Tenants beware of onerous “make good” obligations

 

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Lawyers acting for tenants often fail to advise their clients about the burden of the repair obligations imposed by the lease during the term of the lease and the “make good” obligations at the end.

These obligations can be particularly onerous in Victoria because of  cases such as Joyner v Weeks [1891] 2 QB 31.

In Joyner the landlord brought an action against the tenant upon a covenant in a lease that the tenant would leave the leased premises in repair at the end of the lease.

When the lease came to an end the premises were out of repair. The landlord proved before the official referee that the cost of putting the premises into repair was £70; however, the tenant claimed the landlord was entitled only to nominal damages because he had leased the premises to a third party who had covenanted to pull down and rebuild the premises and also to pay a higher rent than the defendant had paid and consequently there was no loss.

The official referee gave the landlord a farthing damages, and gave the tenant all the costs of the action; however, on appeal the Court of Appeal held that the measure of damages was the amount which the landlord proved to be the fair and reasonable sum necessary to put the premises into the state of repair in which he was entitled to have them left, being £70.

What is often referred to as the “rule in Joyner v Weeks” is not an absolute rule, but it is a prima facie rule. The effect of Joyner has been abrogated in some States but not in Victoria. Joyner was applied by the Full Court of the Federal Court in Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (2008) FCR 494[1].

In a case similar to Joyner, the Supreme Court of Victoria  recently considered the consequence of a tenant failing to comply with a make good obligation that required it to maintain the premises in good repair during the currency of the lease and to deliver them up to the lessor at the end of the lease in as good condition as they were at the commencement of the lease, fair wear and tear excepted. The tenant breached the obligation to maintain the premises in good repair and failed to deliver them up at the end of the lease in good condition. The landlord conducted a complete refurbishment of the premises, including both internal and external reconfiguration and extensions. The tenant argued that the landlord’s refurbishment rendered the precise works necessary to meet its make good obligations theoretical or irrelevant and therefor the landlord had suffered no loss. Hargrave J rejected the tenant’s arguments and held that the landlord was entitled to recover the cost of performing the precise works which were reasonably necessary to bring the premises up to the state that they would have been in had the tenant complied with its make good obligations during and at the end of the lease. See: Fenridge Pty Ltd v Retirement Care Australia (Preston) Pty Ltd [2013]  VSC 464

 

[1] The appeal was dismissed by the High Court in High Court Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272.

 

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