Varricchio v Wentzel - [2016] SASC 86

SUPREME COURT OF SOUTH AUSTRALIA
(Appeals to a Single Judge: Civil)
VARRICCHIO v WENTZEL
[2016] SASC 86
Judgment of The Honourable Justice Doyle
16 June 2016
ADMINISTRATIVE LAW - ADMINISTRATIVE TRIBUNALS
LANDLORD AND TENANT - RIGHTS AND LIABILITIES APART FROM COVENANT - OTHER MATTERS
The applicant landlords and the respondent tenants entered into an agreement to rent the applicants’ property. Complaining of mould and water damage, the respondents vacated the property and brought a claim in the South Australian Civil and Administrative Tribunal seeking compensation for a breach of the applicants’ obligation to repair. The claim was dismissed. The respondents sought an internal review, which was successful. They were awarded $9,200 as compensation.
The applicants sought permission to appeal from the internal review. The applicants appealed on the grounds that the Member erred in finding that the applicants breached their obligation to repair by not ensuring that the property was in a tenantable condition at the commencement of the tenancy and by not responding reasonably upon being notified of the tenants’ concerns as to water damage and mould. They also complained that the Executive Senior Member erred in assessing that the respondents were entitled to $9,200 in compensation.
Held (per Doyle J), dismissing the appeal:
1. Leave to appeal against the finding that the applicants breached their obligation to repair is granted, but leave to appeal the assessment of compensation is refused.
2. The appeal is dismissed. The Member did not err in concluding that the applicants breached their obligation to repair.
Residential Tenancies Act 1995 (SA) s 68, s 68(1), s 68(1a), s 68(2); South Australian Civil and Administrative Tribunal Act 2013 (SA) s 70, s 71(1), s 71(2), s 68(2)(a), referred to.
Knueppel v Zarpas [2004] SADC 162, discussed.
Pix v South Australian Housing Trust [2016] SASCFC 57; Jackson v Lepp Investments Pty Ltd [2016] SASC 62; Reliance Permanent Building Society v Harwood-Stamper [1944] Ch 362; Gration v C Gillan Investments Pty Ltd [2005] QCA 184; Northern Sandblasting Pty Ltd v Harris (1997) 188 CLR 313; Jones v Bartlett (2000) 205 CLR 166, considered.

VARRICCHIO v WENTZEL
[2016] SASC 86
Magistrates Appeal.
DOYLE J:

The applicant landlords (Mr and Mrs Varricchio) own a property at 82A Fourth Avenue, St Peters. The respondents (Mr Wentzel and Ms Marks) entered into an agreement to rent the applicants’ property commencing on 15 August 2014. Complaining of mould and water damage to the property, the respondents vacated the property in September 2014 and brought a claim in the South Australian Civil and Administrative Tribunal (SACAT) seeking compensation for a breach of the applicants’ obligation to repair under s 68 of the Residential Tenancies Act 1995 (SA).
The claim was heard by Member Georgiadis and dismissed. The respondents sought an internal review of that decision under s 70 of the South Australian Civil and Administrative Tribunal Act 2013 (SA). The internal review was heard by Executive Senior Member Stevens. It was successful, resulting in the earlier decision of SACAT being set aside and an order that the applicants pay the respondents the sum of $9,200 by way of compensation for the breach of s 68 of the Residential Tenancies Act.
The applicants seek permission to appeal to this Court from the internal review pursuant to s 71(1) of the South Australian Civil and Administrative Tribunal Act. Under s 71(2) of that Act, leave to appeal is necessary.
Before addressing the application and appeal, it is appropriate to outline the factual and procedural background.
Factual background
Prior to the tenancy the subject of these proceedings, the applicants had managed the property through a property manager. By the commencement of the respondents’ tenancy the appellants had taken over the management of the property. However, the property manager carried out the final inspection at the conclusion of the tenancy prior to the respondents’ tenancy.
The respondents were shown through the property in mid July 2014. Both Mr Varricchio and the current tenants were present. The inspection was a short one, so as not to inconvenience unduly the current tenants. While the respondents noticed some evidence of water damage in the back area of the house (on the walls and ceiling of the sunroom) it did not appear to them at the time to be significant. Some of the more significant patches of water damage or mould were obscured by the furniture and possessions of the tenants.
The respondents agreed to enter into a lease. Mr Varricchio was going overseas, but gave the respondents the keys to the property on 11 August 2014 and gave them permission to start moving their belongings in prior to the lease commencing on 15 August 2014. The respondents had a further “walk through” of the property when collecting the keys on 11 August 2014. They noticed some additional staining or water damage in the laundry, which was adjacent to the sunroom. Again, Mr Varricchio was present.
Upon either the initial inspection, or the subsequent walk through, but in any event prior to the tenancy commencing, the respondents had a conversation with Mr Varricchio about the staining. Mr Varricchio indicated that he was aware there had been an issue with a leak but that he had, or would soon, attend to this. There was no suggestion the issue was one of any concern or significance.
The respondents moved in, and the lease commenced, on 15 August 2014. Soon after moving in, the respondents became concerned by what appeared to them to be mould growth in the discoloured areas of the wall and ceiling of the sunroom, and an associated odour. They discovered an additional area of mould behind a piece of furniture that had been left behind in the sunroom. They became concerned about the impact of the mould upon the air quality and their health, particularly that of their infant son. Indeed, their son had begun to experience some respiratory symptoms, which they attributed to the mould they had observed.
Mr Varricchio was overseas until 26 August 2014. Shortly after his return, on 28 August 2014, the respondents verbally notified the appellants of their concerns about the moisture and mould problems at the property, and the potential health implications. On the same day, but without the knowledge of the applicants, the respondents organised for the Housing Improvement Branch (HIB) to inspect the property. The inspector orally confirmed the substandard nature of the premises, including as a result of the presence of mould (which he described as unhealthy). He identified various other concerns about the state of the premises.
As a result of the notification of the respondents’ concerns, Mr Varricchio attended an inspection of the property with the respondents on 30 August 2014. The respondents showed Mr Varricchio the areas of staining. They claim they informed him of the HIB inspector’s suggestion that the stains were evidence of mould, and were unsafe. Mr Varricchio, while accepting that he was informed of the respondents’ concerns, denied that he was informed of the HIB’s involvement on this occasion. He did not recall being informed of the HIB’s involvement until receipt of their report referred to below. In any event, the respondents and Mr Varricchio discussed various options to address the problems identified, including an offer by Mr Varricchio that the respondents be permitted to terminate the lease without penalty. The respondents did not take up this offer. Nor did they accept as suitable Mr Varricchio’s offer to paint the areas of mould. It appears the matter was left on the basis that further inquiries would be made by the respondents to investigate the nature and extent of the problem.
On 1 September 2014, there was a heavy rainfall and the respondents became aware of significant water ingress into the sunroom. Water was entering from the corner of the ceiling, spilling down the windows and walls, and pooling on the floor. On the same day, Mr Wentzel sent Mr Varricchio a text message informing him of this flooding event in the sunroom.
On 3 September 2014, Mr Wentzel followed this up with an email confirming the details of the flooding event, reiterating the respondents’ concerns about the health implications of the mould, and informing the applicants of their intention to undertake testing of the mould and air quality
Mr Varricchio responded by email the same day. Noting the respondents’ health concerns, he suggested they commence looking for an alternative tenancy. He said that he would check the gutters in a few days’ time. On 6 September 2014, Mr Varricchio cleaned the gutters.
On 8 September 2014, the respondents temporarily moved out of the premises into alternative accommodation. They did so because of the concerns they had about the impact the mould was having upon their health, and that of their child. They informed the applicants that they had done so on 9 September 2014.
Earlier in September, the respondents had arranged for a Mr Phillips to test the moisture levels and air quality in the property, and to advise them of any health and safety implications of the mould they had observed. Mr Phillips was variously described by the parties as “an accredited mould technician” or “an accredited remediator”, although his precise qualifications or expertise were never made clear. In any event, he carried out an inspection on 2 September 2014, and returned to take samples on 5 September 2014. He orally advised that there was mould present, and that the area was unsafe from a health perspective – but said that this could only be conclusively determined after testing. Mr Phillips then arranged for the samples to be tested by a mycologist, Mr Lark, from an organisation known as MouldLab.
The respondents were provided with the resulting report from Mr Lark on 13 September 2014. They provided a copy to the applicants on the same day. Consistent with the advice on the occasion of the inspection, the report suggested there were high and elevated levels of airborne mould within the sunroom and one of the bedrooms respectively. The report referred to the existence of fungal hyphae, which was said to be indicative of recent active mould growth and to constitute a potential health hazard. The mould was described as being immunocompromising, allergenic and/or mycotoxin producing. The report recommended remediation to address the mould and its implications. The respondents were then given some detailed recommendations as to remediation by Mr Phillips.
On 23 September 2014, the HIB issued a notice under the Housing Improvement Act 1940 (SA) of its intention to declare the house substandard. The accompanying list of defects detailed multiple problems, including water ingress and mould. The first applicant received this report on 26 September 2014. The notice required remediation work to be undertaken by 28 October 2014.
On 24 September 2014 the respondents served a notice of termination, and the tenancy was terminated by mutual consent on 26 September 2014. The respondents returned the keys on that same day. The respondents paid rent in full up to that day.
Mr Varricchio and his brother completed remedial work over a period of three or four weekends in October. The HIB inspected the property again on 4 November 2014. By notice dated 18 November 2014, the HIB confirmed that all defects in its earlier notice had been remediated and that its intention to declare the premises substandard was withdrawn.
Procedural background
On 9 November 2014, the respondents lodged an application in the Residential Tenancies Tribunal (now SACAT) seeking compensation from the applicants. They sought a total of $17,187.55 as compensation for breaches of the applicants’ obligation to repair in connection with the moisture and mould problems.
The respondents’ claim was heard by Member Georgiadis. The parties gave oral evidence, and also relied upon significant documentary evidence. They made written and oral submissions. On 19 May 2015, Member Georgiadis dismissed the respondents’ claim. He found that the applicants had not breached their obligation to repair under s 68 of the Residential Tenancies Act.
In dismissing the claim, the Member found that the applicants were not aware of the problems prior to commencement of the tenancy, and that once notified of the problems by the respondents they responded reasonably by inspecting the property on 30 August 2014 and thereafter arranging for the defects to be repaired – albeit the tenants had vacated on 8 September 2015. The Member concluded that in those circumstances there was no breach of the s 68 obligation to repair.
On 16 June 2015 the respondents applied for an internal review of this decision. The review was heard by Member Stevens. On 6 October 2015, Member Stevens set aside the decision of Member Georgiadis and ordered that the applicants pay the respondents $9,200 in compensation.
Member Stevens conducted the review on the basis of the evidence before the Tribunal at the original hearing. He concluded that the applicants had breached their s 68(1) obligation to repair. In so concluding, and relying upon the decision of Judge Kitchen in Knueppel v Zarpas,[1] the Member drew a distinction between the two limbs of the obligation to repair – the first being the obligation to ensure that the premises are in a reasonable state of repair at the beginning of the tenancy, and the second being an obligation to keep them in a reasonable state of repair.
[1] Knueppel v Zarpas [2004] SADC 162.
The Member found a breach of both limbs of the s 68 obligation to repair. As to the first limb, the Member said:
I find that the premises were in a state of disrepair before the commencement of the tenancy. The landlord did not, and could not, dispute this. The state of disrepair is amply illustrated by the loss adjustors report dated 16 September 2014, the report of the Housing Improvement Branch dated 23 September 2014 and the photographs that were tendered to the Tribunal. It was corroborated by the evidence of Mr Wentzel and conceded to some extent at least by Mr Varricchio. I focus specifically here on defects in the roofing, guttering and drainage system which had clearly been allowing water ingress to the premises over a period of time. Such water ingress had caused substantial water damage, particularly in the sunroom and laundry, but not confined to those areas. I find that there were obvious areas of mould caused by the water ingress. All of this would have been readily apparent on a reasonably competent inspection before the tenancy commenced.
The landlord stated that he was not aware of these problems. He had not inspected the property. He relied on the former property agent to do this. The agent had not reported any problems. Representatives of the agent were not called to give evidence. On the balance of probabilities, I find that they were aware of these problems. Be that as it may, the landlord is responsible for the failings of his agent. The landlord is taken to have knowledge of the defects which would have been discovered on reasonable inspection.
The defects should have been rectified before the tenancy commenced on 15 August 2014. No action was taken at that time.
As to the second limb, the Member held that upon the 1 September 2014 notification by text message of a flooding event, “[i]t must have been obvious by this stage that urgent inspection by a qualified person and remedial work was required”. The Member noted that the detail of the flooding event, and the respondents’ health concerns flowing from their exposure to the mould, was confirmed and reiterated in an email of 3 September 2014. He concluded in relation to the second limb of the s 68 obligation to repair:
The problems with dampness and mould had been reported to the landlord on 25 August and the flooding event on 1 September. The problems with the premises were to some extent obvious to an untrained casual observer. They would have been readily diagnosed by an inspection by a qualified person. The landlord’s response which was to clean the gutters was insufficient. Even if the landlord was taken to have no knowledge of the defects before the commencement of the tenancy, he should have taken more effective action to diagnose and remedy the defects well before October 2014. I find that he did not act with reasonable diligence as required by s 68.
The reference to 25 August 2014 is a mistake. The date of the notification was 28 August 2014. I do not think anything turns on this. The Member had earlier made reference to the correct date, and I do not think he was labouring under any misunderstanding as to the timing and sequence of relevant events.
In assessing the compensation payable the Member took a “broad approach”. He assessed a component of $3,500 on account of the applicants’ failure to provide premises in a tenantable condition from 15 August to 26 September 2014, noting that despite paying full rent to the applicants for this period, they lived for part of that period in substandard accommodation, and for the rest of the period were forced to pay a higher amount for alternative accommodation. He assessed relocation costs of $900.
The Member declined to award any component for the costs incurred by the respondents in having Mr Phillips carry out or arrange testing as to the existence of the mould, and its impact on the air quality in the property. While Mr Phillips did express concerns about these matters, his qualifications were not clear and he did not give evidence.
However, the Member did award a component of $3,000 for costs incurred in the remediation process. While not accepting that the respondents could recover the cost of all items disposed of, or destroyed, pursuant to the remediation process recommended by Mr Phillips, the Member was nevertheless satisfied that some items of the tenants’ property were visibly damaged by mould, and that others were suspected of being affected. Expressly adopting a “broad brush approach” the Member considered it appropriate to allow a “relatively modest” sum of $3,000 for this aspect of the claim.
Finally, the Member addressed the tenants’ claim for compensation for the “distress, inconvenience and anxiety caused by the landlord’s breach (taking care not to ‘double-dip’ with items already covered).” In awarding $1,800 for this component, the Member reasoned:
Although the evidence has not satisfied me about the expertise of Mr Phillips, the circumstances clearly gave rise to health concerns and the tests done did not diminish those concerns. The tenants were placed in a difficult situation financially and practically by events that were not at all of their own making. The inconvenience and anxiety attached to the situation was significant. The tenants also suffered the loss of items of sentimental value.
The total award in the respondents’ favour was $9,200.
The proposed appeal
The applicants seek to appeal on various grounds. The grounds are not clearly identified in the notice of appeal, but it is apparent that they wish to challenge all three aspects of Member Stevens’ decisions. They wish to contend, in effect, that the Member erred in concluding that:
1. the applicants breached the first limb of the obligation to repair in s 68 of the Residential Tenancies Act by not ensuring the property was in tenantable condition at the commencement of the tenancy;
2. the applicants breached the second limb of the obligation to repair by not responding reasonably upon being notified of the tenants’ concerns as to water damage and mould; and
3. that the respondents’ entitlement to compensation should be assessed in the amount of $9,200.

I proceed on the basis that the applicants seek leave to appeal on these three broad grounds.
The principles governing leave to appeal from a decision of SACAT were recently addressed by the Full Court in Pix v South Australian Housing Trust.[2] The Court adopted the following statement of the relevant principles by Parker J in Jackson v Lepp Investments Pty Ltd:[3]
The over-riding principle is always the interests of justice. The ordinary approach is that permission will only be granted where an appeal is reasonably arguable and the subject matter is of sufficient substance to justify consideration. A failure of the first-instance decision maker to give adequate reasons will require the grant of permission.
Because SACAT is a specialist tribunal with particular expertise in determining tenancy disputes, this Court must give substantial weight to its findings. For this proposition I rely on the decision of this Court in Legal Practitioners Conduct Board v Colton.
[2] Pix v South Australian Housing Trust [2016] SASCFC 57.
[3] Jackson v Lepp Investments Pty Ltd [2016] SASC 62 at [19]-[20], omitting citations.
As the decisions of Pix v South Australian Housing Trust and Jackson v Lepp Investments illustrate, this Court will not routinely grant leave to appeal in cases such as the present. To my mind, the Court should not readily grant leave to appeal in cases where to do so would tend to undermine the legislative intention of the South Australian Civil and Administrative Tribunal Act that tenancy disputes be dealt with by a specialist tribunal which is better equipped to deal with such disputes in a timely and cost efficient way. Granting leave to appeal too readily would tend to undermine this objective, and serve only to add a further layer of expense and delay.
That said, the first two limbs of the applicants’ proposed appeal in this case do raise an issue of principle in relation to the interpretation of s 68 of the Residential Tenancies Act. For that reason, and because the grounds raising this issue are reasonably arguable, I have decided to grant leave to appeal in relation to the first two grounds of appeal (as identified by me). However, for the reasons set out later, I do not think there is any reason to grant leave in relation to the ground challenging the Member’s assessment of damages.
In deciding this matter, like Member Stevens, I have done so on the basis of the evidence before Member Georgiadis. I have approached the matter on the basis that the appeal to this Court is an appeal by way of rehearing. While this requires that I undertake an independent review of the evidence, and form my own conclusion, I must still be satisfied of error before intervening.
Landlord’s obligation to repair
Section 68 of the Residential Tenancies Act is in the following terms:
68—Landlord's obligation to repair
(1)     It is a term of a residential tenancy agreement that the landlord—
(a)     will ensure that the premises, and ancillary property, are in a reasonable state of repair at the beginning of the tenancy and will keep them in a reasonable state of repair having regard to their age, character and prospective life; and
(b)     will comply with statutory requirements affecting the premises.
(1a)The obligation to repair applies even though the tenant had notice of the state of disrepair before entering into occupation.
(2)     However—
(a)     the landlord will not be regarded as being in breach of the obligation to repair unless—
(i)     the landlord has notice of the defect requiring repair; and
(ii)the landlord fails to act with reasonable diligence to have the defect repaired; and
(b)     if the landlord is a registered community housing provider, the regulations may limit the extent of the obligation imposed by subsection (1); and
(c)     if the premises are subject to a housing improvement notice fixing the maximum rent for the premises, the landlord's obligation under subsection (1) to repair the premises does not apply.
It is apparent that there are two limbs to the s 68(1) obligation. The first is an obligation to “ensure that the premises … are in a reasonable state of repair at the beginning of the tenancy”. The second is an obligation to “keep them in a reasonable state of repair”.
There is obviously a temporal distinction between these two limbs. The first is an initial obligation, referable to the state of the premises at the beginning of the tenancy. The second is an ongoing obligation.
An issue arose in the present proceedings as to the extent to which knowledge by the landlord of the defect in the premises was relevant to the determination of an allegation of breach of s 68(1), and in particularly an allegation of breach of the first limb or initial obligation. This involves consideration of both the use of the term “ensure” in the first limb of s 68(1), and the s 68(2)(a) provision in relation to notice.
Taking these in reverse order, s 68(2)(a) provides that a landlord will not be in breach of the “obligation to repair” unless they have “notice” of the relevant defect, and then failed to act with reasonable diligence. It might be argued that the reference to “obligation to repair” in the singular suggests that the requirement of notice was only intended to apply to, or qualify, the second limb of s 68(1). The argument would be that the second limb, the ongoing obligation, is the only obligation properly described as “the obligation to repair”, and that the first limb, the initial obligation, is not an obligation to repair but rather an obligation to ensure that the premises are in a suitable condition (or state of repair) at the outset of the tenancy. But I do not think this argument withstands scrutiny. The better view is that the reference to “the obligation to repair” is a compendious reference to both limbs of s 68(1). This is supported by the reference to “repair” in the first limb. If the legislature had intended the qualification in s 68(2) (and, for that matter, the qualification in s 68(1a)) to apply only to the second limb of the s 68(1) obligation, then it could have, and in my view would have, made that clear.
The next issue is whether “notice” in s 68(2) requires subjective or actual knowledge of the defect in question, or whether objective or constructive notice of the defect will suffice. In my view, the latter approach is to be preferred, and would extend not only to matters that the landlord personally ought reasonably to have been aware of, but also the imputed knowledge of any agent or property manager retained by the landlord. The word “notice” often encompasses constructive notice, and as explained below, to give it that meaning here would be consistent with the common law approach to a landlord’s obligations. In my view, it would be a peculiar result if a landlord were able to diminish their obligation to repair by not inspecting, or otherwise shutting their eyes to the state of the premises.
In respect of the first limb of the obligation, this view is reinforced by the use of the word “ensure” in the articulation of the obligation. That word, while not translating the obligation into an absolute obligation in the nature of a warranty or guarantee as to the state of the premises, nevertheless does connote some positive requirement on the part of the landlord to satisfy himself or herself as to the state of the premises.[4] It assumes, in my view, an obligation on the part of the landlord (either personally or through their property manager) to undertake an inspection prior to the commencement of a tenancy. To confine the notion of “notice” in s 68(2) to actual or subjective notice would tend to undermine the clear intention of the articulated obligation.
[4] See the approach to the word “ensure” in a different statutory context by Vaisey J in Reliance Permanent Building Society v Harwood-Stamper [1944] Ch 362 at 373; applied in this context in Knueppel v Zarpas [2004] SADC 162 at [39] and in Gration v C Gillan Investments Pty Ltd [2005] QCA 184 at [7].
Understood in this way, the net effect of the first limb of the s 68(1) obligation to repair is that the landlord will be in breach when the premises, at the commencement of the tenancy, are not in a reasonable state of repair by reason of a defect which ought reasonably to have been apparent upon an inspection of the premises prior to commencement of the tenancy. This is so regardless of whether the landlord (or their property manager) did in fact inspect or otherwise become aware of the defect. By reason of s 68(1a), it is also so regardless of whether or not the tenant in fact had notice of the defect by reason of their own inspection of the premises.
As to the second limb, the requirement of notice means that the landlord’s obligation will turn upon the inspections undertaken (or required to be undertaken), as well as any information provided by the tenant as to the defects. As the tenants in this case provided notice of the defects relied upon, I do not need to consider the extent of any ongoing inspection obligation on the part of the applicants.
The approach I have articulated is consistent with authority. For example, in Knueppel v Zarpas,[5] Judge Kitchen described the first limb of the s 68(1) obligation in the following terms:
In my opinion s 68, on its proper construction, means that a landlord has notice of those defects requiring repair which would reasonably have been discovered upon an inspection carried out by or on behalf of the landlord at the beginning of the tenancy; a landlord who fails to act with reasonable diligence to repair such a defect will be in breach of the term incorporated into the tenancy agreement by s 68.
[5] Knueppel v Zarpas [2004] SADC 162 at [41].
In Gration v C Gillan Investments Pty Ltd,[6] the Full Court of the Supreme Court of Queensland considered the Queensland equivalent of the first limb obligation, which was also expressed in terms of an obligation to “ensure” that the premises were in good repair at the start of the tenancy. Williams JA expressly adopted Judge Kitchen’s articulation of the obligation as “fully and accurately” setting out the obligation.[7] His Honour said that the obligation required the lessor:[8]
… to take steps to ascertain and satisfy himself that the premises are in a state of good repair at the start of the tenancy; the lessor cannot sit back and say that as the previous tenant has not complaint of any defect therefore the premises must be in a state of good repair. The use of the term ‘ensure’ obliges the lessor to take reasonable steps to ascertain and satisfy himself that the premises are in good repair at the start of the tenancy.
[6]    Gration v C Gillan Investments Pty Ltd [2005] QCA 184.
[7]    Gration v C Gillan Investments Pty Ltd [2005] QCA 184 at [11].
[8]    Gration v C Gillan Investments Pty Ltd [2005] QCA 184 at [8].
According to Williams JA, the obligation to ensure that the premises were in good repair at the start of the tenancy required the landlord, prior to the commencement of the tenancy, to inspect the premises to ascertain the state of repair in order that they be in a position to discharge the obligation imposed upon them.[9]
[9] Gration v C Gillan Investments Pty Ltd [2005] QCA 184 at [17].
Wilson J reasoned to similar effect, holding that constructive notice of defects was sufficient to establish liability. While Muir J dissented as to the outcome, I do not understand his Honour to have differed on the issue of principle.[10]
[10] Gration v C Gillan Investments Pty Ltd [2005] QCA 184 at [66].
As the Courts in both Knueppel v Zarpas[11] and Gration v C Gillan Investments Pty Ltd[12] noted, to formulate the obligation in this way is consistent with the obligation in tort imposed by the common law on the landlord at the start of a tenancy.
[11] Knueppel v Zarpas [2004] SADC 162 at [40].
[12] Gration v C Gillan Investments Pty Ltd [2005] QCA 184 at [14].
Like the obligation in s 68(1), the common law recognises a distinction between the landlord’s obligation to repair as at the start of the tenancy and the ongoing obligation thereafter. As Gaudron J explained in Northern Sandblasting Pty Ltd v Harris,[13] prior to the tenancy commencing:
… the landlord is … in a position to ascertain and control the state of the premises; the tenant and members of his or her household have no such ability and are dependent upon the landlord for their safety, save to the extent that they become aware of existing danger … once a lease has commenced, it seems to me that, in relation to defects which are not present at the commencement of a lease but develop during its term, a landlord’s duty extends only to remedying those defects of which he or she is or ought to be aware. … However, different considerations apply in the case of defects which are present at the beginning of a lease.
Having regard to the control, which at the beginning of the lease, a landlord exercises over the state of the premises and, also, the extent to which members of the household are then dependent upon the landlord for their safety, a landlord’s duty at that point cannot, in my view, be limited to defects of which he or she is aware … [there is] a duty to inspect and, also, a duty to remedy those defects which give rise to a foreseeable risk of injury.
[13] Northern Sandblasting Pty Ltd v Harris (1997) 188 CLR 313 at [359]-[360].
In Jones v Bartlett,[14] Gummow and Hayne JJ described the obligation as extending to defects which the landlord “knows or ought to know” make the premises unsafe, and said that discharge of the obligation required the landlord to take “reasonable steps to ascertain the existence of any such defects”.[15] Liability extended to defects which were “discoverable by the landlord at the time of letting the premises”[16] or “detectable by a landlord inspecting the property”.[17] Kirby J described a landlord’s duty as requiring:[18]
… taking reasonable care to avoid foreseeable risk of injury from defects of which they were on notice or of which (by appropriate inspection) they would reasonably become aware because they were obvious to a reasonable landlord or its agent.
[14] Jones v Bartlett (2000) 205 CLR 166.
[15] Jones v Bartlett (2000) 205 CLR 166 at [173].
[16] Jones v Bartlett (2000) 205 CLR 166 at [214].
[17] Jones v Bartlett (2000) 205 CLR 166 at [215].
[18] Jones v Bartlett (2000) 205 CLR 166 at [252].
In my view these descriptions of the common law obligations of a landlord are in conformity with what is required by s 68(1) of the Residential Tenancies Act, and in particular the first limb of the obligation in that section.
Breach of the applicants’ obligation to ensure the premises were in a reasonable state of repair at the beginning of the tenancy
I have set out earlier Member Stevens’ key findings and conclusion in relation to the applicants’ obligation to ensure the premises were in a reasonable state of repair at the beginning of the tenancy. A key difference between the approaches of Member Georgiadis at first instance, and Member Stevens on review, was the latter’s acceptance that a landlord may be in breach of their s 68(1) obligations without actual or subjective knowledge of the relevant defect.
Once it is accepted, as I have concluded, that this first limb of the s 68(1) obligation extends to defects of which the landlord ought to have been aware of had he or she carried out a reasonably competent inspection of the property, the applicants’ challenge to Member Stevens’ decision largely falls away.
I accept that Member Stevens misstated, or at least exaggerated, the applicants’ position by stating that they did not dispute that the premises were in a state of disrepair at the commencement of the tenancy. Mr Varricchio was aware that there was some staining of the walls and ceiling in the back area of the house, and that there had been an issue with a leak. However, the applicants’ position was that to the extent this was an ongoing issue at all, Mr Varricchio considered it to be a relatively minor maintenance issue and not something that required urgent attention or which resulted in the premises being in a state of disrepair.
This misstatement of the applicants’ position does not, however, undermine the balance of the Member’s reasoning on this issue. As the issue is ultimately to be determined objectively, it does not matter whether or not the applicants’ subjective states of mind were as claimed by Mr Varricchio. For the reasons set out by the Member, there was ample evidence justifying the conclusion that the property was not in a reasonable state of repair at the commencement of the tenancy, and that the defects were of such a nature as to have been apparent upon a reasonably competent inspection. The obvious and significant water damage and staining of the walls and ceiling in the sunroom and laundry went well beyond an aesthetic or minor maintenance issue. The staining was a symptom of a significant and ongoing problem of water ingress that ought to have been apparent upon a proper inspection of the back area of the premises. Its ongoing nature was evidenced by the flooding event on 1 September 2014, but the extent of the water damage apparent at the outset of the tenancy makes it plain that the problem was not one of recent origin.
I also agree with the Member’s conclusion that there were obvious areas of mould. In my view, it was appropriate to make this finding based upon the photographic evidence and oral evidence of Mr Wentzel (including as to the mouldy odour he came to detect). In my view, it was also a matter of common sense that the presence of significant mould might present a health hazard and so render the premises unsafe or unhealthy. That said, the presence and significance of the mould was confirmed by expert evidence. While there were some legitimate doubts about the expertise of Mr Phillips, I see no reason to doubt the general reliability of the results of the tests carried out by Mr Lark of MouldLab on the samples obtained by Mr Phillips.
In summary, a competent inspection by a landlord or their agent, prior to the commencement of the respondents’ tenancy, would have revealed the extent of the staining and the existence of mould. If this was not sufficient to put the landlord on notice of the nature and significance of the problem, then the investigations of the cause of the staining and the health implications of the mould which were reasonably required would have been sufficient to do so.
The applicants complain that neither their previous tenants, nor the property manager, had informed them that there was a problem with water ingress (beyond the fact of some staining and a leak). In response to a similar contention at the internal review hearing, Member Stevens found, on the balance of probabilities, that the property manager was aware of the problems. To the extent this was a finding of subjective awareness on the part of the agents, it must have been based upon the evidence of Mr Varricchio that the agent did carry out a final inspection of the property at the conclusion of the previous tenancy, and an inference that the problem would have been apparent on this occasion. I have some reservations about this finding given that, on the evidence of Mr Varricchio, he was not informed by the agent of any problems with the premises as a result of that inspection. But it is not necessary for me to reach a conclusion in relation to this matter, because it was not necessary for the Member to go this far. The Member’s alternative finding (namely, that even if neither the applicants nor their agent were aware of the problem, it was nevertheless one which would have been apparent on a reasonably competent inspection) was sufficient to sustain the finding of breach of the first limb obligation within s 68(1).
It is not to the point that the tenants had inspected the property prior to the commencement of the tenancy and had noticed some water damage and staining. Under s 68(1a), the obligation to repair applies even though the tenant had notice of the state of disrepair before entering into occupation. Further, it does not follow from the fact that the respondents did not appreciate the significance of the staining that they observed prior to the commencement of their tenancy that a competent inspection by a landlord or their property manager would not have done so. The “inspections” carried out by the respondents were more cursory in nature than I understand to be contemplated by a reasonably competent inspection by a landlord or their agent prior to the commencement of a lease. In this case, the respondents’ ability to appreciate the full nature and extent of the problem was inhibited not only by the relatively brief nature of their inspections prior to commencement of their tenancy, but also by some of the water damage being obscured by the previous tenants’ furniture and belongings.

It follows that I am not satisfied that Member Stevens erred in concluding that the applicants breached the first limb of their s 68(1) obligation.
Breach of the applicants’ obligation to keep the premises in a reasonable state of repair
Having dismissed the applicants’ challenge to the finding of Member Stevens that they breached the first limb of their s 68(1) obligation, their challenge to the further finding that they also breached the second limb of their obligations is academic. For this reason, I do not propose to address the issue at any length.
The essence of Member Stevens’ conclusion was that having been notified of the problem on 28 August 2014, and of the flooding event on 1 September 2014, the applicants’ response thereafter was inadequate. The clearing of the gutters was inadequate, and the applicants did nothing further until October 2014.
The applicants complain that Mr Varricchio attended the property promptly upon receipt of the initial complaint, on 30 August 2014, and that the outcome of this inspection was that the issue had been left on the basis that the respondents would work out what they wanted to do. Mr Varricchio explained that his clearing of the gutters was merely an interim step to address the immediate problem of ingress, and that he was waiting to hear further from the respondents before addressing the underlying problem.
While it is relevant that the respondents did not make clear their desired solution on 30 August 2014, nevertheless events moved on. When the problem became more urgent following the flooding event of 1 September 2014, and the respondents’ further notification of 3 September 2014, I do not think it was sufficient for the applicants to do nothing to address the underlying problem, and the predicament it created for the respondents.
The applicants complain that they had provided the respondents with an inspection sheet prior to commencement of the tenancy, but that the respondents never completed and returned this sheet. While the inspection sheet would have been an alternative method by which the respondents could have notified the applicants of their concerns about water damage, their failure to do so here is of no consequence given that oral and written notice was provided through other means in late August and early September 2014.
The respondents moved out on 8 September 2014, but as this was only on a temporary basis it remained incumbent upon the applicants to address the problem with the urgency which in my view it deserved. I consider that reasonable diligence required a more urgent response to the problem than the October 2014 work carried out by the applicants through Mr Varricchio and his brother. The applicants ought to have taken some substantive steps to address the problem well prior to the termination of the tenancy on 26 September 2014.
It follows that I reject the challenge to Member Stevens’ conclusion of breach by the applicants of the second limb of their s 68(1) obligation to repair. However, for the sake of completeness, I note that had this been the only breach of s 68(1), I am not satisfied it would have justified the level of compensation assessed by the Member. I say this because even if there had been a response within a few days of 1 September 2014, it may well be that a good deal of the work subsequently required by way of remediation would have been necessary in any event, and hence not caused by the breach of the second limb of s 68(1). But as I have upheld the Member’s finding of a breach of the first limb of s 68(1), I do not need to consider this issue further.
Assessment of compensation
The respondents’ claim for compensation was supported by a table setting out the individual components of the amount sought. It was not necessary, in my view, for Member Stevens to address the matter in a line by line manner. It was sufficient for the Member to approach the issue in the broad brush manner in which he did. His reasons indicated the general approach he took in allowing some, but not all, of the amounts claimed.
The applicants complain that the Member allowed some amounts which were the result of the respondents acting on the advice of Mr Phillips as to appropriate remediation. They contend that this was inconsistent with the Member’s decision not to rely upon Mr Phillips’ expertise so far as the issue of breach of obligation was concerned. However, properly understood, there was no inconsistency. The issue at the point of assessing compensation was a different one. The issue at that stage of the inquiry was whether the response to the problem created by the applicants’ breach of obligation was occasioned by the applicants’ conduct and was not an unreasonable response. In this context it was relevant that the respondents relied upon the advice of Mr Phillips in destroying or disposing of some items which had been affected by the mould or were suspected of being affected. There is no inconsistency between the Member finding it was reasonable for the respondents to rely on Mr Phillips’ advice in this way, while at the same time finding that as his expertise was not properly established it was not appropriate for the Member to rely upon Mr Phillips’ views in forming a conclusion as to the precise nature and extent of the mould problem.
The applicants also complain that the compensation included some amounts for items that were only suspected of being contaminated by mould and not confirmed as contaminated. Again, this complaint misunderstands the nature of the assessment of compensation exercise. If, as the Member found, the destruction or disposal of the items was a reasonable response to the mould problem for which the applicants were found liable, then it does not matter whether the contamination was proven or merely suspected.
Finally, the applicants complain that some of the items claimed were the result of the respondents’ voluntary response to the problem in moving out of the premises when they did. But again, even if it is accurate to describe this as voluntary conduct on the part of the respondents given that it was a response to the mould problem, the issue was whether this was a reasonable response to the problem. The applicants have not sought to impugn the reasonableness of the respondents’ conduct in this respect, and so in my view cannot succeed in this challenge to the Member’s assessment of the compensation payable.
Having reviewed the matters sought to be raised by the applicants in their challenge to the assessment of compensation, I do not think that the proposed challenge raises any matter of sufficient merit or importance to warrant leave to appeal being granted on this issue. Accordingly, I decline leave to appeal on this issue.
Conclusion
For the reasons set out, I make the following orders:
1. I grant leave to appeal against the finding of breach by the applicants of s 68(1) of the Residential Tenancies Act, but dismiss the appeal.
2. I dismiss the application for leave to appeal from the assessment of compensation payable by the applicants.