Landlord Just Blowing Hot Air

One of the most contentious issues in any commercial lease is about each party’s obligations about the air conditioning services.

A dispute between a commercial tenant and landlord over the air conditioning made its way to the Victorian Civil and Administrative Tribunal (Tribunal) late last year. The tenant abandoned the premises because it claimed that the landlord was in breach of its obligations concerning the air conditioning. The landlord attempted to enforce its rights under the lease.

In a turn of events for the landlord, the Tribunal found against the landlord in S 3 Sth Melb Pty Ltd v Red Pepper Property Group Pty Ltd. The landlord was found to have “repudiated” its lease for failing to repair or replace the air conditioning.

The lease provided that the tenant was responsible for maintaining and servicing the air conditioning while the landlord was responsible for capital repairs. This is a very standard clause in most commercial leases. The air conditioning was old and performed very poorly. Each party relied on the relevant lease provision that the other was responsible.

The Tribunal found that the fundamental term of the lease was that the landlord was required to install air conditioning to service the premises. This was consistent with the terms of the heads of agreement. A relevant consideration in this case was that the premises were used as a pilates and barre studio where customers require an ambient temperature in which to work out.

By failing to carry out repairs to the existing air conditioning or replacing it altogether, the landlord failed in its contractual duty to provide air conditioning that could service the premises. This obligation superseded the tenant’s obligations to maintain the air conditioning. The failure to comply with a fundamental term of the lease amounted to a repudiation of the lease by the landlord which meant that the tenant could validly terminate the lease.

If the permitted use under the lease was say that of an office, it is arguable whether the Tribunal would have arrived at the same conclusion.

Although this is a Victorian decision, the reasoning is likely to persuade Tribunals in other jurisdictions where cases containing similar facts are examined.

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