Black & Anor v Jahan & Anor (Residential Tenancies) - [2023] ACAT 73

ACT CIVIL & ADMINISTRATIVE TRIBUNAL

BLACK & ANOR v JAHAN & ANOR (Residential Tenancies) [2023] ACAT 73

RT 965/2023
Catchwords: RESIDENTIAL TENANCIES – termination of fixed term residential tenancy agreement – did tenants repudiate the agreement – was termination accepted by lessors – what level of compensation the lessors are entitled to under the break lease fee clause – are the lessors entitled to other compensation – general duty to mitigate loss – significant hardship
Legislation cited: Residential Tenancies Act 1997 ss 36, 38, 44, 84, Dictionary, Schedule 2, standard term 101
Legislation Act 2001 ss 140, 145, 155, Dictionary
Residential Tenancies Legislation Amendment Bill 2016 Explanatory Statement

Cases cited:Mightyboy Pty Ltd v Barker-Smith [2020] ACAT 111
Nichols v Amers Pty Ltd CAN 112 055 366 (No. 2) [2020] ACAT 79
Williams v Onerwal Local Aboriginal Lands Council [1997] NSWRT 137
Dayeuan v Davidson [2010] NSWCA 42
Scott v Commercial Hotel Merebin Pty Ltd [1930] VLR 25
Pitt v Curotta (1931) 31 SR (NSW) 477

List of

Texts / papers: Allan Anforth et al, Residential Tenancies Law and Practice New South Wales, (Federation Press, 7th ed, 2017)
Pearce et al, Statutory Interpretation in Australia (Butterworths, 5th edition, 2001)
Peter Gillies and Niloufer Selvadurai, Law of Contract (Federation Press, 2009)

Tribunal:Member E Morrison
Date of Orders:  28 November 2023
Date of Reasons for Decision:      28 November 2023
AUSTRALIAN CAPITAL TERRITORY          )
CIVIL & ADMINISTRATIVE TRIBUNAL     )          RT 965/2023

BETWEEN:

LUKE BLACK
First Applicant/Tenant

AND:
DANIEL ADAMS
Second Applicant/Tenant

AND:
MAREFA JAHAN
First Respondent/Lessor

AND:
MOHAMMAD HAUQUE
Second Respondent/Lessor

TRIBUNAL:Member E Morrison
DATE:28 November 2023

ORDER

The Tribunal orders that:

ACT Rental Bonds on behalf of the Territory is directed to release the balance of any bond monies held to the lessors.

…………….……………
Member E Morrison

REASONS FOR DECISION

Introduction

This matter involves a fixed term residential tenancy agreement (the tenancy agreement) for a premises in Moncrieff, ACT (the premises).
The applicant tenants (the tenants) are seeking an order under the Residential Tenancies Act 1997 (the RT Act) to terminate the tenancy agreement on the ground of significant hardship. The tenants also allege that the lessor failed to take reasonable steps to mitigate loss suffered by them as a result of the termination and seek an order to “cancel or partially reduce” the amount of any compensation payable to the lessor in respect of the termination.
The respondent lessors (the lessors) do not contest the termination application. However, the lessors make a counterclaim for $5,900 as compensation for early termination of the tenancy agreement. This is described as a break fee of one week’s rent ($850) and six weeks “gap rent” ($5,100).
Further submissions were filed by the tenants on 3 November 2023, which I address below.

The hearing

The application was heard on 1 November 2023. The tenants attended by audio-visual link and were self-represented. The lessors were represented by their property management agents, Mr Centeno and Mr McCaulay, (the lessors’ agents) who attended in-person.
Neither party provided witness statements. Mr Black, Mr Adams, and Mr Centeno gave oral evidence and were subject to cross examination. Both parties filed documents, all of which I have reviewed and taken into account.
It became apparent during the hearing that the tenants had not been served with a copy of the lessors’ response and counterclaim. At the close of the hearing, I invited the tenants to make further submissions on the response and counterclaim. The decision was reserved.
The tenants filed further submissions on 3 November 2023. The tenants stated that the lease was terminated on 20 September 2023. In relation to compensation for the early termination, the tenants restated their claim that the lessors’ agent failed to mitigate loss resulting from the early termination, and also sought to reduce the amount of any compensation payable to reflect their recent significant financial hardship leading to their decision to terminate.

The timeline and tenancy agreement

On 13 September 2023, the tenants signed and dated the tenancy agreement.
It was for a fixed term tenancy of 52 weeks, commencing on 22 September 2023 and ending on 19 September 2024. Rent was $850 per week and payable fortnightly in advance. The tenancy agreement included the break lease fee clause set out in standard term 101 of Schedule 2 to the RT Act (the break lease clause).
The lessors signed and dated the tenancy agreement later that day. An electronic copy of the signed agreement was given to the tenants via a property management app utilised by the lessors’ agent.
On 14 September 2023, the tenants paid a bond of $3,400 to the ACT Rental Bonds. The bond has not been released.
On 20 September 2023, the tenants sent an email to the lessors’ agent. The email advised that, due to unforeseen circumstances, the tenants were requesting “termination of the lease agreement, effective as soon as possible”. The tenants further stated that “we understand that terminating the lease early may incur costs, and we are willing to discuss any reasonable terms for an amicable resolution and to cover any reasonable expenses”.
On 21 September 2023, the tenants sent a follow-up email to the lessors’ agent. The lessors’ agent replied via email stating that the tenants would need to pay compensation of a break fee of one week’s rent ($850) and “up to 6 weeks gap rent from your vacate date, or up to the day before a new tenant starts”. The email further stated, “we will do our best to allocate new tenants to mitigate your loss”.
Later that day, the lessors’ agent listed the premises on Domain.com.au for rent of $900 per week and marked as “available now”. The lessors’ agent gave oral evidence at the hearing that this was the same advertisement as used previously, except the rent had been increased by $50 per week.
The fixed term tenancy was due to commence on 22 September 2023. The tenants did not collect the keys or take occupancy of the premises. The premises remained vacant.
The parties exchanged further emails and phone calls over the following days.
Between 27 September and 11 October 2023, the lessors’ agent conducted six inspections.
On 10 October 2023, the tenants emailed the lessors’ agent raising concerns that new tenants had not been found, and the rate of $900 per week was above market value.
On 15 October 2023, a new residential tenancy agreement was signed for the premises. The new tenancy was to commence on 6 November 2023 for rent of $850 per week. At the hearing, the lessors’ agent gave oral evidence that the tenancy start date had been brought forward to 4 November 2023.

The issues in dispute

There are four issues to determine:
(a)whether the tenancy agreement was validly terminated before the hearing and if so, on what day;
(b)what level of compensation are the lessors entitled to under the break lease clause;
(c)whether the lessors took reasonable steps to mitigate their losses arising from the early termination (and the effect of any failure to mitigate on compensation payable by the tenants); and
(d)whether the amount of compensation can be reduced on grounds of significant financial hardship.
It is not disputed that parties had entered into a legally binding tenancy agreement, nor has it been asserted that the tenants rescinded the agreement.[1]

Did the tenancy agreement terminate before the hearing?

[1] For discussion of termination and rescission, see Pitt v Curotta (1931) 31 SR (NSW) 477. Payment of the bond is evidence that the tenants intended to be legally bound

Section 36(1) of the RT Act sets out the grounds upon which a residential tenancy agreement can be terminated. Of relevance, section 36(1)(j) provides that a residential tenancy agreement can be terminated if:
(i)     a party to the agreement repudiates the agreement; and
(ii)     the other party accepts the repudiation; and
(iii)    the tenant vacates the premises.
A ‘repudiation’, in the context of a lease, is where the tenant’s words or actions express an unequivocal intention not to be further bound by the lease.[2]
[2] Williams v Onerwal Local Aboriginal Lands Council & Ors [1997] NSWRT 137 (Williams)
It is clear from the tenants’ emails and actions on 20 and 21 September 2023 that they intended not to be bound by the lease. They informed the lessors’ agent that they wished to terminate the lease and did not collect the keys or take occupancy of the premises. I am satisfied the tenants repudiated the tenancy agreement on or about 20 September 2023.
It is also clear that the lessors accepted the repudiation. This is evidenced by the email sent by the lessors’ agent on 21 September 2023 seeking compensation and their immediate action to advertise the premises. The premises continued to remain vacant at this time.
A repudiation takes effect when the lessor accepts the repudiation and treats the lease as being at an end.[3]
[3] Williams
On this basis, I am satisfied that the tenancy agreement terminated 21 September 2023.

The break fee and compensation for loss of rent

The lessors are claiming compensation of:
(a)$850 for one week’s rent as a break fee; and
(b)$5,100 for an additional six weeks of lost rent.
The break lease clause in standard term 101 provides a method for calculating the compensation to be paid by a tenant where the tenant terminates a fixed term tenancy agreement during the fixed term. The total amount of compensation payable in relation to the early termination is the amount in the clause, irrespective of the lessor’s true loss.[4]
[4] Residential Tenancies Act 1997 s 8 standard term 101(2)
The break lease clause provides that:
(1) If the tenant ends a fixed term agreement before the end of the fixed term (other than for a reason provided for by the Residential Tenancies Act or the agreement), the tenant must pay a fee (a break fee) of the following amount:
(a)if the fixed term is 3 years or less—
(i)if less than half of the fixed term has expired—6 weeks rent; or
(ii)in any other case—4 weeks rent;
(b)if the fixed term is more than 3 years—the amount agreed between the lessor and tenant.
(2)     The lessor agrees that the compensation payable by the tenant for ending a fixed term agreement before the end of the fixed term is limited to the amount of the break fee specified in subclause (1).
(3)     However, the lessor and tenant agree that if, within the defined period after the tenant vacates the premises, the lessor enters into a residential tenancy agreement with a new tenant, the amount payable by the tenant is limited to—
(a)the amount of the break fee under subclause (1) less the amount of rent payable by the new tenant for the defined period; and
(b)if the tenant vacates the premises more than 4 weeks before the end of the fixed term—the lessor’s reasonable costs (not exceeding the defined cost limit) of advertising the premises for lease and of giving a right to occupy the premises to another person.
(4)     In this clause:
defined cost limit means—
(a)if half or more than half of the fixed term has expired—an amount equal to 2/3 of 1 week’s rent; or
(b)if less than half of the fixed term has expired—an amount equal to 1 week’s rent.
defined period means—
(a)if subclause (1) (a) (i) applies—6 weeks; or
(b)if subclause (1) (a) (ii) applies—4 weeks; or
(c)if subclause (1) (b) applies—N weeks.
N is the number worked out as follows:

Calculating the break fee under standard term 101(1)

The tenancy was for a fixed term of less than three years, so the break fee must be calculated in accordance with standard term 101(1)(a).
Under standard term 101(1)(a), the break fee is six weeks rent “if less than half of the fixed term has expired” or, in any other case, four weeks rent.[5]
[5] (Emphasis added)
It is generally accepted that a reference to the “fixed term” in a lease relates to the period during which the tenant has a right to occupy the premises (as opposed to the duration of the tenancy agreement itself). This is supported by the definition of “fixed term agreement” in the RT Act[6] and case law.[7] In the present case, the fixed term was due to commence on 22 September and end on 19 September 2024.
[6] RT Act, Dictionary, ‘fixed term agreement’
[7] See Dayeian v Davidson [2010] NSWCA 42 at [62]
The next question relates to the meaning of the word “expire”. More specifically, is it necessary for the fixed term to have commenced before it can expire, or is it sufficient that only the tenancy agreement had commenced? This is an important distinction because, in this case, the tenancy agreement was terminated before the commencement of the fixed term.
In working out the meaning of an Act, the provisions of the Act must be read in the context of the Act as a whole.[8]
[8] Legislation Act 2001 s140
Standard term 101(1) refers to the fixed term in two different ways. First, it provides that “[i]f the tenant ends a fixed term agreement before the end of the fixed term”.[9] However, when determining the level of compensation payable, standard term 101(1)(a) provides that “[i]f less than half of the fixed term has expired – 6 weeks rent”.[10]
[9] (Emphasis added)
[10] (Emphasis added)
It is presumed that, where a legislature could have used the same word but chose to use a different word, the intention was to change the meaning. On a plain English reading, the use of the word “end” in relation to a fixed term could suggest the conclusion of the period of time during which the parties had agreed that the tenant would occupy the premises.[11] In this context, the word “end” is used to determine the threshold question of whether or not a break fee is payable under the clause.
[11] Macquarie Dictionary (online) ‘end’
By contrast, standard term 101(1)(a)(i) specifically uses the word “expire” to calculate the amount that is to be paid (once it has been established that the lessor is entitled to a break fee). ‘Expiry’ is defined to mean “lapse or otherwise cease to have effect”.[12] This suggests that a fixed term can only expire if it had first become effective (that is, the fixed term had commenced). Used in this context, the word ‘expired’ suggests an intention that the higher fee of six weeks’ rent should only be payable where the fixed term had, in fact, commenced, and the tenancy agreement is terminated in the first half of that fixed term.
[12] Legislation Act 2001 ss 144, 155, Dictionary ‘expiry’
Where the requirements of standard term 101(1)(a)(i) are not met, the tenant is required to pay four weeks rent.[13] This ‘catch all’ provision is consistent with the purpose of the break lease clause to limit the amount of compensation that may be payable by the tenant to the lessor in circumstances where the tenant terminates a fixed term agreement early.[14]
[13] Standard term 101(1)(a)(ii)
[14] Explanatory Statement, Residential Tenancies Legislation Amendment Bill 2016 cl 5
I have also considered the break lease clause in the context of the RT Act as a whole. In particular, section 84 of the RT Act provides that the tribunal may award compensation for loss of rent (and reasonable advertising costs) where a tenant gives the lessor a notice of intention to vacate before the end of a fixed term agreement and the agreement does not contain a break lease clause. Interestingly, in deciding the amount of compensation under section 84, the tribunal has a broad discretion to award the lesser of 25 weeks rent and “rent in relation to the unexpired part of the agreement”.[15] Section 84 uses different language to standard term 101, which is consistent with the different contexts in which the clauses operate.
[15] RT Act s 84(3).
In the present case, the fixed term was due to commence on 22 September 2023. The tenancy agreement terminated on 21 September 2023, which is one day before the fixed term was due to commence.
On that basis, standard term 101(1)(a)(ii) will apply, and the break fee payable is four weeks rent or $3,400.
Adjusting the break fee under standard term 101(3)
The break lease clause contains extra calculations that apply if the lessor enters into a new residential tenancy agreement within a defined period.[16]
[16] Standard term 101(3).
In the present case, the defined period is four weeks.[17] The new tenancy agreement was signed on 15 October 2023, which is less than four weeks after the termination date. This means that standard term 101(3) will apply.
[17] Standard term 101(4).
I have treated the vacancy date to be the same as the termination date (being 21 September 2023), which means the four week defined period ends on 19 October 2023. However, even if the vacancy date was 20 September (being the date on which the tenants first advised the lessors’ agent that they would not take occupancy of the premises), this is inconsequential because the new tenancy agreement was signed less than four weeks later.
Under standard term 101(3), the amount payable by the tenants is:
(a)The break fee minus any rent paid by the new tenant in the four-week defined period; and
(b)The lessors’ reasonable costs of advertising the premises for lease and of giving a right to occupy the premises to another person (up to one week’s rent).
No rent was payable by the new tenants in the four-week period, so I only need to consider the lessors’ reasonable costs of advertising and re-letting.
I am satisfied that the lessors incurred costs regarding readvertising and a reletting fee charged by the lessors’ agent.[18] However, they did not submit evidence regarding the amount. Having regard to other relevant tribunal decisions as general guidance[19], I am prepared to award the lessors compensation of one week’s rent for advertising and re-letting.
Total amount payable under the break lease clause
[18] Respondent’s submissions filed 1 November 2023, pages 14-22
[19] See Mightyboy Pty Ltd v Barker-Smith [2020] ACAT 111
The amount payable by the tenants under the break lease clause is $4,250, being four weeks rent of $3,400, plus one week’s rent of $850, for advertising and reletting.

Duty to mitigate loss

Section 38 of the RT Act provides that:
A person who, apart form this section, would be entitled to compensation under this Act is not entitled to the compensation, or part of it, if the loss, or part of the loss, to be compensated could have been reasonably avoided.
Mitigation of losses means the taking of reasonable action by the innocent party to reduce the impact of a breach by the other party.[20]
[20] Nichols v Amers Pty LtdACN 112 055 366 (No. 2) [2020] ACAT 79 at [12]
The duty to mitigate is considered by the Tribunal in detail in Nichols v AmersPty Limited [2020] ACAT 79.[21]
[21] Nichols v AmersPty LimitedACN 112 055 366 (No. 2) [2020] ACAT 79 at [12]-[16]
The onus of proof is on the tenants to show that the lessors failed to take all reasonable steps to mitigate the loss caused by early termination of the tenancy agreement, or, in other words, that the lessors acted unreasonably in failing to mitigate the loss.
It is not disputed that the lessors’ agent relisted the premises immediately upon termination of the lease and also that several open homes were conducted over the following weeks. However, the tenants assert that the advertised rent of $900 per week was above market value, and this caused a delay in securing new tenants, hence increasing the number of weeks rent payable by them under the break lease clause.[22]
[22] Application for Resolution of a Dispute under the Residential Tenancies Act 1997 dated 12 October 2023, page 3
The tenants did not submit evidence to the Tribunal in support of their claim that the advertised rent of $900 was above market value. However, based on the evidence provided, I am satisfied that:
(a)the premises was relisted at the higher rent for at least 19 days, i.e., between 21 September 2023 and 10 October 2023 (being the date of the tenants’ email to the lessors’ agent raising their concerns);[23] and
(b)the new tenancy agreement was signed on 15 October 2023 for $850 per week rent.[24]
[23] Attachment – ‘Email correspondence between tenants and lessors’ agents dated 10 October 2023’ to Application for Resolution of a Dispute under the Residential Tenancies Act 1997 dated 12 October 2023
[24] Respondent’s submissions filed 1 November 2023, page 21-22

On balance, I am satisfied that the lessors took steps to mitigate their losses by immediately readvertising the premises when they became aware of the termination on 21 September 2023. However, it was unreasonable to increase the rent by $50 per week. The short time between the tenants raising their concerns and the new tenancy agreement being signed suggests that the lessor could have more reasonably mitigated their loss if the premises was relisted for $850 per week rent.
The amount of set off from the compensation payable by the tenants is one week’s rent or $850.

Can the amount of compensation be reduced due to significant hardship?

The tenants are also seeking an order to reduce the compensation amount due to significant financial hardship which they say they suffered leading up to the decision to terminate.
The RT Act deals with significant hardship only where a party seeks a termination order.[25] There is also no provision in the break lease clause or other terms of the tenancy agreement to enable a reduction of the break fee on grounds of significant hardship.
[25] RT Act s 44
I therefore do not consider there to be any relevant grounds on which the Tribunal can reduce the break fee for significant hardship.

Conclusion

The tenancy agreement terminated on 21 September 2023.
The lessors are entitled to compensation of a total $3,400, being:
(a)compensation payable under the break lease clause of $4,250 (four weeks rent plus one week’s rent for advertising and re-letting);
(b)minus $850 (one week’s rent) for not reasonably mitigating the lessors’ losses arising from the early termination.
There is no relevant ground to reduce the sum of compensation payable by the tenants for significant hardship.
…………………………

Member E Morrison

Date(s) of hearing:	1 November 2023
Applicant:	In person
Respondent:	Mr Centeno and Mr McCauley, authorised representative