A win for property managers

In the recent decision of RTA v Cronin and H Real Estate Holdings Pty Ltd, the Southport Magistrates Court (the Court) considered charges brought by the Residential Tenancies Authority (the RTA) against an owner and his property managers in relation to an alleged breach of a tenant's quiet enjoyment of a rental property.

The RTA charged Mr Cronin (the owner) and H Real Estate Holdings Pty Ltd (the property managers) for an alleged breach of section 183 of the Residential Tenancies and Rooming Accommodation Act 2008 (Qld) (the Act). The RTA alleged that the owner and property managers had interfered with a tenant's reasonable peace, comfort or privacy in a rental property by demanding that a member of the tenant's family vacate the property.

Carter Newell successfully represented the property managers in the prosecution, which was heard before Magistrate Magee in the Southport Magistrates Court over two days in July and September 2019. The Court's decision was handed down in December 2019.

Background

The property in question was a luxury four bedroom home on the Gold Coast. On 14 March 2017, Mr George Kafritsas (the tenant) submitted a written application to the former property managers to rent the property for 12 months at a weekly rental of $1600. In his application, the tenant listed five occupants of the property: namely, the tenant and his wife and their three sons aged 22, 18 and 13.

The tenant's application was approved and on 25 March 2017, the tenant and owner entered into a Form 18a General Tenancy Agreement (the agreement). The agreement stipulated at Item 15 that no more than four persons were to reside at the property. Clause 23 of the agreement stated:

"No more than the number of persons stated in this agreement for Item 15 may reside at the premises."

In October 2017, the property was sold by the former owner to the owner. The owner then engaged the property managers to take over management of the property. On 19 October 2017, the tenant was advised of the change in property managers.

On 19 December 2017, on the owner's express instructions, the property managers sent a Form 11 Notice to Remedy Breach (the breach notice) to the tenant for having a fifth person residing at the property. The covering email stated:

"Attached is a Notice to Remedy Breach that is being issued for having an unapproved person residing at the property. You currently have five people living at the property where you only have approval for four. The fifth person is to vacate immediately."

The breach notice stated that the breach was to be remedied by 26 December 2017.

On the same date, 19 December 2017, the property managers issued a Form 9 Entry Notice (entry notice) stating that a routine inspection would take place on 11 January 2018.

Immediately after receiving the breach notice, the tenant referred the matter to the former property managers who had drafted the agreement. The former property managers confirmed that there had been an administrative error when drafting the agreement. Despite the former property managers acknowledging that there had been an administrative error, the owner instructed the property managers not to withdraw the breach notice and to demand that one person leave the property in order to remedy the breach of the agreement.

On 20 December 2017, the property managers wrote to the tenant stating, inter alia:

"Following the email from the [former property managers] I have spoken further to the owner. Their view is that the lease is a binding legal document that you have signed and accepted and you must abide by it and it clearly states that only four people are to live in the house. Therefore, they advise that the Breach Notice remains and they ask that you remedy the breach immediately. They have further requested that we inspect the property to ensure that the fifth resident has moved out-I will issue that notice to you shortly for an inspection in January 2018 as I won't disturb you over Christmas/New Year period. If you have any questions please do let me know, alternatively you may choose to dispute this breach through channels outside of me."

On 22 December 2017, the tenant wrote to the property managers seeking the withdrawal of the breach notice and stating that it was always the intention for five people to reside at the property. The letter also stated that the tenant had applied to the RTA for Dispute Resolution Services disputing the breach notice.

On the same date, 22 December 2017, the tenant applied to QCAT seeking orders that the number of approved occupants was that stated in the tenancy application and setting aside the breach notice.

On 27 December 2017, the property managers wrote to the tenant stating, inter alia:

"The lease is a legally binding contract. The number of occupants is listed as four. The new owner believed the number of new occupants was four as listed on the lease. The fact that there are five occupants is a serious breach of the lease agreement. Therefore, the Breach Notice still stands...

...My agency will be inspecting the property in January 2018 to ensure you have remedied that breach."

During the QCAT hearing in March 2018, the tenant made reference to the fact that he had voluntarily re-housed his 22 year old son at an alleged cost of $11,650. The QCAT adjudicator advised the claimant that his actions in re-housing his son were not necessary and ordered that the breach notice be set aside.

The RTA subsequently issued a complaint and summons to the owner and the property managers alleging that they had interfered with the tenant's reasonable peace, comfort or privacy at the property in breach of section 183(2) of the Act.

Section 183 of the Act provides that:

"(1) The Lessor must take reasonable steps to ensure the tenant has quiet enjoyment of the premises.

(2) The Lessor or Lessor's agent must not interfere with the reasonable peace, comfort or privacy of the tenant in using the premises.

Maximum penalty for subsection (2)-20 penalty units."

In the complaint against the property managers, the RTA stated that:

"Between 19 December 2017 and 7 March 2018, at Mermaid Beach, in the Southport Magistrates Court District in the said State appointed under the Justices Act 1886, H Real Estate Holdings Pty Ltd, as agent for the Lessor Darrin Cronin interfered with the reasonable peace, comfort or privacy of the tenant Grigorios Kafritsas in using the premises at Mermaid Beach."

The RTA set out a number of particulars in the complaint, but failed to specify the conduct of the property managers which had allegedly breached section 183(2) of the Act.

Issues before the Court

The Court was required to consider whether the property managers and owner had in fact breached the tenant's reasonable peace, comfort or privacy. However, it also considered the further circumstances of the dispute regarding the agreement and subsequent breach notice.

The Court's findings

Justice Magee considered the evidence of the owner and his wife, Ms North, to be inconsistent and lacking credibility. They both informed the Court that they considered the agreement to be paramount and wished to remedy the tenant's breach.

The Court held that they were not able to provide a sufficient reason as to why having a fifth occupant in the property would have caused an issue. However, it was held that the only possible reason for following through with the breach notice was to bring about an early termination of the tenancy so that the owner and his wife could take possession of the property sooner.

Further, the Court held that there was clearly a mistake in the agreement. As it was the intention of the original parties to the agreement that five people reside at the property, the agreement was liable for rectification. The Court stated that the tenant could have applied to QCAT pursuant section 429 of the Act seeking an order for rectification. However, the Court noted that until the mistake was rectified, the tenant was in breach of the agreement and the owner was therefore entitled to issue the breach notice.

The property managers gave evidence that they had received instructions from the owner to issue the breach notice, but that they had also advised the owner to refrain from "stirring the situation" given that the tenant's previous maintenance issues had only just settled down and that the terms of the agreement had clearly been drafted in error. The property managers, the Court confirmed, were bound to follow the instructions of the owner.

However, the Court further noted that the breach notice had failed to comply with the mandatory obligation to allow seven days to remedy the breach. The breach notice had provided for seven days for the remedy to be carried out, however, in the explanation of the breach, the property managers had provided that the fifth person living in the property was to "vacate immediately". The Court held that the inclusion of those words rendered the breach notice invalid.

Nonetheless, the Court was satisfied that had the breach notice not included those words, and a notice to leave been issued, QCAT would not have been able to reasonably exercise its discretion to issue vacant possession of the property pursuant to section 337 of the Act. The Court held that it was clearly unreasonable that the owner, being aware of the administrative error, still insisted that a child of the tenant vacate the property in order to comply with the agreement, particularly where there were no reasonable concerns regarding the number of people at the property.

The offence

Whilst the Court found that the owner had no legal entitlement to force the tenant's son to vacate the property, it was a more complex issue as to whether the owner's conduct was a breach of the tenant's entitlement to quiet enjoyment of the property.

The Court held that the conduct of the owner, through the property managers, significantly impacted the tenant's ability to comfortably use the property as a family unit, in accordance with section 183(2) of the Act. As set out above, the Court found that there was no reasonable concern about the impact of the fifth occupant at the property, and as such, the insistence that the fifth occupant leave the property constituted an interference with the tenant's reasonable peace, comfort or privacy.

The Court also held that the inspection of the property that was carried out by the property managers on 11 January 2018 did not constitute an interference to the tenant's quiet enjoyment. This inspection was the first inspection of the property, and stipulated in the entry notice that the inspection was pursuant to section 192 of the Act, being a routine inspection.

It was also clear that the property managers would be looking to ensure that the fifth occupant vacated the property. However, the Court held that just because the owner was not entitled to breach the tenant, did not preclude the owner from inspecting the property as per his right to routine inspections. Whether the property managers were looking to confirm that the breach had been remedied was irrelevant as the tenant did not suffer any interference with his reasonable peace, comfort or privacy by this inspection.

A defence under the Criminal Code

As set out in the reasoning of Justice Magee, the Court held that the owner had breached section 183(2) of the Act. However, the Court considered that a defence under section 22(2) of the Criminal Code was available to the owner.

The defence stipulates that for property offences:

"... a person is not criminally responsible... for an act done or omitted to be done by the person with respect to any property in the exercise of an honest claim or right and without intention to defraud."

The Court held that while the owner and his wife were not credible witnesses, it was manifestly clear that they believed they had a legal right to insist that four people reside in the property in accordance with the agreement.

Further to this finding, the Court held that the property managers were only involved in the matter as agents for the owner. As the owner had proved a defence to the charge, the property managers cannot be legally responsible for conduct that did not constitute an offence. That is, the Court held that neither the owner, nor the property managers, were guilty of the offence charged.

Conclusions

This decision is a victory for common sense. The property managers, who had not drafted the tenancy agreement and was merely carrying out the owner's instructions, should never have been prosecuted. We would hope that the RTA learns from this decision and exercises proper consideration of the merits of each potential prosecution, particularly when real estate agents can demonstrate that they were carrying out their client's instructions.

This decision is also a timely reminder for all property managers to make sure that all documentation is completed carefully and thoroughly checked before being sent out to third parties. Several issues were raised in this matter where inconsistencies occurred in the drafting of tenancy forms. Property managers should carefully consider completed forms and look for any inconsistencies within the terms of the form or notice, the tenancy agreement, and the rights and obligations stipulated by the Act. Where administrative errors occur, the parties should seek legal advice as to the rectification of the document.