In brief
Failure to understand what constitutes repudiation can be a serious risk when terminating a lease and it is vital parties are aware of the process. If you attempt to terminate on the basis of repudiation you are required to prove that repudiation has occurred – remember whilst repudiation has long been recognised as a common law right to terminate a lease, whether a party has repudiated is a question of fact. Therefore understanding exactly what constitutes repudiation thus allowing you to terminate a lease on that basis is key!
What you need to know
Repudiation is more than a breach of the terms of your lease, it represents an unwillingness to perform the lease, and involves a total abandonment of the lease as a whole or of a fundamental obligation under it.
- It is not a state of mind. Repudiation only occurs where a defaulting party demonstrates through its conduct “an intention no longer to be bound by the contract…or shows that he intends to fulfil the contract only in a manner substantially inconsistent with his obligations and not in any other way”.[1]
- You cannot terminate on the basis of repudiation unless you are able to demonstrate your readiness and willingness to perform the lease at the time of termination.
Be proactive
One option available to parties is to include a clause in the lease that defines a breach of particular obligations as repudiatory. These types of clauses act as good protection against disputes over whether a lease has been repudiated or not.
Recent case
In the case of Loughran v Hasham (Building and Property) [2017] VCAT 2067, the Tenant successfully argued that the Landlord repudiated its lease. The Landlord’s actions that amounted to repudiation of the lease were as follows:
- Continually refusing to carry out structural repairs which were their responsibility and necessary to enable the property to be used for the permitted use;
- Failing to issue the tenants with tax invoices so they could claim GST as input credits for their business;
- Claiming to occupy the property and naming the tenants as squatters; and
- Making unauthorised visits to the property and attempting to break into the property and lock the tenants out.
Conclusion
If you are considering terminating a lease on the basis of repudiation it is important to note that a party does not necessarily repudiate a lease by failure to observe its obligations. Given repudiation can be so uncertain, it is wise to consider whether it would be better to terminate pursuant to a term of the lease, if one is available.
[1] Shevill v Builders Licensing Board (1982) 149 CLR 620 at 625-6.
