Can a landlord be prevented from charging old rent increases?

Q St Kilda Tenancy Pty Ltd v Bortnik [2023] VCAT 1384

Executive summary

In this recent decision, the Tribunal considered whether landlords who did not include annual rent increases when calculating rental arrears in notices of breach of lease had waived their right to retrospectively seek restitution or was otherwise estopped from doing so. 

The Tribunal held that the landlords, by merely omitting annual rent increases in their calculation of rent had not elected by affirmation to waive their right to seek the balance of the rental arrears at some later time.  Further, the tenant had not been induced to act to its detriment, so the landlords were not estopped from recovering the shortfall in rent occasioned by the missed rent reviews.

Background  

The proceeding commenced as an application by Q St Kilda Tenancy Pty Ltd (Tenant) to injunct Ms Bortnik and Mr Rozman (Landlords) from re-entering a leased retail premises in St Kilda. 

The application for an injunction was dismissed and the Tribunal made an order that the Tenant be relieved from forfeiture of the lease subject to the Tenant paying the Landlords $13,727.22 in rental arrears.  This was the minimum amount of rental arrears as calculated by the Landlords at the hearing.

Subsequently, the Landlords and the Tenant contended that $13,727.22 did not accurately reflect the total amount of rental arrears.  

The Tenant’s position was that:

  1. the starting rent was lower than that which was recorded in the lease because of a pre-existing agreement between the Tenant and the previous landlord for a lesser starting rent;
  2. alternatively, if the starting rent was the amount as recorded in the lease, there was no ability to increase the rent annually during the first term because of a pre-existing agreement between the Tenant and the previous landlord for there to be no annual rent increases; and
  3. also in the alternative, the Landlords waived their right to retrospectively claim for annual increases of the starting rent or were otherwise estopped from doing so.

The Landlords’ position was that:

  1. they were not bound by any pre-existing agreement between the previous landlord and the Tenant;
  2. there was no legal foundation for the tenant’s claim that the Landlords waived their right to claim the shortfall in rent and that the reason they omitted annual rent increases from their calculations of rent arrears in the notices of breach was to simplify arguments;
  3. there is no legal foundation to find that they are estopped from now pursuing the shortfall of rent.  Specifically:
    1. they never represented that reviews were not applicable; and
    2. even if such a representation was implied by their conduct there was no detriment suffered by the Tenant as a consequence.

In relation to the question of detriment, the Landlords submitted that the short payment of rent at one point in time does not constitute detriment if it can be established that they were always entitled to the full amount of rent.  At most, it established that the Tenant was afforded a temporary indulgence or reprieve.

Held

In respect of the pre-existing agreement between the Tenant and previous landlord, the Tribunal found:

[22]    …I find that there was no agreement that ‘ran with the land’ or otherwise altered the terms of the renewed Lease

[23]    In my view, it was an indulgence granted by the Previous Landlord and is not binding on the current Landlords. That agreement was personal as between the Tenant and the Previous Landlord. There is no documentary evidence to suggest that the Tenant and the Previous Landlord intended to vary the terms of the Lease by retrospectively altering the starting rent from what was stated in the document constituting the written Lease.

Turning to the issue of waiver and election by affirmation, the Tribunal referred to the High Court decision of Allianz Australia Insurance Limited v Delor Vue Apartments [2022] HCA 38:

[26]      The High Court further observed that the “modern approach to election by affirmation” required complete satisfaction of alternative rights before a right will be extinguished.  In other words, where there are alternative remedies, the choice of one remedy must extinguish the right to pursue the alternative remedy.

And the Tribunal held:

[27]       In this case, I am not satisfied that merely seeking payment of a lesser amount of rent in arrears, either in the form of several notices of breach of lease, or in submissions to the Tribunal in response to the Tenant’s application for relief from forfeiture, constitutes an election by the Landlords between alternative sets of rights. In other words, the mere fact that the Landlords have claimed a lesser amount of rent in arrears does not amount to waiver of their right to claim the balance at some future time, subject to other limitations or defences which may ultimately prevent recovery of that shortfall. 

[28]       Consequently, I find that the circumstances of this case do not give rise to a situation where the Landlords have elected by affirmation to waive their rights to seek the balance of rent in arrears. In that respect, I accept the submission of the Landlords that the Tenant has failed to establish the requisite elements to that principle of law.

Last, in relation to estoppel, the Tribunal held:

[32]       Critically, there is no evidence before me of an unequivocal statement by the Landlords that annual rent increases would not occur. In fact, the opposite seems to be the case

[34]       This is not a situation where the Tenant has been induced to act to its detriment, even if it could be shown that the Landlords had represented that no annual increases in rent were applicable during the first term of the renewed Lease. Put simply, the Tenant has never accepted that the starting rent of $30,940 per annum was the rent payable under the Lease during the relevant period.

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