TENANT WALKS AWAY FROM LEASE

In a recent decision at VCAT, a tenant was able to walk away from a retail premises lease because of the failure of the landlord to repair a faulty air-conditioning unit.

The tenant operated a Pilates studio and initially it was a term of the lease that the landlord would install air-conditioning to service the premises.  Later that term was varied so that the landlord would recommission an existing roof mounted air-conditioning service unit. The landlord did attend to doing this but there were ongoing problems with the air-conditioning throughout the term of the lease. About a year into the lease, the air-conditioning unit was only working for a period of 20 minutes at a time. This put the tenant’s business at risk as customers were migrating to nearby Pilates studios. The tenant advised the landlord of the problems but the landlord failed to undertake the necessary works to the air-conditioning.

The tenant asserted that the landlord’s failure to repair the air-conditioning unit amounted to the repudiation of the lease. The landlord argued the tenant’s action in purporting to terminate the lease and vacating the premises amounted to a repudiation on behalf of the tenant.

VCAT determined that the tenant was entitled to terminate the lease as the provision of air-conditioning was a fundamental term of the lease. VCAT held that the landlord’s procrastination or non-performance would convey to a reasonable person in the shoes of the tenant that the landlord had disavowed itself of its obligation to repair the air-conditioning system and therefore, honour its obligations under the lease.