No bond = no keys? – Not so fast: The potential pitfalls of withholding possession in Queensland

Rental bonds are a fundamental feature of residential tenancy practice in Queensland, providing lessors with security against unpaid rent, property damage and remediation costs. Yet the legal character of a bond and whether its non-payment justifies withholding keys is frequently misunderstood. This article examines why an unpaid bond may not entitle a lessor/property manager to withhold possession of the property, and the potential consequences of getting it wrong.

Rental bonds in Queensland

In Queensland, rental bonds are governed by the Residential Tenancies and Rooming Accommodation Act 2008 (Qld) (the Act). The statutory regime sets a maximum bond of four weeks' rent,^[1] requires lodgement with the Residential Tenancies Authority (RTA) within 10 days of receipt,^[2] and provides that the bond is held on trust and can only be disbursed in accordance with the Act.^[3]

While the Act regulates the collection, management and return of bonds extensively, it does not require a lessor to take a bond. In practice, most residential tenancy agreements specify a bond as a term of the agreement. The standard Form 18a General Tenancy Agreement (approved by the RTA) includes provision for a bond amount, with the bond typically due and payable prior to or on the commencement date before the tenant takes possession. Critically, however, the mere existence of a contractual obligation to pay a bond does not determine whether the lessor is entitled to withhold possession of the property until payment is made.

In order to withhold possession of the property, it would be necessary to establish that the tenancy agreement (and therefore the contract) is not on foot and would not be fully formed until the payment of the bond is received, that is, a condition precedent to the formation of the agreement.

When is a bond a condition precedent to possession?

A condition precedent is a term that must be fulfilled before an agreement is formed, or before certain obligations arise under that agreement. It is necessary to evaluate the circumstances of the formation of the agreement in order to consider whether a term (such as the payment of a bond or otherwise) would amount to a condition precedent to the agreement.

In Dobeson v Ray White Sherwood [2019] QCAT 155, the lessor's offer email stated that "the property is not secured for you and will continue to be marketed until the full payment of the first 2 weeks rent and 4 weeks bond is paid, and all lease documents are signed in full." The tenants argued that this language imposed conditions precedent to the formation of a binding agreement and that, because they had neither signed the Form 18a nor paid two weeks' rent in advance, no contract had come into existence, and they were entitled to the full return of their bond.

The Tribunal rejected that argument. A contract was found to have been formed when the tenants paid the bond, supported by their acknowledgement of the application and their subsequent request to arrange a signing date. It was held that the "not secured" language, contained in the lessor’s offer email was "an encouragement to the tenants to meet their contractual obligation" rather than a genuine condition precedent.^[4]

It follows that without express language establishing a bond as a condition precedent, the tenancy will be validly on foot and the obligation to deliver possession will arise on the commencement date regardless of whether the bond has been received. In Barnet & Anor v Zenbar (Aust) Pty Ltd [2011] QCAT 314, the Tribunal held that once a tenancy agreement is formed, it can only be lawfully terminated in accordance with the Act. It was noted in that case that section 277 of the Act limits the circumstances in which a tenancy agreement can lawfully be terminated. The Tribunal found there was no evidence that any of the required condition precedents had occurred. Specifically, no formal notices, namely a Notice of Intention to Leave, Notice of Abandonment or Notice to Leave, were issued by either party, nor was there an agreement in writing to terminate the lease between the parties.^[5]

In this regard, unless a rental bond is considered a condition precedent to the formation of the tenancy agreement (a fact which is subject to careful scrutiny by the Tribunal), a lessor or property manager cannot reasonably withhold keys on the basis of an unpaid bond, without express contractual authority to do so, or without a valid termination of the tenancy agreement.

Obligations and consequences for property managers

Where a property manager withholds keys pending receipt of a bond, that conduct must be capable of lawful justification. Failing to provide keys to a property in this manner may fall foul of section 183 (quiet enjoyment) or section 182 (vacant possession) of the Act.

Rather, where a rental bond remains unpaid, property managers may be required to provide the tenant/s with a notice to remedy their breach of a term of the tenancy agreement, rather than assuming that the tenancy agreement has not commenced at all. Failing to complete the tenancy agreement (by delivering access to the property on the commencement date of the tenancy) may be considered a repudiation of the agreement.

Establishing whether or not a rental bond is a condition precedent to the tenancy agreement will usually depend upon the circumstances of how the offer of the lease arose, and how that offer was accepted by the tenant/s. As evidenced by the decision in Dobeson v Ray White Sherwood [2019] QCAT 155, it may come down to the language used, as well as the surrounding circumstances. As such, it is necessary to carefully consider the circumstances and the legal nature of the offer and acceptance in each case.

Having regard to the intricacies of establishing the relevant terms surrounding the formation of a tenancy agreement, and whether or not those terms would be considered a condition precedent, lessors should seek legal advice before withholding keys prior to the commencement of a tenancy, or in relation to any potential breach of the agreement.

Property managers should take care to act only on the lawful instructions of their lessor clients before withholding keys for the non-payment of a rental bond in circumstances where penalties may apply for breaches of the Act under sections 182 or 183, or otherwise by repudiating the tenancy agreement on behalf of a lessor.

Read another property management article: Managing residential tenancies after the death of a tenant.

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