In a case decided by the High Court, Shevill v Builders Licensing Board, the Builders Licensing Board (BLB) (lessor) leased certain premises to Shevill (lessee). The terms of the lease provided that “if rent was unpaid for fourteen days or if the lessee was in breach of any covenants or if certain other events occurred such as bankruptcy or liquidation, the lessor might re-enter the land”. Shevill constantly made late rent payments and as a result the lessor took over possession of the premises and terminated the lease.
In addition, BLB claimed damages for breach of contract in the amount “equal to the rent payable over the balance of the term”. At first instance, the Court held in favour of BLB and awarded damages, however this was overturned on appeal in the High Court of Australia. The High Court held that only rent up to the date when the lessee vacated the premises could be claimed. This was held to be the case because there was not a breach of an essential term of the contract and Shevill had not repudiated the lease by displaying an intention to no longer be bound.
In order for a lessor to be entitled to claim damages either the tenant must have repudiated the lease or termination must stem from a breach of an essential term or there be an express term allowing for damages to be claimed.
Repudiation most often occurs when there has been a breach of an essential term, however failing this, whether a contract has been repudiated will be determined by the conduct of the parties and as such is determined on a case by case basis. In Shevill it was held that a party may repudiate a contract by giving evidence that the other party no longer intends to be bound by the contract or that they no longer intend to fulfil the contract in a manner that is consistent with their obligations under the contract.
In terms of whether failure to pay rent constitutes a repudiation of a lease, Shevill indicates that non-payment of rent is often not sufficient. In order to constitute repudiation and ensure that the landlord is able to claim for damages arising from the balance of the term of the lease, there is often a requirement for there to be a provision in the lease that deems the payment of rent to be an essential term and therefore any breach of this kind will be considered a fundamental breach. Inclusion of such a clause will ensure that the landlord overcomes the problem in Shevill and is able to claim for damages arising after the premises is vacated.