the ending date of this Agreement:
- (a)the tenant agrees … to continue to fulfil their obligations under this agreement until another General Tenancy Agreement is entered into by the lessor/lessor’s agent for the Premises or until the tenant’s General Tenancy Agreement expires, whichever is the sooner.
- [31]Clause 4 in ‘Addendum A’ pointed out that the tenant is obligated until the end of the fixed term and then said:-
If you were to break the tenancy agreement prior to the expiry date you will be responsible for rent until the property is relet to an approved tenant or the expiry date of the agreement (whichever occurs first).
- [32]These clauses say different things about when the obligation to pay the rent ends. Clause 6(3)(a) suggests the obligation ends when a new tenant enters into a tenancy agreement. That would normally be when the new tenant signs the tenancy agreement, but it could be when an oral agreement is made.[19] Clause 4 suggests the obligation ends when the property is relet. That suggests it is when the new tenancy commences. In this appeal it is important to know which applies because there was a gap of over 3 weeks between the tenant entering into the new tenancy agreement and moving in and starting to pay rent.
- [33]The ambiguity is properly resolved by relying on the contra proferentem rule of contractual construction.[20] The objective intention of the parties was therefore that should the tenants break the lease they would be liable for the rent only until a new tenant entered into a tenancy agreement. In this case that date was 17 January 2018.[21]
- [34]As for (b) there was no separate agreement which might apply.
- [35]As for (c), the tenants did serve a notice of intention to leave on Form 13 on 9 October 2017. This gave a handover day of 10 November 2017 and the stated ground was ‘buying a property’. This is not a ground contemplated by the RTRAA however, and so vacating the premises on the handover day did not terminate this tenancy under section 277(4).
- [36]The form was however, provided to the tenants by the property manager in an email on 4 October 2017 with a request for it to be completed and returned, which the tenants did on 9 October. The next day the property manager sent an email to the tenants acknowledging ‘your intention to break your lease on the 10.11.17’. Although the property manager sent some more forms to the tenant including ‘agreement to terminate fixed term tenancy’ which the tenants did not complete – the email did not say that termination of the tenancy on 10 November was subject to completion of these forms. Both sides then accepted that the tenancy had come to an end when the tenants gave vacant possession on 10 November being the handover day given on the form. Overall, what happened therefore, was a sufficient ‘written agreement’ to terminate the tenancy on the handover day under section 277(2).
- [37]As for (d) the efforts made by the property manager to relet the premises were the usual ones of placing a board outside the premises and advertising it online (on the agency’s own website and the letting sites used by letting agents). Since the premises were very close to the agency, if anyone came in to enquire the agent was able to go to the premises for a view.[22] Evidence was given at the hearing that the rental market in the area at that time was ‘saturated’ by the recent completion of two brand new estates so that in any given week in November and December there were at least 25 to 30 properties in that price range available.[23]
- [38]The rent payable by the outgoing tenants was $495 a week at the time when they vacated.[24] The property manager offered the premises for reletting at the same rent level. There is no evidence about how much interest there was in the premises at that rent level at the time.
- [39]There is no doubt that there were poor rental conditions for reletting at the time when the tenants vacated. However these poor rental conditions would reasonably have appeared temporary due to the time of the year and the large number of rental premises which had recently come into the market. In the light of this, the decision made by the lessor to place the premises on the market at its existing rent was not an unreasonable one and reasonable efforts were made to advertise the premises and to facilitate inspections. The decision to maintain this approach into the new year of 2018 was also not an unreasonable one bearing in mind the likely improvement in the market at that time. The market did improve, as shown by the fact that a new tenant was found at the same rent level quite early in 2018.
- [40]It follows that on rehearing this matter I do not think that the lessor was in breach of the duty to mitigate. The question arises however, as to which date the lessor is entitled to compensation for loss of rent. By Clause 6(3) of the Addendum – Special Terms the right to such compensation ceases on the entering into of a new tenancy agreement, which was on 17 January 2018. It is agreed that the tenants paid the rent to 8 December 2017. There should be compensation of a further 39 days (9 December 2017 to 17 January 2018) at the rent of $495 a week = $2,757.86. To this should be added an amount for water in the sum of $159 (which was also part of the claim and is not contested) and the application fee $116.40 (which may be awarded as costs in these types of cases). This is a total of $3,033.26.
Footnotes
[1]That there was a delay in the tenant taking occupation and paying rent appears from the rent ledger and was confirmed at the appeal hearing by the property manager.
[2]Transcript 1-9, line 44.
[3] A rental payment made on 29 November 2017 took the rent to the 3 December rent day, but there was also $321.43 which was almost another five full days’ rent.
[4]Transcript 1-9, line 37.
[5]This evidence appears at Transcript 1-3, line 45.
[6]A statutory provision would not be construed in such a way as would result in an impossibility: Uelese v Minister for Immigration and Border Protection (2015) 256 CLR 203, [100].
[7]Transcript 1-9, line 33.
[8]Sections 91 to 93 of the RTRAA.
[9]The Daily Pty Limited v Wallis [2013] NSWADT 152, [93] where prevailing authorities were considered.
[10]A question of mixed law and fact was found in a similar appeal in Burlington Realty Pty Ltd t/as Belle Property Paddington v McComb [2016] QCATA 110, [24].
[11]Which would therefore be a ‘written agreement’ which is effective to terminate the tenancy under section 277(2) of the RTRAA.
[12]If so, the term in the agreement requiring the tenant to continue to pay the rent could be void resulting in a fall-back to the legal position described in (a) just above.
[13]Section 277(2).
[14]Section 277(5)(b).
[15]By for example, ceasing occupation after giving the lessor notice and continuing to pay rent.
[16]Section 277(4).
[17]Sections 302 to 308 describe the types of notice of intention to leave which can be served, and section 331(2) lists them again with the appropriate time limits. See also section 424 which provides a means for the lessor to challenge the ground in the form.
[18]Section 362(3)(b) of the RTRAA.
[19]Section 12(3).
[20]In the case of ambiguity, the preferred meaning should be the one that works against the interests of the party who provided the wording.
[21]This was when the new tenant paid the bond and a new tenants ledger was established by Ray White. It was confirmed at the appeal hearing that this is probably the date when the new tenant entered into the tenancy agreement.
[22]Transcript 1-4, line 29.
[23]Transcript 1-3, line 45.
[24]This was provided in the rental tenancy agreement itself: the rent was increased to $495 as from 15 August 2017.