Moffat & Anor v Rezo & Anor (Appeal)
[2023] ACAT 62
•17 October 2023
ACT CIVIL & ADMINISTRATIVE TRIBUNAL
MOFFAT & ANOR v REZO & ANOR (Appeal) [2023] ACAT 62
AA 18/2023 (RT 415/2023)
Catchwords: APPEAL – RESIDENTIAL TENANCIES – whether an outgoing report made by the lessor’s agent meets the requirement of section 30A of the Residential Tenancies Act, and if it does not, whether the lessor’s application should be dismissed– whether a lessor must obtain two quotes in support of any damage/compensation claim – whether compensation for the cost of repairs to damaged walls and ceiling should be depreciated having regard to the depreciated value of the paint – appeal dismissed
Legislation cited: ACT Civil and Administrative Tribunal Act 2008 ss 7, 26
Legislation Act 2011 s 140
Residential Tenancies Act 1997 ss 29, 30, 30A, 35, 53A, 71AB, Division 3.4
Residential Tenancies Legislation Amendment Act 2016
Cases cited:Commonwealth v Amann Aviation P/L [1991] HCA 54
Pawley, Lynda & Harvey, Trent v Loibner, Franz [1995] NSWRT 48
Tankard and Anor v Obgonna and Anor [2017] ACAT 72
Hoad v Scone Motors P/L [1977] NSWLR 88
List of
Texts/Papers cited: Allan Anforth et al, Residential tenancies Law and Practice New South Wales (The Federation Press, 7th ed, 2017)
ATO, ‘Residential rental property items’, Rental Properties 2023 (Web Page, 10 August 2023)
Peter Butt, Butterworths Concise Australian Legal Dictionary (LexisNexis Butterworths, 3rd ed, 2004)
Tribunal:Presidential Member H Robinson
Date of Orders: 17 October 2023
Date of Reasons for Decision: 17 October 2023
AUSTRALIAN CAPITAL TERRITORY )
CIVIL & ADMINISTRATIVE TRIBUNAL ) AA 18/2023
BETWEEN:
SAM MOFFAT
First Appellant/Tenant
AND:
VANESSA LAMANNA
Second Appellant/Tenant
AND:
MIRO REZO
First Respondent/Lessor
AND:
JURE REZO
Second Respondent/ Lessor
APPEAL TRIBUNAL: Presidential Member H Robinson
DATE:17 October 2023
CORRECTED ORDER
The Tribunal orders that:
The appeal is dismissed.
………………………………
Presidential Member H Robinson
REASONS FOR DECISION
This is an appeal against a decision of the ACT Civil and Administrative Tribunal (the tribunal) in the matter of RT 415/2023. In that matter, the member who heard the application (the Original Tribunal) awarded the lessor the sum of $1,430 in compensation for damage in the form of small holes in the ceiling and walls, such compensation to be deducted from the bond.
The appellants allege that the Original Tribunal made several errors of fact and law. The main issues for the Appeal Tribunal are:
(a)whether an outgoing condition report that is finalised by the lessor’s agent some hours after the inspection took place meets the requirements of section 30A of the Residential Tenancies Act 1997 (RT Act) and, if it does not, whether the lessor’s application should be dismissed;
(b)whether a lessor must obtain two quotes in support of any damage/compensation claim; and
(c)whether compensation for the cost of “patch and paint” repairs to damaged walls and ceiling should be depreciated having regard to the depreciated value of the original paintwork.
Background
On 1 June 2020, Sam Moffat and Vanessa Lamana (the appellants or tenants) and Miro Rezo and Juro Rezo (the respondents or lessors) entered a residential tenancy agreement in respect to a property in Kaleen (the property). The tenancy commenced on 18 June 2020 and ended nearly three years later, on 6 April 2023.
The property was most recently painted on 25 April 2020. Sometime after moving into the property, the tenants put holes in several walls and a ceiling to hang decorations. They did not seek the lessor’s permission to modify the property in this way.[1] They were offered an opportunity to repair the damage before vacating the property but did not do so.
[1] For example, they did not seek consent for a minor modification using the process available in section 71AB of the RT Act
A final inspection took place on 6 April 2023. Both tenants were in attendance, as were two of the lessors’ agents, Mr Lou Seminara and Ms Jessica Abrahams. During the inspection, the participants went from room to room, with a copy of the incoming inspection report and, as they did so, Ms Abrahams took photos and made notes on her phone. All parties acknowledged the damage to at least some of the walls and the ceiling.
Following the inspection, the agents returned to their office to prepare the outgoing report. About two hours later, they emailed it to the tenants. The tenants declined to sign on the basis that the report was not prepared in compliance with section 53A of the RT Act. They argued that, as they had already vacated by the time they received the report, they were unable to determine whether the photographs and descriptions matched the conceded damage.
Following completion of the inspection, the lessors obtained two quotes to repair the damage to the walls and ceiling. The quotes differ quite significantly in scope, but the lessor relies on the lower in these proceedings, being a quote of $1,430 from Meyboom Painting (the Meyboom quote).
The lessors subsequently made a claim against the bond for the costs of repairs to both the walls and ceiling, and also for the cost of replacement of a damaged bathroom vanity. The tenants disputed the claims. The matter was then referred to the tribunal as a bond referral under section 35 of the RT Act.
The original hearing
The Original Tribunal heard the matter on 1 August 2023. At the hearing the lessors were represented by their agent, Mr Seminara, and the tenants appeared in person. Both Mr Moffat and Mr Seminara gave evidence, most of which was uncontested.
The issues and evidence were limited, and the hearing took less than an hour. The Original Tribunal dismissed the claim for the vanity, on the basis that it was water damaged and needed replacement in any case but found the tenants liable for patching and painting the wall in accordance with the Meyboom quote.
The appeal
The tenants’ application for appeal sets out four grounds of appeal:
(a)the Tribunal was required to take into account “violations of the residential tenancy act”;
(b)the inspection report was invalid;
(c)only a single, or no, relevant painting quotation was provided;
(d)the compensation for the paintwork repair was not depreciated, having regard to the age of the work; and
(e)the tenants were ordered to pay the filing fee.[2]
[2] Application for appeal - ‘Reasons for appeal’ dated 2 February 2023, page 2
The appeal matter was first listed for a directions hearing on 6 September 2023 (directions hearing) and was heard on 26 September 2023 (appeal hearing).
This appeal proceeded as a ‘review’ or ‘rehearing’[3] under section 82(1)(b) of the ACT Civil and Administrative Tribunal Act 2008. During the directions hearing, it became clear there was little dispute over the facts. Accordingly, given the short duration of the original hearing; the limited and largely legal questions in dispute; that there were no serious factual disputes; and that neither party wished to put on any further evidence, in the interests of being simple, quick and inexpensive,[4] I advised the parties at the directions hearings that I did not require them to purchase the transcript or provide written submissions. Instead, I listened to the recording of the original hearing and offered the parties an opportunity to attend the appeal hearing and make oral submissions on the questions of law that arose and identify any alleged errors of fact or law in the Original Tribunal’s decision.
[3] Giusida Pty Limited v Commissioner for ACT Revenue [2016] ACTSC 275 at [36], [37], quoting The Legal Practitioner v Council of the Law Society of the ACT [2011] ACTSC 207; (2011) 257 FLR 118 at [13]- [14]
[4] ACT Civil and Administrative TribunalAct2008 section 7(a)(i)
After the appeal hearing I reserved my decision.
Ground 1: the Tribunal was required to take into account violations of the residential tenancy act
This ground was not strongly pressed at the appeal hearing, but I have given it due consideration nonetheless
The tenant’s documentary material sets out several allegations about the conduct of the lessors and/or their agents during the tenancy. The tenants did not, however, make a counterclaim, or formally seek a compensatory set off. Instead, they requested that the Appeal Tribunal consider the allegations as evidence of a pattern of inappropriate behaviour by the lessor.
I have read the material. I am not able to draw any conclusions about the allegations, particularly on appeal. However, I am satisfied that, even were the allegations substantiated, they are not relevant to the limited questions before the Appeal Tribunal, and they were not materially relevant to the matters before the Original Tribunal.
This is because, as general proposition of law, the rights and obligations in a residential tenancy agreement are independent, and it is not the case that a breach of obligations by one party justifies a retaliatory breach by the other party[5]. There are exceptions (for example, where a breach justifies repudiation), but nothing of that nature was argued before the Original Tribunal in this case, or nor could it be made out on the material before me.
[5] D’A,brosio v Tyler [209] ACAT 33 citing Hawkesbury Nominees P/L v Battik P/L [2000] FCA 185; Worrall v Commissioner for Housing in the ACT [2002] FCAFC 127].
No material error of fact or law by the Original Tribunal is established.
Ground 2: Did the Original Tribunal err in considering the outgoing inspection report?
The tenants say that the outgoing inspection report is invalid and, accordingly, the lessors were not entitled to make a claim on the bond in reliance upon it.
Outgoing inspection reports are governed by section 30A of the RT Act, which provides:
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.
This section was inserted into the RT Act by way of the Residential Tenancies Legislation Amendment Act 2016. The Explanatory Statement accompanying the preceding Bill explained the purpose of the amendment as follows:
Clause 10 New section 30A
This clause inserts a new provision requiring a final inspection and condition report to be completed at the end of a residential tenancy agreement. New section 30A requires the end of tenancy inspection and condition report to be completed by the lessor and tenant jointly as the intention of this amendment is to assist in managing end of tenancy disputes about the condition of the premises. An end of tenancy condition report may still be completed in the absence of the other party provided the other party has been given reasonable opportunity to be present. A tenant would not be penalised for signing the condition report, other than in respect of not having an input into what is included in the evidence about the condition of the report. If the parties cannot agree on the condition report, then there will be provision on the form for each party to make their own observations about the condition of the premises.
Clearly, the intention is for the parties to complete the report “jointly”, where possible, with an exception where that is not possible.
Interestingly, despite the insertion of this clause into the RT Act, the bond release process in Division 3.4 of the RT Act (which does refer to ingoing condition reports) makes no reference to an outgoing condition report. Indeed, there is no reference to an outgoing condition report anywhere in the RT Act, outside of section 30A. I will come to the consequences of this shortly.
Turning to the words of this section, and what it requires, it appears that:
(a)under section 30A(1), the lessor must “together with the tenant” carry out an inspection at the end of the tenancy;
(b)under section 30A(2), the lessor must “together with the tenant” complete and sign a report; and
(c)section 30A(3) then appears to create an exemption to the above requirements, where a party may complete and sign the condition report “in the absence of the other party” if the other party was given “a reasonable opportunity to be present when the report is completed and signed”.
There is no doubt that the requirements of section 30A(1) were met in this case, and the parties conducted a joint inspection. The question is whether section 30A(2) required the completion and signing of the report by persons who are proximate to each other at that time.
On a plain English reading, the use of the word “together” in sections 30A(1) and (2) could suggest that the inspection of the premises and completion of the report are to be undertaken by both parties, at the same time[6]. This is consistent with the goal of the report, as articulated in the Explanatory Statement, to be a document that reflects the agreement of both parties and, where that is not possible, the noting of areas of disagreement. However, the word “together” can also be taken to mean a joint endeavour, or cooperative exercise[7], with the focus on the outcome rather than whether the parties were in the same place at the same time, with the same document before them.
[6] Eg. Macquarie Dictionary, “into or in one gathering, company, mass, place, or body: to call the people together”, “into or in union, proximity, contact, or collision, as two or more things: to sew things together.”
[7] Macquarie Dictionary, “taken or considered collectively or conjointly: this one cost more than all the others together,” or “into or in relationship, association, business, or friendly relations, etc”.
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] While sections 30A(1) and (2) are ambiguous in isolation, section 30A(3) is very clear – the exemption applies only where a person is given an opportunity to be “present when the report is completed and signed”. Used in this context, the word “present” denotes physical and temporal proximity[9].
[8] Legislation Act2001 section 140
[9] Macquarie Dictionary, “being with one or others, or in the specified or understood place (opposed to absent)”, “being here or there, rather than elsewhere.”
Read together, the clauses in section 30A clearly require that the other party be given “a reasonable opportunity to be present when the report is completed and signed.” The purpose behind this is clear enough – as per the Explanatory Memorandum, the intention is that the parties reach an agreement over the state of the property, or identify areas of disagreement, and complete and sign a contemporaneous report that reflects that agreement.
The respondents’ agents contended, with some merit, that their process met the requirements of section 30A(2). They inspected the property with the tenants, identified the alleged damage to the walls and ceiling, and specifically discussed it with the tenants. The agents believed the parties had reached agreement. Ms Abrahams took notes. She then went back to the office and wrote up a report that reflected those notes. There is no reason to believe that Ms Abrahams did anything other than act in good faith to produce what she considered an an accurate report based on those notes.
However, misunderstandings can arise, despite good intentions.
The tenants dispute whether the report was in fact accurate. It is not entirely clear to me what parts of the report they disagree with, but I understand their argument to be that, now they do not have access to the premises, they cannot be sure what was written in the report reflects what was agreed. Again, their argument is not without some merit. The purpose of having a signed, contemporaneous report is to avoid exactly this situation.
As such, I agree with the tenants that the intention is that the report be completed, ideally at the property[10], in the presence of both parties, with both parties marking up changes to the report and signing it together. That did not happen in this case. Accordingly, the report does not comply with section 30A.
[10] Although it could perhaps be finalised elsewhere with both parties in attendance
I note here that I agree with the lessors that completing the report on site does raise practical problems, but there should at least be some practical way of recording agreement while the parties are together.
Nonetheless, that the outgoing condition report does not meet the requirements of section 30A does not mean that the respondent’s case should be struck out.
If the absence of a valid report were to be fatal to a lessor’s claim for compensation, then I would expect that the RT Act would say so. It does not. Indeed, there is nothing in the RT Act that states what happens when a purported outgoing condition report does not comply with section 30A.
Returning to section 30 of the RT Act, this deals with that happens when there is no ingoing condition report.[11] It creates an evidentiary rule, as follows:
30 Evidence of condition of premises
(1) If section 29 (1) and (3) have been complied with, a statement in a report mentioned in section 29 about the state of repair or general condition of the premises, and of any goods leased with the premises, (other than a statement in relation to which the tenant, by endorsement, has indicated disagreement) is evidence of that state of repair or general condition on the day the tenant was given the report.
(2) If only section 29 (1) has been complied with, a statement in a report mentioned in section 29 about the state of repair or general condition of the premises, and of any goods leased with the premises, is evidence of that state of repair or general condition on the day the tenant was given the report.
(3) If section 29 (1) has not been complied with, evidence by the tenant about the state of repair or general condition of the premises, and of any goods leased with the premises, is evidence of that state of repair or general condition on the day the tenant took possession of the premises.
[11] The requirement for which are set out in section 29 of the RT Act
In summary, a failure to comply with the statutory requirements in section 30 in relation to an ingoing condition report does not render a lessor’s subsequent claim for compensation invalid. The section provides only that “evidence by the tenant about the state of repair or general condition of the premises … is evidence of that state of repair or general condition on the day the tenant took possession of the premises.”[12] Exactly what this means is unclear, but the Tribunal must at least consider the evidence of the tenant to be evidence of the “general condition” of the house at the commencement of the tenancy, even if ultimately it is not satisfied that it amounts to proof of a particular matter. This means, in practical terms, a lessor who fails to properly complete an ingoing condition report may struggle to satisfy the evidentiary burden should they later make a claim on the bond. However, there is nothing in the RT Act preventing the lessor from bringing a claim.
[12] RT Act section 30(3)
It is unclear to me whether the failure to include an outgoing report in section 30 the RT Act was a policy decision or an oversight, but either way, there is no equivalent provision that applies where there is a failure to comply with the statutory requirements for an outgoing condition report.
So, what, then, is the purpose of an outgoing report?
Given the legislative framework, it would appear to be that a properly completed outgoing condition report is evidence of the condition of the property at the time the tenancy came to an end, but it is not conclusive proof, and its completion is not a prerequisite to either party making a claim for compensation.
That said, this is all rather theoretical in this case. The appellants, quite rightly, admit to having caused damage to at least five walls and a ceiling. The photographs speak for themselves. Their evidence is evidence as to the state of the property at the conclusion of the tenancy. It is disingenuous to argue they are not liable for the cost of repairing at least the conceded damage.
The question before me is whether the Original Tribunal erred in considering the outgoing condition report. I am satisfied it neither erred in doing considering the report, nor gave it excessive weight. No error is established.
Ground 3: Did the Original Tribunal err in awarding compensation based on only one quote?
As I understand it, the tenants argue that the Original Tribunal awarded damages of $1,430 in circumstances where it did not have the evidence to do so. The absence of evidence arises from either the tenants having two unreliable quotes or having only one quote.
A question as to whether a decision maker made a decision without evidence to support it is a question of law.
It is not in dispute that the lessor obtained two quotes, being:
(a) one from DnR painting and maintenance for $2,500 (DnR quote); and
(b) one from Matthew Mayboom painting for $1,430 (Mayboom quote).
Without going into excessive detail, it is apparent that the DnR quote is broader in scope. In addition to the repairs to several rooms identified by Mr Meyboom, it includes the hallway, an additional ceiling and a second bedroom. I can understand why the tenants are confused when comparing the quotes. No satisfactory explanation for the differences was offered by the agent.
In considering whether the Original Tribunal erred, it is useful to start by considering what evidence of loss was required.
In broad terms, compensation for breach of a residential tenancy agreement is a form of compensation for breach of contract. The onus of proving both that loss was suffered, and the value of that loss, lies with the applicant – in this case, the lessor.[13] These are both questions of fact. In order to establish these facts, the lessor must provide cogent evidence that the damage caused by the tenant diminished the value of the property.[14] This usually requires evidence of rectification costs, but in some cases diminution in the capital value of the property may also be considered.[15] The evidence can take the form of written quotes or invoices or, in some circumstances, evidence from an appropriate person.[16]
[13] See, for example, Commonwealth v Amann Aviation P/L [1991] HCA 54 at [4] per Deane J, [2] per Brennan J, and [15] per Toohey J
[14] See, for example, Pawley, Lynda & Harvey, Trent v Loibner, Franz [1995] NSWRT 48
[15] See the discussion in Allan Anforth et al, Residential tenancies Law and Practice New South Wales (The Federation Press, 7th ed, 2017) (Anforth), pages 398-399
[16] See ACT Civil and Administrative Tribunal Act 2008 section 26: “The Tribunal may inform itself any way it considers appropriate …”
As I understand the tenant’s argument, it is that the lessors’ quotes are unreliable, and the second quote should be disregarded because it is so different to the first in in terms of quantum and scope.
The difficulty with this argument is that the lessor’s did not rely upon the DnR quote. Their application was based on the Meyboom quote.
There is no principle that a lessor must have two quotes. Obviously, where the value of work is disputed, multiple, consistent quotes would certainly be evidence that a claim is a reasonable one. However, multiple quotes are not required in every case.
Further, the tenants in this case had an opportunity to obtain their own and did not do so.
The Original Tribunal accepted the Meyboom quote as evidence of both the scope of the damage and the quantum of loss. These are factual findings. This being an appeal, it is not appropriate that I interfere with these finding where there is no evidence that they are in error.
I note, for completeness, that there was also a question of fact before the Original Tribunal as to whether the holes could be patched and painted without the need to repaint the entire wall or ceiling. The lessors relied on the Meyboom quote as evidence or this; the tenants had no evidence beyond their assertions. In such circumstances, the Original Tribunal had little option but to accept that the walls needed to be both patched and painted.
No error of fact or law is established.
Ground 4: Did the Original Tribunal err by failing to depreciate the original paintwork?
The parties agree that the Premises was freshly painted on the day that the tenants moved in. The paint is therefore three years old. The tenants submit that, in considering the compensation to be awarded, the tribunal must make an allowance for the age of the paintwork.
In Tankard and Anor v Ogbonna and Anor (Tankard), the Tribunal considered the depreciation of carpet as follows:
Carpet, as a floor covering, deteriorates over time as a consequence of fair wear and tear. The Federal Commissioner of Taxation (the FCT) allows significant tax deductions for depreciation in recognition of this fact. Even if carpet has to be replaced as a consequence of damage for which a tenant is liable, the carpet needs to be valued with reference to its age at the time of its replacement not the cost of its replacement.[17]
[17] [2017] ACAT 72 at [9]
The observations of the Tribunal in Tankard relate to carpet. Carpet is a capital expenditure for which significant tax deductions are permitted under the ATO’s Depreciation Schedule.[18] The depreciation schedule does not include an item for painting an investment property. This is presumably because painting to repair damage is not a capital investment.[19] There was no error in the Original Tribunal failing to apply a Depreciation Schedule that did not apply to the kind of damage for which compensation was sought.
[18] See: ATO, ‘Residential rental property items’, Rental Properties 2023 (Web Page, 10 August 2023)
[19] See Anforth, page 400
However, the underlying argument made by the tenants remains – the lessor is entitled to the costs of rectification or the diminution in the value of the property caused by damage that goes beyond fair wear and tear, but the tenant should not pay for improving the property.
Although not raised expressly by the tenants, I note that there is a principle drawn from the caselaw called ‘betterment’ that is reflects their argument. Betterment is an unearned or excess increase in value,[20] which in the context of a building, would be work that goes beyond repair or restoration. However, even where betterment to apply, it must be applied on the facts.[21] There was no evidence cogent before the Original Tribunal that would have allowed him to make an assessment as to whether there was an excessive or unjust benefit to the lessor in allowing the full costs of repairing the walls and ceiling.
[20] Peter Butt, Butterworths Concise Australian Legal Dictionary (LexisNexis Butterworths, 3rd ed, 2004), page 48 ‘Betterment’
[21] Hoad v Scone Motors P/L [1977] NSWLR 88, 93-95
The Original Tribunal appears to have concluded that the Meyboom quote was an accurate assessment of the damage, and that is a question of fact I am reluctant to interfere with. Having regard to the photographs, the house is old, and the plaster visibly cracked in places, despite the relatively new paintwork.[22] However, the walls and most of the paint appears to generally be in a reasonably good condition. Even accepting paint has a lifetime of 7 to 10 years, as suggested, it would usually be the case that most of the loss of value of something like paint would be in the last years of the job. Moreover, the evidence indicated that patching could not be done without painting, and the real damage was not to the paint, but to the plaster. The quote is modest, and there is nothing to suggest unnecessary work. The tenants conceded at the Appeal Hearing that they put holes in five walls and a ceiling, and the photographs before the Tribunal appear to show decorations hanging on at least seven walls (noting there is no evidence before me as to how they are affixed). The Original Tribunal also heard evidence form the parties.
[22] See, for example, applicants index of documents dated 20 July 2023, pages 38-40
The Original Tribunal had an evidentiary basis for making the decision it did, and no error of fact or law is established.
Ground five: Refund of the application fee
In relation to (d), the tenants are correct. The Original Tribunal, in error, awarded the application fee to the lessors. As this was a bond referral, the lessors did not pay an application fee and was not entitled to the refund. This error was corrected prior to the Appeal Hearing
Conclusion
The original decision is confirmed, and appeal is dismissed.
………………………………
Presidential Member H Robinson
For and on behalf of the Tribunal
| Date(s) of hearing: | 26 September 2023 |
| Applicants: | In person |
| Respondent: | Mr Seminiara, authorised representative |
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