Damage claims for repairs when leasing – Part One

Posted on June 28th, 2017

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The NSW Court of Appeal case, Ellis’s Town House Pty Ltd v Botan Pty Ltd [2017] NSWCA 20, is a particularly interesting case, as it addresses two separate but interesting issues, being:

  1. What is the correct method of assessment of damages under a Lease for a breach of painting and repairing covenants? and
  2. When a party may make an application to appeal from a Judgment of the District Court for amounts under $100,000.00.

We will address these two issues in two parts over two separate articles.

The Facts

The Applicant, Ellis’s Town House Pty Ltd (“Ellis”) was the owner and Landlord of a motel in Albury. The Respondent, Botan Pty Ltd (Botan) was the Tenant of the motel. The parties entered into a Lease that operated from 31 October 2012 to 30 October 2017 with three further options to renew, of five years each.

The Lease contained painting and repairing covenants by the Landlord to the Tenant. The relevant clauses were as follows:

  • Item 25 of Annexure A

The Lessor covenants with the Lessee no later than 6 calendar months prior to the expiration of each 5 yearly period of the term of this Lease and any extension thereof to cause to be painted and varnished (where applicable) the exterior and interior surfaces of the Motel building comprising this demise in each case in a good and proper workmanlike manner and using materials of good quality (to the intent that the colour of the external and interior surfaces shall remain of like colour or colours to the existing colour or colours save that any colour may be changed with the prior approval in writing of the Lessor at the request of the Lessee.

  • Clause 7 of Annexure B

7.1   The lessor must :

7.1.1 The lessor must maintain in a state of good condition and serviceable repair the roof, the ceiling, the external walls and external doors and associated door jams, and the floors of the property and must fix structural defects.

7.1.2 The lessor must maintain the property in a structurally sound condition.

There was no dispute between the parties that the painting and repairing obligations were enforceable by the Tenant against the Landlord. The Tenant brought proceedings in the District Court claiming damages from the Landlord for breach of its obligations to paint the motel premises in the last six calendar months and to maintain the premises in a state of good condition and serviceable repair.

Importantly, at the time of the hearing the Tenant had not incurred any expenditure in connection with the cost of painting or repairs of the motel premises.

Measure of Damages

The first issue in dispute was, what was the correct measure of damages?

The Tenant submitted that the correct measure of damages was the cost of performing works not performed by the Landlord and rectifying the work as had been performed by the Landlord which did not meet a reasonable standard.

The Landlord submitted that the Tenant was not entitled to damages on the cost of cure basis because the Tenant had not incurred any such expenditure and that the Tenant was only entitled to damages equal to the difference in the value of the premises to the Tenant in its current condition and what would have been the value of the premises to the Tenant if the Landlord had performed its obligations to repaint and repair.

The Trial Judge and the Court of Appeal found in favour of the Tenant. The Courts:

  • Rejected the contention of the Landlord that the Tenant could only recover damages calculated by reference to the costs of making good if that money had already been expended by the Tenant, and
  • Found that what is in issue was actually the application of well-established principles, that the ordinary principles of contract law, including those of damages for breach of contract, apply to a lease. It was also found that the ‘ruling principle’ with respect to damages at common law for breach of contract as outlined by Parke B in Robinson v Harman (1848) 1 Exch 850 applied:

… The rule of the common law is, that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed

  • The application of the ‘ruling principle’ governing the measure of damages for breach of contract meant that the Tenant was entitled to the amount of money required to put it in the position it would have been in had the Landlord performed its painting and repair covenants under the Lease.
  • That the Tenant had not yet incurred this expense was no answer to its claim for damages.

The Tenant was awarded damages of $54,952.09 plus interest by the Trial Judge. The Court of Appeal agreed with the Trial Judge.


Lachlan Page, Solicitor at Mullane & Lindsay Solicitors, NewcastleLachlan Page is a Solicitor at Mullane & Lindsay Solicitors and practices extensively in commercial, business and property transactions and adviceIf you require any assistance in this area please contact Lachlan Page to arrange a consultation or contact our Newcastle office.

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