Must the painting be done
before the cost can be recovered under a decoration covenant
in a lease?
Commercial leases contain decoration covenants, such as: the
tenant must “decorate the inside of the property in the last
3 months of the lease period”.
Sometimes it is the landlord, not the tenant who has the
obligation to paint and repair.
If the party with the benefit of the covenant carries out
the renovation, then the cost is recoverable.
But is it possible to recover the cost recoverable before
the decoration is carried out?
That was the issue decided by the Court of Appeal, Supreme
Court of New South Wales in Ellis’s
Town House Pty Ltd v Botan Pty Ltd 
The decoration covenant in
Ellis was the owner of the Albury Town House, a motel in
Albury, which it leased to Botan. The lease was a 5 year
lease with 4 five year options.
The lease contained a decoration covenant that the landlord
maintain the motel premises in good condition and
serviceable repair. In particular, “no later than 6 calendar
months prior to the expiration of each five year term”, the
landlord would “cause to be painted and varnished (where
applicable) the exterior and interior surfaces of the Motel
The commercial basis for the covenant was that the rent
included an unquantified component referable to the
anticipated cost of carrying out the painting work.
The painting and repair work carried out by the landlord was
incomplete and/or defective.
Accordingly, the tenant claimed a breach of the decoration
covenant and was awarded damages of $54,952.09 on a ‘cost of
cure’ basis by the lower court.
Why did Ellis’s challenge to
the award of damages fail?
Ellis submitted that the ‘cost of cure’ basis was not
correct, and that the ‘difference in value’ basis should
apply because the painting and repair work had not been
done. If so, there should be no award of damages because
there was no evidence of any loss in the market value of the
lease resulting from the painting and repair work not having
The Court applied the decision of the High Court of
Australia in Tabcorp
Holdings ltd v Bowen Investments Pty Ltd (2009)
236 CLR 272 where damages for breach of an express negative
covenant in a lease were awarded on a ‘cost of cure’ basis.
In Tabcorp the tenant renovated the foyer of the premises
without approval from the landlord. Damages calculated on a
‘difference in value’ basis were $34,820, as against damages
on a ‘cost of cure’ basis, to reinstate the foyer to its
original condition which were $580,000 for cost to restore
and $800,000 for loss of rent during the restoration period.
The High Court held:
So here, the Landlord was contractually entitled to
the preservation of the premises without alterations not
consented to; its measure of damages is the loss
sustained by the failure of the Tenant to perform that
obligation; and that loss is the cost of restoring the
premises to the condition in which they would have been
if the obligation had not been breached.
In Ellis’s case, Gleeson JA came to this conclusion (with
which Lemming JA & Simpson JA agreed):
Botan was contractually entitled to the maintenance
of the motel premises in a state of good condition and
serviceable repair with repainting during each five-year
term of the lease. Application of the ‘ruling principle’
governing the measure of damages for breach of contract
means that Botan is entitled to the amount of money
required to put it in the position it would have been in
had Ellis, as lessor, performed its painting and repair
covenants under the lease. That Botan had not yet
incurred this expense was no answer to its claim for
It is not necessary for the painting and repair work to be
carried out before a landlord or tenant who has the benefit
of the decoration covenant is able to recover the cost.