Managing break lease fees when co-tenants fall into dispute

Most co-tenants will generally be in agreement as to how the financial obligations attaching to their residential lease will be apportioned when they first enter into a shared tenancy, however, what happens when those co-tenants fall into dispute at a later stage of the tenancy? 

In the recent case of Coelho de Barcelos & Anor v Yamanishi & Anor [2025] QCAT 37, the Queensland Civil and Administrative Tribunal (QCAT) was required to determine whether it had jurisdiction to deal with a claim between tenants (to the exclusion of the landlord or property manager), and who bore responsibility for the costs associated with a break-lease situation, when two of the four tenants elected to vacate the property prior to the end of the fixed term lease. 

Background facts

The parties were co-tenants under a ten-month fixed term lease in respect of a residential unit, which attracted weekly rent of $900.  The parties had contributed equally to the rental bond deposit of $3,600 (being $900 apiece).

However, six weeks into the lease, two of the tenants, Andre Felipe Coelho de Barcelos and Debora Cintia de Jesus Cassimiro (Applicants), initiated a break-lease in circumstances where they needed to return to their home country of Brazil at short notice, for personal reasons.

Upon the Applicants giving notice to the property manager, Mantra, the Applicants were provided with a list of early termination fees, including a $900 break-lease fee, a $155 inventory fee, and potential advertising costs.

The remaining two tenants, Mia Yamanishi and Seiya Yamaguchi (Respondents) vacated the property on 9 August 2024 and commenced paying rent at a new property from that date.

The Applicants paid $1,130 in fees and vacated the property on 10 August 2024.

Thereafter, one of the Respondents, Ms Yamanishi, applied for the full rental bond deposit to be returned to the Respondents.

The Applicants challenged Ms Yamanishi’s application for the full rental bond deposit, and asserted that the rental bond deposit ought to be released in equal shares in circumstances where the parties had mutually agreed to vacate the property by 12 August 2024.

The Respondents denied that they had agreed to vacate the property, as alleged or at all.  Rather, the Respondents claimed that they had been unable to meet the income requirements set by Mantra in order to remain at the property after the Applicants left, such that Mantra had directed all of the tenants to vacate the property simultaneously.

Thereafter, the Applicants initiated an application in the QCAT, seeking refund of their respective contributions to the rental bond deposit, save for the break-lease fees which had already been paid by them.

QCAT's jurisdiction to hear the application

Prior to determining the matter, the QCAT had to consider whether it had jurisdiction to deal with a claim for a rental bond deposit where that claim was not directed against the landlord or property manager.

The Applicants had nominated section 137 of the Residential Tenancies and Rooming Accommodation Act 2008 (Qld) (the Act) as the provision which entitled them to the return of their rental bond contribution, and to monies from the Respondents’ contribution to the bond.  That section provides:

‘(1)        This section applies if –

1. A tribunal makes an order about payment of a rental bond; and
2. The authority is given a copy of the order.

(2)        The authority must pay the rental bond in accordance with the order’.

The ‘authority’ referred to in that section is the Residential Tenancies Authority (RTA).

In seeking to identify the source of the QCAT’s power to make an order about the payment of the bond, the QCAT looked to two sections of the Act, namely sections 136D and 430. 

The QCAT found that section 136D conferred a discretionary power only and specifically requires the QCAT to have regard to the landlord’s compliance with the Act. 

By contrast, the discretion to make an order under section 430D does not impose any requirement upon the QCAT to have regard to any other matters such that it may make orders which it deems ‘appropriate’ – meaning, ‘suitable or fitting for a particular purpose, person, occasion … ‘[1] and ‘fair and equitable to the parties’. [2]

On this basis, the QCAT determined that its power was more properly derived from section 430 in this instance.

Liability

The parties were in dispute as to who ought to be liable for the vacate costs, including the break-lease expenses ($1,310), the rent payable for the period 10 to 20 August 2024 (when the property was re-tenanted), additional cleaning ($88), and replacement chattels ($48.50).

The Applicants conceded responsibility for the cleaning and replacement chattels, agreeing to pay $68.25 from their respective share of the rental bond deposit, to be split equally between the Respondents.

Can a rental bond deposit be used as security for successful claims between co-tenants?

The QCAT first considered whether it had the power to adjust the distribution of the rental bond deposit to compensate one co-tenant for losses caused by another.

The Act defines a rental bond deposit as security for the financial protection of the lessor, raising the question of whether it could also serve as security for claims between co-tenants.

The QCAT acknowledged that case law suggested that the bond primarily protected the landlord, as seen in Smolcic v Ray White Rockhampton [2021] QCATA 136. However, in Fotia v Packer [2010] QCATA 98, the QCAT appeared to allow redistribution of a bond between co-tenants in appropriate circumstances.

Applying principles of statutory interpretation from Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28, the QCAT concluded that section 430 could override the general rule in section 111(1)(a), permitting the bond to be used as security for claims between co-tenants when an order was made under section 430.

Liability for break-lease expenses

When considering the merits of the application, the QCAT had regard to the parties’ expectations and assurances regarding the terms of the lease prior to their entry into a binding lease agreement. 

On examining the parties’ communications prior to their execution of the lease agreement, it was observed that Ms Yamanishi and Ms de Jesus Cassimiro had exchanged messages discussing the possibility of vacating early, with no firm agreement on the matter.  That is, Ms Yamanishi had indicated that the Respondents may need to exit the tenancy by October 2024, in which case, the Applicants would either need to find new tenants to take over the Respondents’ obligations under the lease or vacate the tenancy at the same time.

After the parties had been introduced to the property, another exchange occurred between Ms Yamanishi and Mr Coelho de Barcelos, in which Mr Coelho de Barcelos confirmed his ability to renew his visa and provided assurances to Ms Yamanishi that the Applicants would stay for the full lease term. Based upon this assurance, Ms Yamanishi proceeded with the lease.

The QCAT then considered whether the Respondents should contribute to the break lease expenses incurred by the Applicants.

The Applicants argued that the Respondents should pay an equal share because they had also agreed to vacate the property and had already been planning to leave early in any event.

However, the QCAT found that the Respondents had merely expressed the possibility of leaving early and had not committed to a specific departure date. Additionally, the QCAT noted that the Applicants had given the Respondents assurances that they would stay for the full term of the lease and it was that assurance which had influenced the Respondents’ decision to enter into the lease. Therefore, by breaking the lease, the Applicants had deprived the Respondents of the opportunity to end the tenancy on their own terms. On this basis, the QCAT concluded that it would not be fair or equitable to require the Respondents to contribute to the break-lease expenses.

Liability for rent from 10 August 2024 to 20 August 2024

The QCAT also had to consider the apportionment of the parties’ liability for rental payments due to the landlord for the period between 10-20 August 2024, while the property remained untenanted.

The Applicants acknowledged their liability for a rental payment in the sum of $514.29, representing four days' rent up to 20 August 2024, which they were willing to pay proportionally based upon the shares in which rent had been paid during the tenancy.

However, the Respondents contended that, due to circumstances beyond their control (being that Mantra had directed them to vacate at the same time as the Applicants), they were required to pay rent for two separate properties from 9 August 2024.

The QCAT accepted the Respondents' argument that the Applicants’ actions, which contradicted prior assurances, resulted in financial loss to the Respondents due to the need to pay rent for two separate properties. Accordingly, the QCAT found it fair and equitable that the Applicants be held liable for the total rent payable from 10 to 20 August 2024, amounting to $1,285.71. As the Applicants had already paid $430, a balance of $855.71 remained payable, which was to be borne equally between the two Applicants (being $427.85 each).

Ms Yamanishi’s claim for damages on account of stress

The Respondents also argued they were struggling to find a new tenant or another property to move into at short notice, which caused significant stress and a "crisis of livelihood". This led to hostility between Ms Yamanishi and Mr Coelho de Barcelos, as evidenced by their text exchanges.

While section 430 does not preclude compensating a co-tenant for distress caused by another co-tenant’s actions, the QCAT found it inappropriate to award compensation for stress resulting from the end of the tenancy. The stress of a break lease and conflicts between housemates was deemed a foreseeable risk that all tenants took on when agreeing to live together. Additionally, while Ms Yamanishi had presented medical evidence in support of her claim for psychological harm, the QCAT clarified that it lacked jurisdiction to award damages for personal injury.

Costs

Under sections 100 and 102 of the Queensland Civil and Administrative Tribunal Act 2009 (Qld) (QCAT Act), the QCAT can order a party to pay costs if it serves the interests of justice.

In this case, the Applicants’ claim was only partially successful, and the Respondents did not engage in conciliation. Given the significant disparity between the parties’ positions, the QCAT concluded that conciliation would not have resolved the dispute and, therefore, there were insufficient grounds to justify awarding costs in the interests of justice.

Outcome

The QCAT concluded that the Respondents were entitled to have the entirety of their rental bond contributions (each $900) returned to them. Additionally, the QCAT made orders requiring the RTA to release to the Respondents an additional sum of $462 each, on account of the conceded chattels and rental payments for which the Applicants were solely liable, with those sums to be deducted from the rental bond refunds due to the Applicants. 

Overall, the RTA was ordered to refund to the Applicants the sum of $438 each from their initial rental bond deposits, and $1,362 to each of the Respondents.

Key takeaways for property managers

While the above case provides guidance as to the factors which may be taken into account by the QCAT when determining the appropriate apportionment of break-lease costs, it is important that property managers remain mindful of their own obligations in the event that a dispute arises as between co-tenants. 

In this case, there was no allegation of breach made against the landlord or the property manager. However, property managers are reminded that, when trust monies or rental bond deposits become the subject of a dispute, they must not deal with those monies until the dispute has been properly resolved and they have the appropriate authority to disburse the funds.  If the parties are unable to directly agree to an appropriate distribution, it may be appropriate to apply to the QCAT for formal orders.

Where a property manager finds themselves in such a situation, it is prudent to seek legal advice before taking steps to attempt to facilitate a resolution to the dispute or to otherwise deal with the funds which are the subject of the dispute.

Read more about property management: QCAT update: Zombie tenancy agreements.

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