The Residential Tenancies and Rooming Accommodation Act 2008 ( 'the Act') provides that a fixed term tenancy agreement can be terminated by a tenant by giving a Notice of Intention to Leave (Form 13).
Section 308 of the Act provides:
308 Notice of intention to leave without ground
(1) The tenant may give a notice of intention to leave the premises to the lessor without stating a ground for the notice.
(2) A notice of intention to leave under this section is called a notice of intention to leave without ground.
If it is a fixed term tenancy, and the Form 13 specifies a date earlier than the expiry of the tenancy, then it is commonly referred to as a 'break lease'.
What then are the consequences for the landlord and the tenant.
There is often a misconception that despite the early termination of the tenancy the 'tenancy agreement' continues until either (a) a new tenant is found or (b) the tenancy agreement comes to an end and the existing tenant is liable to pay rent until either (a) or (b) are satisfied.
That perception is incorrect.
Once the date specified on the Form 13 is reached (for termination of the tenancy agreement), the tenancy ceases to exist. The tenant's obligation to pay rent also ceases to exist as there is no longer a tenancy agreement in place. The tenant's obligations under the tenancy agreement continue up to the date specified in the termination notice – i.e. to pay rent, utility charges, clean etc.
What does occur however after that date of termination, is the landlord's right to be compensated for the fact that the tenant has breached the agreement to continue the tenancy until a fixed date. Therefore the landlord has the right to seek compensation from the tenant for breaching the agreement that was entered into. Despite the fact there is legislation governing residential tenancies, the fact is that a tenancy agreement is a contract entered into between two parties, and therefore general common law principals apply if one party breaches that agreement (subject to specific provisions of the legislation).
In addition, there is the Tenancy Agreement which should make specific reference to the consequences of early termination of a tenancy agreement – i.e. break lease fee, advertising. Provided none of the provisions of the Tenancy Agreement are contrary to any provisions of the Act, they they become part of the contract between the landlord and the tenant and are enforceable as such.
Most tenancy agreements contain special conditions. To avoid any doubt in the event that you have to apply to QCAT for a compensation Order ensure that your tenancy agreements contain special conditions to the effect that in the event of a breach of the agreement and early termination of the tenancy the tenant acknowledges that he/she /they will have to pay specifically:
the landlord's reasonable costs of advertising the property;
a break lease fee which is usually equivalent to the amount you will charge your landlord for re-leasing the premises. This will usually be the cost set out in your management agreement with your landlord. The industry standard is one week's rent plus GST. To remove any doubt ensure that the special condition in the tenancy agreement specifies what that amount equates to.
Remember, the application to QCAT is for 'compensation' as a consequence of the tenant breaching the agreement. Therefore QCAT can only makes orders for compensation for the actual loss suffered by the landlord. Therefore, if the amount you charge the landlord under the management agreement for re-leasing the premises is one week’s rent, you cannot then apply to QCAT for two or more weeks rent.
The actual application to QCAT is made under section 419 of the Act which provides:
419 Applications about breach of agreements
(1) This section applies if any of the following claim there has been a breach of a term of a residential tenancy agreement or a rooming accommodation agreement—(a) a lessor or tenant under the residential tenancy agreement; (b) a provider or resident under the rooming accommodation agreement.
(2) The lessor or tenant, or provider or resident, may apply to a tribunal for an order about the breach.
(3) The application must be made within 6 months after the lessor or tenant, or provider or resident, becomes aware of the breach.
(4) For a residential tenancy, the application may be made—(a) during the term, or after the end, of the agreement; and (b) whether or not an application for termination, or a termination order, has been made about the agreement; and (c) whether or not a rental bond for the agreement is held by the authority when the application is made.
(5) For rooming accommodation, the application may be made—(a) during the term of the agreement or after the agreement ends; and (b) whether or not a rental bond for the agreement is held by the authority when the application is made.
The other aspect of compensation is the landlord's loss of rent as a consequence of the breach of the agreement.
An overriding aspect is the landlord's duty to mitigate any loss. This is set out in section 362 of the Act:
362 Duty to mitigate loss or expense
(1) This section applies to the lessor if the lessor incurs loss or expense because of—(a) the tenant's failure to hand over vacant possession of the premises after a termination order is made by a tribunal; or (b) the tenant's abandonment of the premises; or (c) another act or omission of the tenant.
(2) This section applies to the tenant if the tenant—(a) incurs loss or expense because of an order made by a tribunal or registrar declaring that the tenant abandoned the premises on a stated day; and (b) contends that the premises were not abandoned or were only abandoned on a day after the day stated.
(3) The lessor or tenant—(a) must take all reasonable steps to mitigate the loss or expense; and (b) is not entitled to receive compensation for any loss or expense that could have been avoided by taking the steps.
This of course means that a landlord must take every possible step to re-lease the property at the earliest opportunity. This unfortunately is one area of the residential tenancy law that is 'murky' because the question of assessing the 'mitigation of loss' by a landlord is often very subjective. For instance examples of where the Tribunal have refused compensation for loss of rent:
the property was advertised at a higher rent than under the tenancy agreement the subject of the application;
the damage done to the property by the tenant was unable to be repaired as the landlord was waiting on the insurance company to finalise the claim. A landlord's impetuousity is not a defence to failure to mitigate loss.
The landlord, due to the bad experience with the tenant, became overly zealous in the selection process with prospective tenants.
The landlord failed to recognise that the rental market in that area no longer supported the rent that he/she was seeking.
All of these factors, and others, will be taken into account by QCAT when considering whether a landlord has mitigated loss.
Many property managers that we deal with complain that QCAT decisions are unfair. In response, we have to say that in most cases the reason the decision has not been given as desired is because of poor preparation and presentation.
If you are applying to QCAT then we suggest that the following are fundamental necessities:
Know your legislation. Be able to direct the Adjudicator to the relevant section of the legislation. As indicated above a claim for compensation for a breach of a fixed term agreement is under section 419 of the Act.
Have your evidence available. If you are claiming advertising expenses, then have evidence of that advertising. We have seen numerous applications in QCAT rejected for advertising where a 'global' figure was sought. If you are claiming a 'break lease' fee make sure you can justify it. Have your management agreement available to show how much you will be charging the landlord. Better still, in addition, have a copy of the invoice to the landlord for the re-letting fee.
For loss of rent, ensure you have all evidence available as to the attempts to re-lease the premises. If the premises have had to be re-leased at a lesser rent, have a market appraisal available to show why. If the landlord had to effect repairs prepare a time line showing what steps were taken to have those repairs undertaken as quickly as feasible to allow the property to be released to the rental market. If applications were received for the property but were rejected, ensure that you have detailed reasons why.
Have all your claims for compensation prepared in schedule form. Do not make the adjudicator have to work out what the quantum of your claim is. Specify your claim for compensation by reference to dates and amounts (i.e. if the rent had to be reduced work out what the amount equates to to the end of the fixed term agreement).
There are also a couple of other factors that should be borne in mind. Remember that any application to QCAT for compensation can only be made within 6 months of the date of the breach (i.e. the date of early termination). If, for instance, a property has been impossible to re-lease, despite all reasonable attempts to do so, and no application is made to QCAT within that 6 months, then the landlord will lose all rights to seek compensation. The recommendation is if that is the scenario, the application should be made and the landlord will simply have to accept compensation up to the date of the application (or hearing date) and forego any further compensation.
The second matter that should be taken into consideration is the fact that residential tenancy disputes are decided by QCAT. Therefore any dispute is subject to the provisions of the QCAT legislation.
Once aspect of that legislation that we have seen arise in a number of decisions is the following:
13 Deciding minor civil dispute generally
(1) In a proceeding for a minor civil dispute, the tribunal must make orders that it considers fair and equitable to the parties to the proceeding in order to resolve the dispute but may, if the tribunal considers it appropriate, make an order dismissing the application.
'Fair and equitable' is a term that has been used in many reported decisions, and while the above commentary might indicate that there are established principals upon which QCAT should operate from a legal point of view (i.e. the assessment of compensation), do not be surprised if the fair and equitable assessment may be used.
Remember, that as valued clients of Barclay MIS, if you require any assistance in matters of this nature, please do not hesitate to contact us.
NB The above commentary also applies to instances of termination of fixed term tenancies for unremedied breaches/abandonment, as they are all breaches of the Tenancy Agreement.