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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), please contact Our Property & Development Team


Kristy Muhlhan


Kristy Muhlhan

Since 2014, she has been an owner and Principal of the firm and has mastered a broad range of essential commercial and business skills which go hand in hand with the work she does for...

Emma Dickens


Emma Dickens

Bachelor of Legal and Dispute studies
Emma joined us in 2018 and holds a Bachelor of Legal and Dispute studies. Emma is currently studying for her Advanced Diploma of Conveyancing.

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