Key takeaways
- A landlord does not automatically become entitled to property left behind in premises by a tenant.
- A landlord’s rights and obligations with respect to a tenant’s property will be determined in the first instance by reference to the lease and otherwise by common law principles.
- A landlord will also need to have consideration to any third party interests in the property left behind.
COVID-19 is having an unprecedented impact upon businesses throughout the Australian economy and that impact has flow through effects to many different areas, including a business’ ability to pay its rent and meet its obligations under a lease for the premises from which it operates.
Whilst each of the States and Territories have released, or are in the process of releasing, legislation to put into effect the code of conduct issued by the National Cabinet (see our earlier articles on the code here, here and here), one issue that is likely to become ‘front of shop’ in the coming months, and after the legislation mentioned above has ceased, is a landlord’s rights with respect to property left behind in premises by tenants following the termination of a lease, or a tenant’s abandonment of the premises.
Landlord’s rights, duties and obligations
It is often the case that landlords have taken possession of property left in premises by a tenant following the termination of the lease (by either party) or the abandonment of the lease by the tenant. In the circumstances that a tenant has abandoned the lease (and the premises) the landlord likely took such possession of the property left behind unchallenged and dealt with the property as the landlord saw fit.
However, irrespective of any challenge by a tenant, a landlord may not have the right to deal with (e.g. sell) any of the property left in premises by a tenant. In some instances, if a landlord were to do so, the landlord may become subject to duties and obligations imposed by the common law in dealing with the ‘abandoned’ property. These duties and obligations can include the landlord being required to show that any loss suffered by the tenant, as the owner of the property, was not caused by the landlord’s negligence in dealing with the property.
The landlord may also have obligations to third parties who have an interest in the property, such as a security interest (e.g. if those third parties have provided finance to the tenant to facilitate the tenant’s purchase of that property) or if the third party owns the property. The landlord will also likely find it difficult to dispose of the property if it is encumbered by security interests held by third parties.
Key matters for landlords to keep in mind
- The starting position is that the rights of a landlord and a tenant are to be determined by reference to the lease (or, in some cases, the agreement for lease) between the parties. The lease, or the agreement for lease, may record any agreement previously reached between the landlord and the tenant regarding property within the premises and whether that property is to be considered landlord’s property or the tenant’s property.
Alternatively, for example, the lease may provide for a series of actions to be performed by the landlord following termination of a lease or a tenant’s abandonment of the premises. These actions may include allowing the tenant to access the premises to remove tenant’s property from the premises within a certain number of days from the date of termination of the lease, and/or the provision of various notices to the tenant, prior to the tenant being taken to have abandoned/forfeited its property. The landlord should carefully follow the provisions of the lease, including the requirements of any notice provisions, to ensure that any future action the landlord may take is valid.
The Supreme Court of Queensland has held that reasonably clear words are needed in a lease to achieve the forfeiture of a tenant’s property. If such words are not present in the lease, and a landlord takes possession of a tenant’s property, the tenant may be able to pursue the landlord for civil claims of detinue and/or conversion, depending upon how the landlord has dealt with the tenant’s property.
- In the circumstances that the lease is silent on the rights of a landlord and a tenant with respect to tenant’s property following termination of a lease or abandonment of premises, common law principles would determine the rights of the landlord and the tenant.
The common law principles which would be relevant include whether the property that the tenant has brought into the premises has been “fixed” to the premises and whether those items of property have become part of the structure of the premises.
The answers to the question of whether the tenant’s property has been “fixed” to the premises may be clear cut, but the answer as to whether the property has become part of the structure of the premises will be dependent on each item of property and the nature by which it was “fixed” to the premises.
- Whilst a landlord may have rights to deal with property left behind by a tenant on the face of the lease, landlords need to be mindful that the lease only applies to property that is owned by the tenant and that is not subject to any encumbrance by a third party (as mentioned above). If a landlord wrongfully deals with third party property, the landlord may face a claim from that third party seeking compensation for its loss.
Landlords should act carefully when looking to dispose of property left behind by a tenant and should consider making enquiries to determine whether any third party has an interest in any of the property that has been left behind. It is common for third parties, once notified of the termination of the lease, to be eager to gain access to the premises and remove the property in which they have an interest from the premises.
Regardless of whether 1 or 2 above is applicable, when a landlord re-takes possession of a premises from a tenant, it is recommended that the landlord (or the landlord’s representative):
- take one or more people with them as witnesses;
- make a detailed inventory of any of the tenant’s property that is left in the premises;
- take photos of the premises (in particular any damage to the premises) and any of the tenant’s property that has been left in the premises;
- post notices on the premises confirming that the landlord has terminated the tenant’s lease, retaken possession of the premises and that any enquiries in relation to the premises should be directed to the landlord (or the landlord’s representative). The posting of such notices assumes that the landlord has acted in accordance with any applicable statutory or lease obligations leading up to termination of the lease, for example the requirements of the Property Law Act 1974 (Qld); and
- if a landlord is to grant access to the tenant or a third party to retrieve property from the premises, such access should be granted on strict terms.
Finally, distinctions have also been drawn by Queensland Courts between property that a tenant has brought into the premises for the purpose of operating their business (e.g. appliances, wall hangings etc.) and the stock in trade or consumables that a tenant may use in the operation of its business (e.g. food and drink). In certain instances, landlords who have cut off the electricity to premises the subject of a terminated lease have been liable for the tenant’s loss as a result of stock in trade or consumables that are no longer usable in the operation of the tenant’s business.
In summary, landlords should give careful consideration to the lease when dealing with property that a tenant has seemingly abandoned in leased premises. Landlords who fail to do so and fail to act appropriately may face claims from the tenant (or third parties) in the circumstances that the property (and the premises) was not abandoned and the tenant returns to take possession of that property. Clear words are required for the forfeiture of a tenant’s property and each lease should be reviewed by a landlord prior to taking any action in relation to a tenant’s property.
If you require any advice in relation to items of property left behind in a leased premise, please contact our Dispute Resolution team.