Kotzbeck v Khoundavong (Residential Tenancies)

[2018] ACAT 94

ACT CIVIL & ADMINISTRATIVE TRIBUNAL

KOTZBECK v KHOUNDAVONG (Residential Tenancies) [2018] ACAT 94

RE 47/2018

Catchwords:              RESIDENTIAL TENANCIES – endorsement of additional terms under section 10 of the Residential Tenancies Act 1997 – condition reports

Legislation cited:      Residential Tenancies Act 1997 ss 8, 9, 10, 29, 30, 30A

Standard terms: 21, 22, 23, 23A, 64

Tribunal:                   Senior Member A Anforth

Date of Orders:           13 August 2018

Date of Reasons for Decision:         28 September 2018

AUSTRALIAN CAPITAL TERRITORY  )

CIVIL & ADMINISTRATIVE TRIBUNAL       )          RE 47/2018

BETWEEN:

HAYDEN KOTZBECK

Applicant

AND:

ARNOLD KHOUNDAVONG

Respondent

TRIBUNAL:   Senior Member A Anforth

DATE:13 August 2018

ORDER

The Tribunal orders that:

1.   The Tribunal declines to endorse the sought terms.

…………Signed………..

Senior Member A Anforth

REASONS FOR DECISION

1.The applicant is the lessor of the residential premises in the ACT and the respondent is a tenant. The parties have entered a residential tenancy agreement in the standard form set out in Schedule 1 of the Residential Tenancies Act 1997 (RTA).

2.The parties have sought the Tribunal’s endorsement under section 10 of the RTA of a special term to be included in the residential tenancy agreement. The Tribunal has declined to make the endorsement for the following reasons.

Legislative framework

3.Section 8 of the RTA provides that all residential tenancy agreements are to be in the standard form of Schedule 1. It must not contain any additional term that is inconsistent with the standard terms unless that inconsistent term has been endorsed by the Tribunal under section 10 of the RTA:

8      Standard residential tenancy terms

(1)A residential tenancy agreement—

(a)must contain, and is taken to contain, terms to the effect of the standard residential tenancy terms mentioned in schedule 1; and

(b)if the lessor and tenant agree—may contain a fair clause for posted people and

(c)if the agreement is a fixed term agreement and the lessor and tenant agree—may contain a break lease clause; and

(d)may contain any other term—

(i)that is consistent with the standard residential tenancy terms; or

(ii)that is inconsistent with a standard residential tenancy term if the term has been endorsed by the ACAT under section 10.

4.Any term that is inconsistent with the standard terms and has not been endorsed by the Tribunal under section 10 is void. Section 9 of the RTA provides that a term that is inconsistent with a provision of the RTA (other than a standard term) is void per se:

9      Inconsistent tenancy terms void

(1)A term of a residential tenancy agreement is void if—

(a)it is inconsistent with a standard residential tenancy term; and

(b)it has not been endorsed by the ACAT under section 10.

(2)A term of a residential tenancy agreement is void if it is inconsistent with this Act other than a standard residential tenancy)

5.Section 10 of the RTA provides:

10     Endorsement of inconsistent tenancy terms by ACAT

(1)The parties to a residential tenancy agreement may apply in writing to the ACAT for endorsement of a term of the agreement (the inconsistent term) that is inconsistent with a standard residential tenancy term.

(2)If the parties apply for endorsement of the inconsistent term, the ACAT must do 1 of the following:

(a)endorse the inconsistent term;

(b)substitute the equivalent standard residential tenancy term for the inconsistent term.

(3)In making a decision under subsection (2), the ACAT must consider—

(a)the criteria determined under subsection (6); and

(b)whether the inclusion of the inconsistent term in the residential tenancy agreement was obtained by fraud or undue influence.

(4)The ACAT must not endorse a term that is inconsistent with this Act (other than a standard residential tenancy term).

(5)The ACAT must not endorse a term mentioned in section 15(5) in relation to a tenant unless satisfied that the tenant owes an amount to the housing commissioner.

(6)The Minister may determine criteria for subsection (3) (a).

(7)A determination is a disallowable instrument.

6.The power in section 10 applies where the parties seek the endorsement of a term that is inconsistent with a standard term as opposed to being inconsistent with a provision of the RTA itself. A term that is inconsistent with the RTA itself cannot be endorsed (section 10(4)).

7.There are no criteria determined by the Minister for the exercise of the power in section 10.

8.There have not been any judicial or tribunal consideration of the scope or application of section 10 of the RTA.

9.When a residential tenancy agreement is formed the parties must complete an ingoing condition report in the manner described in section 29 of the RTA:

29     Condition report–start of tenancy

(1)A lessor must, not later than the day after the tenant takes possession of the premises, give the tenant 2 copies of a report about the state of repair or general condition of the premises, and of any goods leased with the premises, on the day the tenant is given the report.

(2)A report under subsection (1) must be signed by the lessor.

(3)The tenant must, within 2 weeks after receiving the copies of the report mentioned in subsection (1), return 1 copy to the lessor, either—

(a)signed by the tenant; or

(b)endorsed with a statement, signed by the tenant, indicating whether the tenant agrees or disagrees with the whole of the report or with specified parts of it.

(4)If the tenant returns the copy signed but without further endorsement, the tenant is taken to have agreed with the whole of the report.

(5)To remove any doubt, a condition report for premises may, but need not, contain a list of items at the premises, other than goods leased with the premises.

10.Section 30 provides that an ingoing condition report is evidence of the state of the premises at that time. It is relevant and contemporaneous evidence albeit not definitive of the state of the premises at that time. It is often important evidence in later bond claims.

11.The terms of section 29 are replicated in standard terms 21-23 albeit not in identical terms:

21(1)    Within 1 day of the tenant taking possession of the premises, the lessor must give 2 copies of a condition report completed by the lessor to the tenant.

(2)The condition report must be on, or to the effect of, the condition report form published by the Territory.

22(1)    The tenant must examine the report and indicate on the report the tenant’s agreement or disagreement with the items.

(2)Within 2 weeks after the day the tenant receives the report, the tenant must return 1 copy of the report to the lessor, signed by the tenant and indicating the tenant’s agreement or disagreement with the report or parts of the report.

23     The lessor must keep the condition report for a period of not less than 1 year after the end of the tenancy.

12.At the end of a tenancy, section 30A requires the parties to do an outgoing inspection report that is directed at the terms of standard term 64:

30A   Final inspection and condition report–end of tenancy

(1)A lessor must, together with the tenant, carry out an inspection of the premises at the end of the residential tenancy agreement.

(2)The lessor must, together with the tenant, complete and sign a condition report based on the inspection.

(3)However, a party may complete and sign the condition report in the absence of the other party if the party has given the other party a reasonable opportunity to be present when the report is completed and signed.

13.Section 30A is replicated in standard term 23A albeit not in identical terms:

23A(1)     At the end of the tenancy, an inspection of the premises must be carried out in the presence of the lessor and tenant.

(2)A condition report based on the inspection must be completed in the presence of, and signed by, the lessor and tenant.

(3)A party may complete and sign a condition report in the absence of the other party if the party has given the other party a reasonable opportunity to be present when the report is completed and signed.

14.Standard term 64 defines the state in which the tenant must return the premises at the end of the tenancy:

64     The tenant must leave the premises—

(a)in substantially the same state of cleanliness, removing all the tenant’s belongings and any other goods brought onto the premises during the duration of the tenancy agreement; and

(b)in substantially the same condition as the premises were in at the commencement of the tenancy agreement, fair wear and tear excepted.

The factual background

15.Immediately prior to 26 January 2018 the lessor leased the premises to a tenant known as A. There were no other tenants on that lease. This tenancy came to an end and a new tenancy agreement was entered with the present applicant as from 26 January 2018.

16.It is not known how long the tenancy of tenant A lasted or the circumstances of its termination. It is not known whether the present tenant was a resident of the premises during the tenancy of A or what relationship may or may not have existed between A and the present tenant.

17.When tenant A entered her residential tenancy agreement at the unknown time she complied with the requirements of section 29 of the RTA in completing an ingoing condition report of the premises. The terms of that report are unknown.

The endorsement application

18.The parties have asked the Tribunal to endorse the following term:

1.The applicants accept the ingoing condition report supplied for the tenancy at Base, 410/241 Northbourne Ave, Lyneham …to the tenants noted on that agreement as [tenant A] is a true and accurate reflection of the current condition of the property and accept that this document is accepted as the condition report for the tenancy of Arnold Khoundavong commencing on 26/01/2018 and in effect is reflective of the requirements of prescribed terms 21 to 23 inclusive.

2.In consideration of the above, that the tenant is not required to remove his or her belongings as referred to in prescribed term 64 and a final inspection is not required to effectively end the former tenancy.

19.The background to special terms of this kind is as follows. In it often the case that a person will take a sole lease over a house and then find other people to move in as boarders to help with the rent and outgoings. The residents are not parties to the tenancy. The lessor and tenant will do an ingoing condition report at the commencement of this tenancy. When the actual tenant vacates the lease comes to an end.

20.Analogously, a number of people may form a joint tenancy and after the fixed term has expired one or more may decide to vacate. This action terminates the whole of the joint tenancy.

21.At the end of the tenancy the tenant and the residents are expected to vacate the premises and deliver possession to the lessor. Standard term 64 expressly requires that the tenant (and the residents) remove all their goods and belongings. The removal of the goods and belongings is also required by the common law in order that the tenant to have delivered possession to the lessor. There is a body of jurisprudence on this issue and on the status of tenants’ goods (or residents’ goods) left on the premises at the end of a tenancy.

22.The removal of the goods by the tenant and residents is also necessary in order that an outgoing condition report can be carried out. If furniture remains on the floors or walls at the time of the outgoing inspection it may not be possible for the lessor to inspect the areas covered by the furniture. Further, it could not be known to the lessor what other damage may be caused to the premises when the furniture is finally removed or what the state of cleanliness will be. The purpose of the outgoing condition report is for the parties to inspect the premises together for damage and cleaning issues. This cannot be done if the tenant’s goods (or those of the tenant’s residents) are still in situ. The outgoing tenant’s bond refund depends on these issues. For example, how would the lessor determine if there are stains to carpets that are covered by the resident’s furniture? At the end of the new lease the new outgoing tenant may well deny that they caused these stain and point the figure at the prior tenant.

23.A risk for the new tenants is that there is damage that they are not aware of. It is even possible that the lessor has recovered for the cost of some damage from outgoing tenant. In this event the adoption of the original ingoing report by the new tenants may expose them to a second claim at the end of their tenancy by the lessor for the same damage claimed against the original tenant.

24.If the remaining residents wish to enter a new tenancy with the lessor then they are free to do so. But this is a new tenancy with new tenants and requires that the new parties go through a new ingoing condition report. The new ingoing condition report requires the parties to inspect and agree on the state of the premises at the start of the new tenancy. Again this cannot be done if the premises are still in a furnished state with the resident’s property.

25.In short it is not open to the remaining residents as the putative incoming tenants to refuse to remove their property from the premises sufficient to permit the lessor and former tenant to carry out their obligation in winding up the existing lease.

26.This can cause considerable inconvenience to the remaining tenants who may be prepared to take the risk of what might otherwise be found if they did in fact remove their property from the premises. They may be prepared to adopt the ingoing condition report from the existing tenancy as their own, rather than suffer that inconvenience. This is the usual basis for clauses of this kind.

Consideration of the issues

27.The power in section 10 only applies to endorsing terms that are inconsistent with the standard terms and does not apply to endorsing terms that are inconsistent with the RTA itself. Condition reports (ingoing and outgoing) are regulated both in the RTA itself and in the standard terms (set out above). The standard terms do not precisely replicate the terms of the RTA. In these circumstances it is not clear whether the power in section 10 extends to endorsing inconsistent terms relating to the condition reports. In the past the Tribunal has assumed the power exists but this does not mean that all and any such term has or will be endorsed on its merits.

28.In the absence of any Ministerial criteria the Tribunal has developed its own flexible guidelines for endorsements.

29.The key guiding principle is the extent to which the proposed endorsed term intrudes into basic tenant rights. The greater the intrusion and the more central the tenant right in question, the less likely the Tribunal is to endorse the term even with the tenant’s consent.

30.One of the statutory motivations for the enactment of the RTA and its interstate counterparts, was the concern about the power imbalance between landlords and tenants. It was a conscious decision of the Legislature to curtail the freedom to contract in this subject matter. Putative tenants can agree to all manner of terms for reasons that are not apparent to the Tribunal and the Tribunal cannot convene a hearing in each case to examine the tenant’s motives for the agreement. If the Tribunal were to permit progressive encroachment on basis tenant rights via the endorsement process then it might be that these agreed terms become the new norm for tenants competing for a tenancy. This would be an undesirable and unintended consequence of the section 10 power that was only intended to provide the flexibility to deal with the unusual cases.

31.The rights involved in relation to condition reports are important but they are not as central to tenant rights as some other terms of the tenancy. Some flexibility can be accorded to these terms.

32.Having said that, the Tribunal has endorsed terms of the kind presently sought but only where:

(a)one or more of the new tenants was a tenant under the former lease, that is, there is a continuity of people involved;

(b)the previous ingoing condition report was relatively recent; and

(c)there is no bond dispute between the outgoing tenant and the lessor over the state of the premises, or if there was a dispute, the terms are known to the Tribunal.

33.In the present case there is no apparent continuity of persons as tenants. It is not known whether the new tenant was a resident with the outgoing tenant and if so for how long.

34.The date of the ingoing condition report from the previous tenancy is not known.

35.Is it not known whether there is or was any bond dispute between the outgoing tenant and the lessor.

36.It may be that the term can be endorsed if and when answers to these questions are provided by the parties. Any response should be in the names and with the knowledge of both parties.

………………………………..

Senior Member A Anforth