Insurance & Reinsurance
Landlord recovers fully from managing agent for claim by injured tenant for failing to identify obviously defective stairs. Landlord delegated his inspection obligations to the agent.
In Yeung v Santosa Realty Co Pty Ltd [No 2]  VSCA 29 the Court of Appeal was required to determine costs issues between Yeung, the owner of a residential property and Santosa the managing agent in respect to a successful claim brought by an injured tenant.
This decision and the preceding decisions illustrate the high exposures managing agents and property managers face in respect to defects causing injury.
At first instance, the trial judge found both Yeung and Santosa had breached their duties to the plaintiff and were liable for her damages.The plaintiff had slipped at night on back stairs that were worn, slippery and unlit with no handrail. The trial judge found it was reasonably foreseeable that someone using the stairs, particularly at night, would fall due to their state. The landlord had breached his duty to the tenant by breaching a term of the lease that required him to make sure the premises were maintained in good repair. Santosa was found liable to the plaintiff for failing to carry out an inspection of the premises and identify the obvious defects in the back stairs. Importantly, it was found that a managing agent acting reasonably would detect these obvious defects.
Yeung argued that he had completely delegated his duty as owner and occupier in regard to inspections and the management of the property to Santosa and should be fully indemnified by it. The trial judge found that Santosa was one-third liable to the injured tenant, and Yeung was two-thirds (Potter v Yeung  VCC 10).
On appeal, Yeung was successful in overturning that finding and the Court of Appeal found that Santosa was 100% liable for the tenant's damages on the basis of Yeung's complete delegation of his duties to it (Yeung v Santos Realty Co Pty Ltd  VSCA 7). Yeung had breached his inspection obligation as owner and failed to identify the obvious defect in the stairs but he had delegated wholly his inspection obligation to Santosa, which Santosa had failed to carry out.
This recent decision concerned the question of costs of the first trial. Santosa sought to vacate an order made by the Court of Appeal, which ordered it pay Yeung's costs of that proceeding. The Court of Appeal found against Santosa and found it proper that it pay all of Yeung's costs. Yeung could not recover his costs from the tenant because he was liable to the tenant for a breach of the lease. It was only proper that as Yeung had fully delegated his responsibilities to Santosa, he was entitled to a complete indemnity for the claim made against him and its costs.
For professional liability insurers of managing agents and property managers, the decision illustrates the high exposures they face. These professionals assume a range of duties on behalf of owners. The inspection role is usually a fundamental role and they are commonly seen as the "eyes" of the owner. These obligations come with high potential exposures.
Where a court is to find that an owner wholly delegated relevant responsibilities to a managing agent or property manager and that manager failed to discharge that duty by identifying obvious defects and reporting them to the owner, they may be liable wholly for an injured plaintiff's claim.
In discharging an inspection role a managing agent or property manager will only be required to exercise reasonable care in identifying obvious defects (not hidden defects) or make further investigations or inquiries if some characteristic of the property would lead them to be concerned about the state of the property that may cause harm to a tenant or visitor.
In some cases, the agent has been able to argue that the owner's duties had not been fully delegated to the agent, but this will be assessed on the terms of the engagement and the particular facts.
The unique characteristics of this case involved an obvious defect (dangerous stairs) that it was found any reasonable agent would have identified. In claims we manage, we often find that whether a defect is obvious or not is not easily determined.
It is commonplace nowadays that any person injured on residential or commercial premises will sue both the owner and the managing agent. It is therefore critical for a managing agent or property manager to perform the inspection duties they contracted to provide with the appropriate level of diligence and document their findings (now often with photographs). We also think it is important to regularly report to owners about the state of the premises so that an owner is on notice about any actual or potential deficiencies that may expose both owner and managing agent to liability.
We observe that the basic findings of this decision are not unusual or unique, but it is not common that an owner obtains a complete indemnity for its liability to an injured tenant and costs on the basis that they have fully delegated their duty as occupier.