VICTORIAN CIVIL AND ADMINISTRATIVE TRIBUNAL
CIVIL DIVISION
BUILDING AND PROPERTY LIST	
vcat reference No. BP1406/2021	
CATCHWORDS	
Retail lease, application by landlord for possession of retail premises, whether s146 Notice of Default defective, whether landlord’s use of s146 Notice of Default prevents re-entry based on other provisions of lease,  abatement of rent, set off, s 54, and 57  Retail Leases Act 2003 ( Vic) 	

APPLICANT	Andrea Sharon Eisfelder	
RESPONDENT	Krzysztof (Kris) Kubiak	
WHERE HELD	Melbourne	
BEFORE	Senior Member L. Forde	
HEARING TYPE	Hearing	
DATE OF HEARING	13 September 2021	
DATE OF ORDER	20 September 2021	
CITATION	Eisfelder v Kubiak (Building and Property) [2021] VCAT 1092	

Order

1	The application is dismissed.

L. Forde
Senior Member			

APPEARANCES:		
For Applicant 	Mr F. Brimfield of Counsel	
For Respondents	Mr J. Fitzpatrick of Counsel	

Reasons
1	The applicant, (Landlord) is the owner of premises at 362 Centre Rd, Bentleigh Victoria (premises).The Landlord leases the premises to the respondent, (Tenant) pursuant to a retail lease entered into on 13 August 2020 (lease).
2	The premises are a two-storey building located in a shopping strip with the permitted use of “deli/ take-away food products and associated beverages for retail, sale to public, non-exclusive basis.” The Tenant was provided with a 3-month rent-free period which was later extended. Rent was $30,000 per annum plus GST. The Landlord is not registered for GST.
3	On 2 June 2021, a notice of default under s 146 of the Property Law Act 1958 (PLA) (default notice) was sent by the Landlord’s solicitors to the Tenant demanding payment of $13,370.62 plus interest and costs by 17 June 2021. 
4	After payment was not made, on 22 June 2021 a Notice of Re-entry and Termination of Lease was served on the Tenant and a copy placed on the front door of the premises. 
5	Soon after the Notice of Termination was served, the Tenant’s solicitors wrote to the Landlord’s solicitors and asked: “Our client requires at least 3 weeks to clear out and find alternative storage facilities for his stock and furniture”… we would ask that you consent to our client’s request of 3 weeks to move his stock and possessions out”.
6	The Landlord agreed to give the Tenant a further 3 weeks to vacate the premises by 16 July 2021.
7	The Tenant did not vacate by 16 July 2021.
8	By email of 16 July 2021 the Tenant’s solicitors wrote : “We are instructed that our client will not be able to provide vacant possession by close of business today. He has not been able to secure alternative premises as yet and due to this most current circuit-breaker lockdown, he has not been able to finalise arranging for and moving his stock and equipment out of the store. We ask your client’s patience and agreement to a short one-week’s extension in which to provide vacant possession.”
9	The Landlord did not grant the further extension and the Tenant remains in physical possession of the Premises sleeping there at least most nights. 
ISSUES
10	The Landlord claims to be entitled to possession of the premises having validly terminated the lease upon the serving of the Notice of Termination on 22 June 2021. She says further that physical re-entry has not been possible as the Tenant is residing at the premises. 
11	The Tenant claims that the Landlord is not entitled to possession as:
a.	The default notice was defective; and 
b.	The Tenant was entitled to an abatement of rent  under s57 of the Retail Leases Act 2003 ( Vic) ( RLA) and a set off for damages against rent due.
Validity of Breach Notice and whether notice required?
12	Pursuant to the Lease, – 
7.1 The landlord may terminate the lease…by notice of termination, if – 7.1.1 the rent is unpaid after the day on which it falls due for payment.
13	The monthly rent was $2,750. No GST was payable as the Landlord was not registered for GST.
14	There is a dispute between the parties as to whether after the initial 3 month rent free period, the Landlord granted a further 1 or 2 month rent free period. That dispute will not be resolved today. 
15	The particulars of breach in default notice read:
1. Pursuant to clause 2.1.1 of the Lease, the Tenant failed to pay rent for the period of: 
• 21 March 2021 to 20 April 2021 (due on 1 March 2021);
 • 21 April 2021 to 30 April 2021 (due on 1 April 2021);
 • 1 May 2021 to 31 May 2021 (due on 1 May 2021); and
 • 1 June 2021 to 30 June 2021 (due 1 June 2021). 
in the amount of $8,198.76 (GST inclusive). 
2. Pursuant to clauses 2.1.3, 2.1.5 and 2.1.6 of the Lease, the Tenant failed to pay and/or reimburse the outstanding outgoings in the amount of $5,171.86 (GST inclusive). 
16	The Tenant disputes the amount claimed. It was submitted that the invoices provided first by Aston Commercial (the first property manager) and subsequently Nichols Crowder (the second property manager) are unclear and duplicitous. The Tenant drew the Tribunals attention to the following examples in the invoices (not limited to): 
a.	the amount of $1,750 rent (no GST) for the period between 21 January 2021 and 20 February 2021;
b.	the amount of $2,500 rent (no GST) for the period of 21 March 2021 to 20 April 2021;
c.	the amount of $2,376 rent again for the period of 21 March 2021 to 20 April 2021;
d.	the amount of $2,500 rent for the period between 1 June 2021 to 30 June 2021.
17	I accept that the invoices issued by the Managing Agent were confusing. The lease clearly provides that the monthly rent is $2750 with no GST payable as the Landlord is not registered for GST and the rent is payable on the first of every month. Inexplicably, invoices issued by the agent charged different amounts of rent for rental periods not consistent with the lease. Some invoices showed a duplication of items charged including rent for some months being charged twice.
18	The question is not however whether the agent’s invoices were unclear but whether the default notice was valid. 
19	Counsel for the Tenant referred me to the following authorities and made the following submissions. In Primary RE Ltd v Great Southern Property Holdings Pty Ltd, Judd J considered the legal principles with respect to validity of notice of default as described by Hodgson JA in Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service . 14. His Honour considered that section 146 of the PLA is to give the lessee an opportunity to remedy any alleged breaches before the lessor exercises its legal right of forfeiture. In His Honour’s opinion, a proper opportunity is not afforded to the lessee unless the lessee is alerted to the particular breaches on which the lessor proposes to rely and what the lessor requires in order to bring about a position where termination would not occur. Further, His Honour reiterated the comment of North J in Fletcher v Nokes who said that he: “…thought the notice…ought to be such a notice as will enable the Tenant to understand with reasonable certainly what it is which he is required to do.”
20	It was submitted that the position has been followed in Australia. In Johnson v Sanes & Berger , Wallace J, referring to Horsey Estate v Steiger said: “The object of this legislation includes not only the placing of restrictions on and the giving of relief against forfeiture and re-entry, but the placing of the lessee in a completely informed position so as to enable him to elect what shall be his subsequent conduct.”
21	I accept these authorities and submissions. It is well established law that a default notice must provide sufficient information to enable a Tenant to understand with some certainty what the Tenant is required to do to remedy the breach. Where a notice lacks clarity there may be recourse to other documents provided to the Tenant which might clarify the notice. That is not the case here.
22	The default notice claims $8,198.76 for rent for the period 21 March 2021 to 30 June 2021 being 3 months and 9 days. It is unclear why the rent is not charged according to the lease at the start of every month. Given the monthly rent stated in the lease is $2750 the rent due for three months and 9 days would be $8,989.73. The Landlord claims $8,198.76. Invoices issued by the Managing Agent provide no clarity as they claim different amounts of rent each month and in some months charge GST on the rent. 
23	The claim for outgoings in the default notice is unparticularised. Little assistance is gained by reference to invoices issued by the Managing Agent. For example, the invoice dated 21 April 2021 includes a charge for insurance for the period 21 August 2020 to 21 August 2021 of $2,113.01 twice. 
24	Counsel for the Landlord conceded that the default notice failed to take into account an amount of $2000 paid by the Tenant in April 2021.  
25	Some uncertainty or error in a default notice will not automatically invalidate the notice. In the present case, however, the combination of confusion over the rent charged each month, unparticularised outgoings unsupported by invoices issued from the Managing Agent and the failure of the Landlord to credit the $2000 April payment are enough to invalidate the default notice. The Tenant is not in an informed position to know with reasonable certainty what is expected of him.
26	I find that the default notice is invalid.
27	The Landlord contends that even if the default notice is invalid, she had the right under the lease to re-enter for non-payment of rent. I disagree with this position for the reasons that follow.
28	Clause 7.5 of the lease provides:
Before terminating this lease for repudiation (including repudiation consisting of the non-payment of rent), or for an event lo which section 146(1) of the Property Law Act 1958 (Vic) does not extend, the landlord must give the tenant written notice of the breach and a period of 14 days in which to remedy ii (if it is capable of remedy) and to pay reasonable compensation for it. A notice given in respect of a breach amounting to repudiation is not an affirmation of the lease.
29	Section 146(1) of the PLA requires a landlord, before exercising a right of re-entry or forfeiture under any proviso of a lease or by operation of law for breach of any covenant or condition of a lease to give at least 14 days’ notice of the breach requiring the Tenant to either remedy the breach or pay compensation for the breach. Sub-section146 (12) in effect provides that no such notice is required were the breach complained of is non-payment of rent only.
30	Additional Provision 22.7 of the lease provides:
Clause 7.5 is to be read as if it does not include the following words: …(including repudiation consisting of non-payment of rent), or for an event to which s 146(1) of the Property Law Act 1958 (Vic) does not extend.... 
31	Counsel for the Landlord submits that the effect of clause 7.5 and additional provision 22.7 of the lease and s 146 (1) and (12) of the PLA is that the Landlord is not required to give the Tenant any notice of breach concerning the non-payment of rent before terminating the lease by re-entry. In other words, no default notice is required. 
32	In the circumstances it is contended that it does not matter that the default notice was invalid because the Landlord was not required to give one. 
33	The effect of additional provision 22.7 on clause 7.5 of the lease as follows: 
Before terminating this lease for repudiation (including repudiation consisting of the non-payment of rent), or for an event lo which section 146(1) of the Property Law Act 1958 (Vic) does not extend, the landlord must give the tenant written notice of the breach and a period of 14 days in which to remedy it (if it is capable of remedy) and to pay reasonable compensation for it. A notice given in respect of a breach amounting to repudiation is not an affirmation of the lease.
34	The obligation to pay rent is a fundamental term of the lease. Failure to pay rent is an act of repudiation.
35	The deletion of the words in clause 7.5 by operation of additional provision 22.7 does not remove the obligation on the landlord “Before terminating this lease for repudiation” to give notice to the Tenant.
36	While the Landlord is not required to give notice under s 146 of the PLA, she “must give the Tenant written notice of the breach and a period of 14 days in which to remedy it (if it is capable of remedy) and to pay reasonable compensation for it.”
37	Counsel for the Tenant submitted that the Landlord elected to issue a s146 breach notice and having elected to use that mechanism is now prevented from relying upon s 146(12) of the PLA. No authority was given for this proposition.
38	In reply submissions counsel for the Landlord argued that there was no authority for such a position. Reference was made to the decision of Sleep Overs Group Pty Ltd v Monreale Holdings Pty Ltd . In that case, one of the issues concerned the effect of a notice of default allegedly served on a “without prejudice” and whether it mattered in circumstances where no notice was required under the lease. 
39	In that case the Tribunal found that as breach of the lease complained of was the non-payment of rent only, no notice of breach had to be given prior to re-entry. The fact that a notice although marked without prejudice was given, was not a bar to the Landlord ‘s right to re-enter based upon s 146(12) of the PLA. 
40	I know of no reason to limit a landlord’s right to re-enter for non-payment of rent based upon issuing a notice under clause 7.5 notwithstanding that a notice under s 146 of the PLA was issued. 
41	The question becomes whether the breach notice is sufficient to satisfy the notice requirements of clause 7.5 of the lease.
42	For the reasons set out above, I found the breach notice did not meet the requirements of s146 of the PLA, I find that it did not meet the requirements of clause 7.5 of the lease. The notice should enable the Tenant to understand with reasonable certainty what it is which he is required to do. It did not meet that standard.
43	Accordingly, having failed to give a valid notice under s146 of the PLA or under clause7.5 of the lease, the Landlord was not entitled to re-enter for non-payment of rent. 
Was the Tenant entitled to an abatement of rent?
44	Given the likelihood of the Landlord issuing a new breach notice, I will address the other matters raised by the Tenant to say no rent is payable.
45	 The premises are connected on both sides to neighbouring premises. The awning over the footpath connects to the awnings of neighbouring premises.
46	It is not in dispute that the shop awning was damaged by a truck. The Tenant says the accident occurred in September  2020 and the Landlord says it occurred on 16 October 2020. I prefer the evidence of the Landlord which was more precise. The Landlord was also involved in making a police complaint and insurance claim about the accident.
47	The awning was removed some time before 3 November 2020 and for a variety of reasons, some outside the Landlord’s control, not replaced until June 2021. The premises were without an awning for about 7 months.
48	The Tenant claims to have lost business because of the missing awning and to have been unable to use part of the premises. 
49	The claim for abatement of rent under s 57 of the RLA was made for the first time after the Tenant failed to vacate the premises when the landlord gave extra time to do so. This may have been because it was not until that time that the Tenant obtained legal advice and was informed of the abatement provisions.
50	The relevant parts of s 57 of the RLA provides:
Damaged premises 
(1) A retail premises lease is taken to provide the following if the retail premises, or the building in which the premises are located, is damaged— 
(a) except where the tenant caused the damage, the tenant is not liable to pay rent, or any amount in respect of outgoings or other charges, that is attributable to any period during which the premises cannot be used under the lease or are inaccessible due to that damage; and
 (b) except where the tenant caused the damage, if the premises can be used under the lease but that use is reduced to some extent by the damage, the tenant's liability for rent, and any amount in respect of outgoings or other charges, that is attributable to any period during which the use is reduced is decreased to the same extent;
51	The Tenant concedes that the premises could be used so s 57(1)(a) of the RLA does not apply. 
52	The Tenant deposed in his affidavit to the following:
a.	The premises comprises two floors with a restaurant downstairs and residence for himself and his wife upstairs;
b.	He had a rent-free period until 20 January 2021;
c.	He emailed the Managing Agent on 15 October 2020 about some issues with the premises including leaks in two places in the roof and in storm water drainage and noted he had fixed some of the matters he claimed the landlord should have repaired.
53	The only evidence of the Tenant about the impact of the missing awning is in paragraph 21 of his affidavit. It reads 
As a result of the missing awning, I have been unable to use the Premises in the way I intended. I was not able to store packaged food stock near the window due to the high temperature during the summer months. The awning provided protection from the sun. Without the shade, the stock was spoiled and I had to throw it out. The lack of awning and the heat during the summer months meant that at least two-thirds of the store floor was unusable for any kind of storage or customer service. Further, as a result of lack of awning, I was not able to erect any kind of shop signage or put up advertising, severely affecting the income from my business. Unless customers were walking past, they did not know that I was open. I estimate that the lack of awning deceased my business by approximately $200 net daily.
54	The Tenant’s affidavit limits the claim for abatement of rent for heat and sun effects to “the summer months. ”
55	There is no other evidence to support the Tenant’s claim. In oral submissions, counsel for the Tenant drew the Tribunals attention to a report of MFS Engineering dated 23 December 2020 exhibited to the Landlord’s affidavit material. The report includes photographs of the front of the premises without the awning. The photographs, it was submitted, support the Tenant’s claims about the impact of sun into the premises. 
56	Having closely examined the photographs, I find that they do not show direct sun going into the premises. They show sun hitting the façade of the first floor of the premises but the ground floor appears shaded. In a couple of photos there is minimal sun hitting parts of the front right hand corner of the premises. The sun is not however shown to be infiltrating the premises.
57	There was no evidence of the time of day it is claimed that the sun penetration made 2/3rds of the downstairs area unusable. The photographs clearly show that at least at the time the photographs were taken the downstairs area could have been used. There is no evidence regarding the effect of temperature inside the premises. 
58	When asked what percentage of the premises could not be used, Counsel for the Tenant suggested 50%. 
59	The pre-lease advertisements exhibited to the Landlord’s affidavit material states “shop boasts a large retail frontage, upstairs offices, rear lane access and a large rear courtyard/parking area”.
60	The Tenant had a rent free period until at least 20 January 2021 or on the Tenant’s case, 20 February 2021. Accordingly, for the summer months which are taken in Australia to be December through to February, the Tenant was for most, if not all, of the period in a rent-free period.
61	The Tenant gives no evidence of the premises being unusable after the summer months. 
62	The evidence of the Tenant falls short of what is required to establish an abatement claim. 
63	Even if I accept the abatement claim, at best the Tenant would have an abatement of rent for 5 weeks based on the Tenant’s rent-free period claim. The abatement claim is limited to the Tenant not being able to use two thirds of the downstairs area. The Tenant could still use a third of the downstairs area and the entire upstairs area. Any abatement amount would be minimal.
64	Even if I  allowed, which I do not,  the abatement claim for the 5 weeks claimed by the Tenant at 100% of the rent, the Tenant was still liable to pay the full rent from 1 March 2021 onwards and he did not do so. 
Was the Tenant entitled to set off damages from rent owing?
65	The Tenant claims in his written submissions an entitlement to withhold rent because “the property needed renovating works and these works were not rectified by the Applicant nor her agents on request”. Minimal evidence is provided of this claim in the Tenant’s affidavit. This submission was not expanded upon in oral submission. 
66	There is no evidence of urgent repair works being carried out by the Tenant under s 52 of the RLA. The Tenant deposes that he undertook works because the Landlord failed to do. 
67	The Tenant has failed to prove that the Landlord had an obligation to carry out the repairs undertaken by the Tenant or at all. 
68	For the reasons that follow, even if the Landlord was obliged to repair, the Tenant was not entitled to offset the cost of repairs against rent. 
69	In addition to repairs, the Tenant submits that because of the Landlord’s inaction in rectifying the damage to the shop awning in a timely manner, he has lost business. He deposes that he was unable to erect signage which severely affected his business. He claims to have lost $200 a day. No evidence of loss other than the Tenant’s assertion was provided.
70	Section 54 of the RLA provides that a Landlord must provide reasonable compensation to a Tenant for loss or damage suffered as a result of interference with the premises. 
71	The Tenant claims to be able to offset against arears of rent his claims under s 54 of the RLA in relation to issues he had with the premises after the lease was signed and his loss because of the missing awning. No authority for this proposition was provided.
72	Counsel for the Landlord in opposing the Tenant’s claim to a set off against rent referred the Tribunal to a number of decisions including the decision in Sleep Over. In that case Member Edquist said :-
 As noted by the Full Court of the Federal Court of Australia in Norman; in the matter of Forest Enterprises Ltd v FEA Plantation Ltd[5] (Norman) [137]:
At common law, no set-off will be allowed against a landlord's claim for rent: see Meagher, Heydon and Leeming, Meagher, Gummow, & Lehane’s Equity Doctrines and Remedies (Butterworths, 4th ed,, 2002) at 1056 [37-045]. However, the decision of Forbes J in British Anzani (Felixstowe) Ltd v International Management (UK) Ltd [1980] QB 137 ("British Anzani"), is authority for the proposition that the tenant may claim an equitable set-off against rent provided that the tenant's equity "impeaches" the landlord's title to the demand for rent.
73	Whether or not the Tenant is entitled to claim an equitable set off depends on the words in the lease.
74	Clause 2.1 of the lease provides that the “tenant must pay the rent without any set-off (legal or equitable) or deduction whatever to the Landlord on the days and in the way stated in Item 9 without the need for a formal demand.” 
75	In MEK Nominees Pty Ltd V Secure Parking Pty Ltd  the Tenant sought to raise a counterclaim or set off in answer to any order for payment of rent. Gillard J declined to amend an originating motion to allow the claim to be brought in the same proceeding on the basis that the clause in the lease requiring rent to be paid without deduction precluded reliance on set-offs.
76	In  Citibank Savings Pty Ltd v Simon Fredericks Pty Ltd[7]   Beach J. considered a rental covenant for retail premises including the phrase ‘without any deduction whatsoever’ and concluded that it excluded the possibility of the Tenant effectively relying on an equitable set-off.
77	Given the clear wording in clause 2.1 of the lease and the Supreme Court authorities referred to, I find the Tenant is not entitled to a common law or equitable set off against rent of any claims he might have for compensation.
Conclusion
78	In summary I find that:-
a.	the default notice was invalid for the purpose of s146 of the PLA and clause 7.5 of the lease;
b.	 the Landlord was not entitled to re-enter without a valid notice for non-payment of rent;
c.	Even if the Tenant was entitled to an abatement of rent, on his best case scenario, he was in default of the lease for non-payment of rent from 1 March 2021; and
d.	The Tenant is not entitled to set-off against rent any claim for damages he might have against the Landlord.
79	The Landlord’s application is dismissed.

L. Forde
Senior Member