By Chris Brodrick, Partner

In September 2025, VCAT was petitioned by a tenant with a potential equitable set-off claim against a landlord, to prevent the landlord from exercising a right of re-entry.  The flaw in the tenant’s position was that re-entry had already occurred.  While not the end of the line for the tenant, the tenant’s failure to act quickly made its chances of an ultimate successful outcome more complicated.

The facts

It was not in dispute that the tenant had failed to pay rent and outgoings amount to in excess of $185,000, accrued over a two-year period.  During this period, the tenant had submitted that the premises were adversely impacted by water ingress, that had ultimately been rectified by the landlord in May 2025.  The tenant said that it has suffered loss and damage as a result of being unable to trade from the whole of the premises.

The landlord served a notice of default on 4 August 2025 and re-entered the premises on 22 August 2025.

Evidence (including expert reports) was filed by the tenant in support of the tenant’s application.

“No set-off” clause in the lease

The lease contained a clause requiring payment of rent “without deduction” and the landlord submitted that the tenant had no right to set-off.  Landlords commonly include such clauses and the Courts have found that they will prevent a tenant relying on equitable set-off.

However, earlier in 2025, VCAT’s decision in AMTB Pty Ltd v Chan (Building and Property) [2025] VCAT 236 (Chan), shifted the goalposts in some circumstances.  In that case, the Tribunal considered whether a “no-deductions” clause which had the effect of disrupting a tenant’s rights to make a set-off claim under s.52 of the Retail Leases Act 2003 (Vic) (the Act) could (at least on an interlocutory basis) be considered to enliven the provisions of section 94 of the Act, rendering the “no-deductions” clause void. The Tribunal considered that the position was sufficiently arguable and therefore capable of satisfying the criteria that there was a serious question to be tried.  The tenant in Chan had incurred costs in repairing that which the landlord ought to have repaired.  The sum was identifiable as a liquidated sum.

In STG Dental v Mannerside the Tribunal noted that the decision in Chan did not limit its rationale to liquidated damages, noting that the same principle could apply to unliquidated damages; although the Tribunal also noted that the STG Dental claim did not wholly comprise unliquidated damages in any event.

The Tribunal concluded, therefore that the principles in Chan would apply in this case. However, that was insufficient to get the tenant its desired injunction.

Re-entry had already occurred

The landlord submitted that because the landlord had re-entered the premises, and it was beyond doubt that the landlord had a right to terminate the lease, the lease had in fact and at law been forfeited.  The Tribunal agreed stating (at 22):

Although the Tenant may have had a right to abate some rent and outgoings by reason of its restricted use of the Premises, it is not submitted that during the relevant period, the Premises could not be wholly used. Therefore, some rent and outgoings would have been payable during that period. Moreover, at the moment when the Lease was forfeited, there was no claim for loss and damage on foot. Therefore, at that point, the Landlord’s right to re-enter the Premises and forfeit the Lease had crystallised because some of the rent and outgoings detailed in the Default Notice were undeniably in arrears.

The Tribunal went on to say, however, that if the tenant made an application for relief against forfeiture, it would likely succeed and therefore be entitled to its injunction preventing re-entry.  The Tribunal ruled:

Having regard to my findings, I will make an order compelling the Landlord to restore the Tenant’s occupation of the Premises, subject to the Tenant filing an application for relief against forfeiture. Obviously, if the application for relief against forfeiture is refused, then no injunction will come into operation unless otherwise ordered by the Tribunal.

At the time of this article, there has been no report of a hearing on the question of the application for relief against forfeiture.  Until that occurs, it is unclear how the Tribunal’s ruling can be effective.  The lease is, per the Tribunal’s ruling, forfeit. The tenant therefore has no estate entitling it to occupy the premises – it is assumed, therefore, that the Tribunal was not requiring, at that point, that the landlord provide access to the tenant to occupy the premises.

The injunction the tenant might have more reliably have applied for was to prevent the landlord re-letting the premises pending the outcome of a relief against forfeiture application. Or perhaps it might have simply applied for relief against forfeiture.

In any event one might ordinarily assume that the landlord is entitled to orders that the tenant cure the default (i.e. pay the $180,000) before relief against forfeiture can be granted. However, the Tribunal’s “conditional injunction” ruling places some doubt on how the Tribunal would approach that question.  But it would be a very curious result for relief to be granted without the tenant having to pay the arrears.

The lesson for both landlords and tenants, is that that delay is not their friend. The receipt of a default notice must be actioned with haste and precision from a tenant’s perspective.  A Landlord must act as soon as possible because delay could mean the difference between receiving their rent and outgoings prior to a tenant prosecuting its claim, versus having to wait for final determination of the tenant’s claim before (possibly) getting paid.

There also remains doubt as to how the Tribunal or a court might finally resolve the question of a “no-deductions” clause and its interaction with s.52 of the Act.  The notion that not allowing a tenant to set-off amounts runs contrary to their right to claim the cost of repairs is difficult to reconcile.