Tenants must apply to Tribunal for hardship rather than break lease: Lessons from ACAT

A recent Tribunal case concerning a rental property in Kaleen, ACT proves a point: if a tenant is struggling with financial hardship, they must apply to Tribunal to break their lease, rather than simply move out.

The tenants vacated the property on 31 May 2014 and stopped paying rent after giving eight weeks notice of intention to vacate, and the premises were not re-tenanted. They were on a 12 month lease that was not yet complete, and were advised that they were unable to break the lease.

One of the tenants had been given a role in Melbourne, and so had quit their job and provided the notice to the landlord.

The only one of the two landlords, who were living on the Solomon Islands, was employed, with the weekly $475 rent from the Kaleen home paying a housing loan.

The tenants had paid several thousand dollars to vacate the Kaleen property, move to Melbourne and obtain the Melbourne premises, and then paid $1,300 per month for a rental in Melbourne.

A senior Tribunal member said the landlords "were likely to suffer considerable financial hardship as a result of the loss of the rental income from this fixed term tenancy".

“The information before the Tribunal was that the landlords would be returning to live in the premises in mid-2015, and taking into account the current state of the rental market in the ACT, it is likely that the financial loss of the landlords will be extensive,” said senior member Lennard.

As resolution for what the Tribunal called a ‘break lease’ situation, it was said that the landlords are entitled to act for compensation. The agent acting on behalf of the landlords said that they would agree to the tenants paying the equivalent of eight weeks rent to end the matter. This included a $1,900 bond, and a further $1,900 from the tenant, which was agreed to by the tenants.

The tenants were ordered to pay the four weeks rent in fortnightly payments from 19 June.

What does this mean for tenants and landlords?

The Tribunal was of the view that they could not retrospectively terminate the lease, as the tenant had already done so. It would have been prudent for the tenant to apply for Tribunal first.

“Section 44 of the Act provides that if the Tribunal decides to terminate a residential tenancy agreement on the grounds of hardship, the date of termination is to be determined after considering the relative levels of hardship suffered by the tenants and the landlords,” Lennard explained.

“The words of the section contemplate that the date of termination will be determined by the Tribunal and will be at some time between the date of hearing and eight weeks from the date of hearing.”

Similarly, it is down to the hardship to be faced by both landlord and tenant, and it must be significant to warrant breaking the contractual lease.

“The Tribunal nevertheless considered the submissions of the tenant as to the hardship they would suffer and the submissions of the landlords as to the hardship they would suffer.

“Hardship is not confined to financial hardship and may encompass financial, medical, and personal forms of hardship. While the Tribunal acknowledged that the tenants would suffer financial hardship as a result of the decision to vacate the premises and move to Melbourne, the Tribunal did not consider that this was significant hardship.”