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Does mould make a rental house unfit for habitation?  

Mould is a tricky problem in a residential tenancy. Landlords blame tenants for not properly ventilating. Tenants blame landlords for building defects.

The Residential Tenancies Act 2010 (NSW) (the RT Act) requires a rental property to be fit for habitation. The question is: Does mould make a property unfit for habitation, and what can a tenant claim if it does?

We are indebted to Judge Hatzistergos for providing a comprehensive guide to how mould can make a property unfit for habitation, and what a tenant can claim if their possessions are damaged or destroyed by mould.

The judgment is Murphy v Lewkowitz; Lewkowitz v Murphy [2021] NSWDC 361 (11 July 2021), District Court of New South Wales.

The mould

The tenant, Christopher Murphy, rented a house at 8 Rivers Street, Bellevue Hill for himself and his family in August 2013. It was a large luxury house with a swimming pool. He renewed the lease and continued to reside the house until July 2017, moving out one month before the lease ended. He paid a monthly rental of $11,626.00.

The landlords, Mr and Mrs Lewkowitz, self-managed the property. In 1990, they had extensively renovated the property (which had been built in 1930), including an extension to the house and a swimming pool. They had lived in it for 34 years, before leasing it. They regularly inspected the property.

In 2015, the tenant complained of mould on his leather coats which he kept in a wardrobe. The landlord replied: “You should open the window … It is your fault for not keeping the air circulating.” And added: “You should buy a packet of ‘Damp Rid’”. The tenant followed the landlord’s advice and never closed the windows in the bathroom again, except when absent.

In March 2017 (after weeks of continuous rain) the mould reappeared and was widespread, despite the tenant having 5 dehumidifier packets. The worst affected area was the main bedroom, which was downstairs. Leather jackets and shoes inside the walk-in wardrobe were badly affected by mould.

There were vigorous email exchanges in which the tenant expressed concerns about the mould and held the landlords responsible for damage to his possessions.

The landlords engaged several experts to visit the property. They found rising damp and water ingress. They found building defects. They recommended remedial work: better sub-floor ventilation, clearing the existing wall vents, clearing and repairing stormwater drains, installing more drains, inserting a new damp proof course and external ducting for the exhaust fan.

One expert engaged by the landlords described the mould as very serious – it was condition 3 i.e. “an indoor environment contaminated with the presence of actual mould growth, associated spores and fungal fragments”. The expert measured the airborne mould spore and hyphal concentration at levels of 161,440 per cubic metre in the main bedroom, with comparable levels in other rooms. These levels were a health hazard because they greatly exceeded the acceptable level of up to 10,000 per cubic metre.

The expert concluded: “continued use of the premises must not be permitted until remediated”. The tenant vacated the main bedroom, the wardrobe areas and bathroom, and ceased to use the downstairs lounge. The tenant continued to occupy the rest of the house.

The landlords offered to professionally de-mould the tenant’s possessions and to negotiate a rent reduction.

But after receiving an expert’s quotation for the cost of remediation, the landlords changed their mind. They told the tenant: “It is too much money. We have to think about it. It’s a lot of money to spend just because the tenant hasn’t opened a window.”

The scene was set for legal proceedings. The hearing took four days in the District Court. The proceedings were transferred from NCAT because the amount in dispute exceeded $15,000.

The legal bases for the mould claims

The tenant’s claim had 5 alternative legal bases.

The law, the landlords’ argument and the Court’s findings were:

  1. Not fit for habitation (section 52)
    The law
    s 52(1) RT Act: A landlord must provide the residential premises in a reasonable state of cleanliness and fit for habitation by the tenant
    s 52(1B) RT Act: In particular, the premises must be structurally sound – that is, no significant dampness exists in floors, ceilings, walls, and the roof, ceilings and windows do not allow water penetration
    s 52(1) is reproduced in clause 19.1 of the current Residential Tenancy Agreement, and so this claim is for breach of contract.
    The landlords’ argument
    ‘Unfit for human habitation’ means ‘not possible to be resided in’ (at the start of the tenancy).
    The Court’s findings
    The sources of dampness that led to the mould were structural defects. These defects were present at the date when the lease was renewed. The defects were: “conducive to rising dampness and mould proliferation in the subject property such that injury or absence of reasonable comfort was to be expected, or would naturally occur, from the ordinary use of the premises”.
    The Court concluded that the property was not fit for habitation in terms of s 52(1) of the RT Act, “notwithstanding the tenant and his family continuing to reside in it”.
     
  2. Not in a reasonable state of repair (section 63)
    The law
    s 63(1) RT Act A landlord must provide and maintain the residential premises in a reasonable state of repair
    s 63(1) is reproduced in clause 19.3 of the current Residential Tenancy Agreement, and so this claim is for breach of contract.
    The landlords’ argument
    The landlords had no actual or constructive knowledge of the water penetration or mould proliferation until March 2017.
    The Court’s findings
    The Court said that s 63(1) imposes “a positive obligation on the landlord to satisfy himself as to the state of the premises”.
    The Court found that the landlords “did have knowledge of the water penetration issues particularly in relation to the rising damp and mould at least from 2012 [when the previous tenant complained about mould] and failed to act with reasonable diligence to investigate and address the problem such that there was a breach of s 63 of the RT Act”.
     
  3. Failure to warn of a significant safety risk (section 26)
    The law
    s 26(1) RT Act A landlord … must not induce a tenant to enter into a residential tenancy agreement … by knowingly concealing a material fact …
    cl 8(1)(b) Residential Tenancies Regulation 2019 [A material fact is that] the residential premises are subject to significant health or safety risks that are not apparent to a reasonable person on inspection of the premises
    This is a breach of statutory duty claim.
    The landlords’ argument
    It was not until they received the mould testing results in 2017 that they knew of the health or safety risks, and so could not be said to have ‘knowingly concealed’ the risks.
    The Court’s findings
    There was no evidence that the landlords knew that the mould was a ‘significant health or safety risk’ when they entered into the tenancy agreements, let alone concealing that risk.
    There was no failure to warn in breach of s 26.
     
  4. Common Law Duty of Care
    The law
    The Court adopted the formulation by Emmett AJA (Macfarlan JA and Campbell AJA agreeing) in Aldred v Stelcad Pty Ltd [2015] NSWCA 201, that:
    “the duty of a landlord is to take reasonable care to avoid foreseeable risk of injury to a person who enters onto the demised premises … in the absence of a contract supporting a higher duty, … [it] does not in general require a landlord to commission experts … to inspect the premises to look for latent defects. Nor … to make premises as safe as reasonable care can make them.”
    The landlords’ argument
    They had commissioned expert reports. None of the expert reports conclusively identified the defects in the property which gave rise to the mould.
    The Court’s findings
    The civil engineer’s report explained how a “combination of defects” enabled water to collect “and with inadequate subfloor ventilation led to rising damp and mould”.
    The Court applied 5B of the Civil Liability Act 2002 (NSW):
    - The risk of harm was “the risk of sustaining loss by water damage and mould due to structural defects in the dwelling”.
    - The landlords “knew or ought to have known” about these defects.
    - The risk was foreseeable and was significant – see Court’s finding in 2 above.
    - The landlords did not take reasonable steps to repair the defects when they received the reports in 2017 (they did nothing) nor did they take precautions to prevent the harm occurring (such as by warning the tenant to protect their property).
    The Court found the landlord had breached the common law duty of care.
     
  5. False and misleading representations as to land (srction 30 Australian Consumer Law)
    The Court’s findings
    The Court rejected this claim, finding no misrepresentations were made as to the nature of an interest in the land, no evidence the tenant would not have entered into the lease regardless, and no reliance on a representation as to property condition.

The loss claim for compensation

The landlords’ breaches had caused the tenant’s loss.
The tenant claimed and was awarded damages (compensation) under 4 heads.
1. Replacement of destroyed items
2. Other expenses
3. Remediation of Items
4. Artworks

  1. Replacement of destroyed items

    The tenant relied upon an insurance loss adjuster’s report to determine market value of:
     
    • Hard furnishings including beds and mattresses, lounges, TV, book shelves and a chest of drawers.
    • Soft furnishings including rugs, bedding, pillows, doonas and lamp shades.
    • Clothing including leather jackets, pants, shoes, scarf and an overcoat.

    The methodology used to determine the market value of these items was to source replacement cost, where possible. If not, an average value appropriate for the item or from original purchase price was used. Depreciation was applied according to average life expectancy for the item.
    The Court adopted the report and awarded $28,426.30.
     

  2. Other Expenses

    A variety of expenses were claimed. These included removal expenses, tipping and labour for items disposed of, storage costs (rent), temporary bedding and mattresses.
    The Court allowed some items but not others. It awarded $17,281.05 being the expenses it found were reasonable and necessary. The Court said that expert report fees were not claimable under this category – they should be claimed by the tenant as legal costs.
     
  3. Remediation of Items

    The claim for mould remediation was based on a restoration specialist’s report.
    The claim was substantially for remediation of books and furniture, and subsequent testing. The claim included transport and storage.
    The specialist described the methodology used as:
    “The restorability of mould contaminated contents within a water damage house depended upon porosity, level of contamination vs risk factor and economic value vs intrinsic value.”
    To illustrate: “a piece of Ikea furniture that has a condition 3 mould” is not restored because of its low value. “Items such as lounges and mattresses I would not restore because of their complexity” and inability to “open them up to remediate the foam on the insides”.
    The Court adopted the methodology but discounted the estimated amount because of the “uncertainty as to when and if repairs will be carried out”. There was also a lower quote available.
    Adopting the approach of “reasonable repair costs as at the time of breach”, the Court awarded $20,000, instead of the amount claimed of $53,229.00.
     
  4. Artworks

    This claim was based on an expert’s report which described the condition of the 40 artworks and a two-stage treatment proposal comprising mould remediation and potential aqueous cleaning. The cost estimate was $30,827.50 to $63,211.50.
    The Court rejected the landlords’ argument that the claim should be rejected because no remedial work had been done. But the problem the tenant had with not having the work done was that the estimates, especially for the Stage 2 cleaning were “loose”.
    The Court awarded $22,000.

Comment – The claims were all for personal property damaged or destroyed. There were no health related claims, such as for medical expenses or loss of earnings due to illness.

The landlord’s claim

The landlord claimed unpaid rent to the date the tenant vacated the property, in the amount of $31,793.61, after crediting the bond.

The tenant raised two arguments in defence of the rent claim. The first was that he was entitled to set off the amount the landlord is liable to pay, against unpaid rent. The second was that the landlord could not demand rent while the tenant was unable to use the property for its intended purpose because it was not fit for habitation.

The Court rejected the tenant’s arguments and upheld the landlord’s claim, saying:

The tenant’s “obligation to pay rent remains notwithstanding that his ability to use the premises is affected” because the obligation “to pay rent is independent of the landlord’s covenants”.

The Court said that if the tenant had wanted a reduction of rent they needed to have made an application under s 44(1)(b) of the RT Act (Tenant’s remedies for excessive rent) before the end of the tenancy.

The Court orders

The Court made these orders:

  1. Tenant was awarded $88,307.35 for their claim that the property was not fit for habitation.
  2. Landlord was awarded $31,793.61 for unpaid rent.
  3. On balance of account, the landlord was to pay the tenant $56,513.74 plus interest from 27 October 2017.

Postscript – What did the landlords do with the house?

After the tenant moved out, the landlords carried out extensive work upon the property, at a cost of $300,000. In mid-2018 they sold the house for $6.375 million dollars.

For more information, advice and four case studies, click on my article Mould in rental properties – tenant’s rights and landlord’s responsibilities

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