Tenant terminates Commercial Lease due to faulty air conditioner

A recent VCAT decision demonstrates the importance of a Landlord complying with its obligations pursuant to a commercial lease and the Retail Leases Act 2003 (Vic).

The Facts:

  • Tenant rents retail premises in Melbourne for use as pilates and barre studio
  • Lease includes an additional provision that the Landlord would install an air-conditioner to service the premises and the Landlord would be responsible for capital repairs, whilst the Tenant would be responsible for maintaining in good repair, the air conditioner
  • By mutual agreement, the parties later agreed that the Landlord would re-commission the existing roof-mounted air conditioning unit rather than installing a new air-conditioning unit
  • During the term of the lease, the existing roof-mounted air conditioning unit, as re-commissioned by the Landlord, continued to malfunction
  • The Tenant gave notice to the Landlord of the malfunction, advising that the air conditioner only worked for 20 minute periods at a time
  • Upon inspection, it was discovered that the condenser fan needed to be replaced in the air conditioner; the Tenant informed the Landlord of this
  • The Landlord responded that it was the Tenant’s obligation to maintain the air conditioning unit as per the additional provision in the Lease
  • The Tenant countered that argument that the air conditioning unit was in such a poor state that it required replacement
  • The Landlord did not enter into further discussions or correspondence on this matter
  • 10 weeks after the Tenant raised the issue, the Tenant terminated the Lease for the Landlord’s failure to repair the air conditioning unit which the Tenant alleged was a repudiation of the Lease
  • The Landlord denied its repudiation and alleged that the Tenant had in fact repudiated the Lease, which repudiation was accepted, as a result of it vacating the premises and the Landlord thereby terminated the Lease

The Decision:

  • The Tenant was entitled to terminate the lease
  • The Landlord had fundamentally breached the Lease as a result of it failing to provide an air conditioning system that functioned
  • The air conditioning was fundamental to the success of the Tenant’s business and use of the space
  • The Landlord’s refusal to satisfy their obligations under the Lease or, it’s ‘non-performance’ or failure to respond, was a valid reason for the Tenant to terminate the Lease

If you require legal advice in relation to your rights and obligations as either Landlord or Tenant pursuant to a Commercial Lease or, the Retail Leases Act 2003 (Vic), contact us today on +61 3 9822 8588.


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