• 07 Apr 2020
  • 5 min read
  • By Michael Gapes - Partner, Carter Newell Lawyers

Can a lessor's duty of care be delegated to property managers?

Duty of care, Appointment of liability, Case study

In the recent Victorian Court of Appeal decision of Yeung v Santosa Realty Co Pty Ltd (2020), the Court considered a Lessor's duty of care to a tenant and the apportionment of liability between a Lessor and a property manager. So, what's the verdict?

In May 2014, Ms Potter (the plaintiff), who was a tenant of a residential property in Victoria, slipped at night on the back stairs of her rental property and fractured her right ankle. The stairs were worn, slippery, unlit and had no handrail. The plaintiff brought proceedings for negligence in the County Court of Victoria against both the owner of the property, Mr Yeung and Santosa Realty Co Pty Ltd as the property manager.

At trial, the judge found that both defendants had breached their duty of care to the plaintiff and were liable to pay damages of $433,899.80. Liability was apportioned two-thirds to the owner and one third to the property manager. The owner appealed the decision to the Victorian Court of Appeal.

During the Appeal, the owner claimed it was the failure of the property manager to inspect the back stairs and detect the defects, especially the slipperiness of the stairs themselves, and report the defects to him, which led to the plaintiff's injuries. Furthermore, the owner claimed he had delegated the performance of his duty of care to the property manager and, as a result, the property manager should fully indemnify him in respect of his liability to the plaintiff. The Court of Appeal granted leave to appeal and identified four issues to consider:

  1. Did the owner delegate his duty of care to the property manager?
  2. Did the owner take adequate steps to keep the premises in good repair?
  3. Was it irrelevant that the owner received rental income?
  4. Was the apportionment wrong?
Firstly, the Court held that the owner had delegated the performance of his duty of care to the property manager. The duty imposed on an owner can be delegated by the exercise of reasonable care and skill in engaging a competent contractor to take steps to keep the property safe and by confirming the contractor took appropriate steps.[1]

The Court found the trial judge had made several critical findings that revealed had the property manager undertaken what was required of it under the management agreement, the plaintiff would not have fallen and sustained an injury. The management agreement between the defendants required the property manager to conduct routine inspection of the property and advise the owner what repairs were needed. A critical finding was that the property manager's obligation to inspect and report included identifying and recording visible or obvious risks and reporting them to the owner. However, the property manager failed to carry out an inspection of the back stairs.

The Court held that the defects were a visible and obvious risk. The foreseeable risk of injury was the slippery and worn nature of the back stairs, missing handrail, and the absence of working overhead lighting. The unsafe nature of the back stairs was obvious and would have been revealed in the course of an ordinary inspection by the property manager.

The Court further found that the trial judge erred in failing to draw the inference that the relevant risk fell within the responsibility delegated by the owner to the property manager. There was no relevant 'residual duty' owed by the owner to the plaintiff. This was because the owner had not reserved for himself any aspect of the responsibility to identify obvious hazards. The Court therefore concluded that the trial judge erred in finding that the owner had not delegated his duty of care to the property manager and in finding that the owner was in breach of his duty of care to the plaintiff.

Secondly, the Court held that the trial judge had erred in finding that the owner had failed to take any real steps to ensure the property was in good repair and he was best placed to identify defects in the premises. The owner's engagement of the property manager to conduct routine inspections ought to have been a sufficient step to avoid foreseeable risks from visible or obvious defects. The owner was entitled to rely on inspection reports prepared by the property manager as sufficient confirmation the stairs were in good repair and didn't need to inspect them himself.

Next, the Court determined that it was irrelevant that the owner stood to benefit from rental income. The harm was not caused by a failure to pay for the stairs to be repaired, but rather by the failure of the property manager to inspect the stairs and detect the hazard.

And finally, the Court considered the issue of apportionment in light of the finding that the owner had delegated the performance of his duty of care to the property manager. In the circumstances, the owner was entitled to be indemnified by the property manager pursuant to Part IV of the Wrongs Act 1958 (Vic).

Ultimately, the appeal was allowed and the orders of the trial judge were set aside. The Court ordered that the property manager fully indemnify the owner with respect to all of the plaintiff's liability. This decision demonstrates that a Lessor's duty to take reasonable care to avoid a foreseeable risk of injury to tenants and visitors to a rental property can, in certain instances, be completely delegated to a property manager. This is a worrying development and property managers should therefore ensure they fully understand their contractual obligations under their appointment and ensure that they comply with the same.

[1] Jones v Bartlett (2000) 205 CLR 166, 221 [193], 228 [217].

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