Picking up the pieces of a broken contract

Tabcorp Holdings Ltd v Bowen Investments Pty Ltd

The Issue:

With leased premises, what losses arising from a Tenant's breach of Lease are claimable by a Landlord? The general rule of thumb for assessing compensation for a contractual breach is that the innocent party is to be put in the same position as if the contract were performed.

What Happened?

Tabcorp leased a building from Bowen Investments for a period of 10 years. The leased building's foyer was a high quality, extravagant foyer made of rare granite, marble pillars and American cherry wood panelling. The lease prevented substantial alteration being made to the premises by the Tenant without the written consent of the Landlord. The Landlord could not unreasonably withhold consent. Six months into possession of the building, the Tenant proceeded to demolish the foyer without the written consent of the Landlord.

The Landlord sued the Tenant and the High Court held that, contractually, the Landlord was entitled to the have the foyer returned to its original condition, as no consent were given for the Tenant's works. The need for the Landlord's consent existed to protect the Landlord's interest in preserving the physical character of the premises.

The Court determined that any compensation for the loss in value of the Property (from the alteration) would not restore the Landlord to the position of the contract having been performed and would undermine the need for the Landlord's consent. The Court therefore awarded damages of $1.38 million to restore the foyer, as opposed to awarding damages based on the loss in value of the property of about $34,000.00.

Practical Tip:

When a Tenant breaches their lease, all appropriate losses incurred by the Landlord should be claimed from the Tenant to ensure that the Landlord is fully returned to the same position the Landlord was in prior to the breach.

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The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.

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