17
Jan 2017

Demolishing tenants’ repair obligations

Tenants should make sure they aren’t caught out having to carry out or make payment in lieu for make good and repairs of premises if the tenant has the benefit of section 133A of the Conveyancing Act 1919 (NSW), which applies to all commercial leases in New South Wales.

The section operates in two ways. Firstly, the landlord cannot recover damages for the tenant’s breach of covenant to repair for any more than the reduction, if any, in the value of the premises as a result of that breach (see also Waterways Authority of New South Wales v Coal & Allied Operations Pty Ltd [2005] NSWSC 1285 at [22] per Barrett J). Secondly, the landlord cannot recover damages for a breach of covenant by the tenant to leave the premises in good repair at the end of the lease, where the premises will soon after be demolished or altered so much as to render the tenant’s repair or make good valueless.

This section overrides previous case law, in particular the long standing authority in Joyner v Weeks [1891] 2 QB 31. Under common law, if the tenant does not comply with repair obligations upon termination of a lease, the landlord may be entitled to recover damages to put the premises into that state of repair, whether the landlord does the repairs or not.

Notably, section 133A only covers a Landlord’s rights to recover damages for breach of covenant to repair. It does not cover the scenario where the Landlord has carried out repairs and then neglected to recover the actual cost from the tenant. That scenario would only give rise to the Landlord’s right to sue for debt or liquidated damages. In reality, if the premises were to be demolished or destroyed the Landlord is unlikely to carry out the repairs just to recover the liquidated damages from the Tenant. This is where section 133A operates to put off the Landlord from such exploitation.

Takeaway

A Tenant should ensure that it is aware of its make good and repair obligations, but should not carry them out blindly: the tenant should investigate what the Landlord’s plans are for the premises at the end of the lease.

Please contact us for further information.