The discovery that a rental property fails to meet legal standards often leads tenants to a compelling question: if the lease agreement is based on an unlawful premise, are they entitled to a full refund of every dollar paid in rent? This scenario presents a complex legal dilemma, pitting a landlord’s fundamental breach against the tangible benefit of shelter that a tenant has already received. While it might seem that a property manager who knowingly offers an illegal property for lease should forfeit all financial gains, the law often seeks a more balanced and equitable resolution. A recent decision by the Queensland Civil and Administrative Tribunal (QCAT) Appeal Tribunal provides a crucial case study, meticulously dissecting the legal consequences of an unenforceable tenancy agreement. The ruling illustrates that while a manager’s culpability is a central factor, it does not automatically translate into a financial windfall for the tenant. Instead, the outcome hinges on the nuanced application of the doctrine of unjust enrichment, a legal principle designed to prevent one party from unfairly profiting at the other’s expense, thereby ensuring that the remedies align with fairness rather than pure punishment.
The Case of the Unlawful Massage Parlor
A Risky Agreement
The dispute originated from a seemingly straightforward General Tenancy Agreement signed on July 16, 2023, between property manager Song Tae Park and tenant Manee Saechun. The lease was for the downstairs level of a residence in Southport, Queensland, for a 12-month term with a weekly rent of $650. However, a critical clause within the agreement proved to be its undoing: Mr. Park explicitly granted Ms. Saechun permission to operate a massage business from the premises. Relying entirely on this assurance, Ms. Saechun proceeded to invest $2,450 of her own money to construct a dedicated massage treatment room, an improvement that Mr. Park personally approved. This investment represented a significant financial commitment made under the belief that her business operations were fully sanctioned by the terms of her lease. The tenant’s actions were a direct consequence of the representations made by the property manager, creating a situation where her financial decisions were intrinsically linked to the presumed legality and enforceability of the contract she had signed. The stage was set for a conflict rooted not in a misunderstanding, but in a fundamental misrepresentation of the property’s legal status.
The entire arrangement was built on a flawed foundation, as the property was not zoned or approved by the Gold Coast City Council for any form of commercial use. This crucial oversight rendered the tenant’s business, and by extension her occupancy for that specific purpose, unlawful. The illegality came to a head when Ms. Saechun, seeking to formalize her operations, expressed her desire to register the business. It was at this point that Mr. Park advised her against it, making the candid admission that he or his son would “get into trouble” if the Council were to conduct an inspection of the property. This statement served as a clear acknowledgment of his awareness of the non-compliance. Faced with the stark reality that she could not lawfully operate the very business the lease was intended to support, Ms. Saechun vacated the property around December 1, 2023, after 19 weeks of occupancy. Several months later, on April 10, 2024, her concerns were officially validated when the Gold Coast City Council issued a Notice to Show Cause regarding the unapproved use, citing a breach of the Building Act 1975 (Qld) and confirming the property’s illegal status.
The First Court Battle Tenant Wins Big
Following the tenant’s departure, Mr. Park initiated legal proceedings in QCAT’s minor civil disputes jurisdiction. He sought $2,200 to cover a break-lease fee, alleged unpaid rent, and the cost of repairs, positioning himself as the aggrieved party. In a powerful response, Ms. Saechun filed a substantial counterclaim that sought to erase the financial history of the tenancy entirely. She demanded a full refund of all rent she had paid, amounting to $12,350, along with the return of two weeks of advance rent paid upon vacating ($1,300), full reimbursement for the cost of her improvements ($2,450), and the return of her security bond ($2,600). Her claim was not merely for damages but for complete restitution, arguing that the illegality of the lease from the outset nullified any obligation she had to pay for her time there. This aggressive counterclaim transformed the dispute from a simple matter of a broken lease into a complex legal question about the consequences of entering into an unlawful agreement. The financial stakes were now significantly higher, with the property manager facing the potential loss of all income from the tenancy plus additional costs.
The initial adjudicator delivered an unequivocal victory for the tenant. The decision rested on the finding that the occupancy was unlawful and, crucially, that Mr. Park knew, or should have known, about this “legal impediment” from the very beginning. Citing section 181 of the Residential Tenancies and Rooming Accommodation Act 2008 (Qld) (RTRA), the adjudicator concluded that the property manager had committed a fundamental breach of the agreement. This breach was not seen as a minor infraction but as an “insuperable legal impediment” that tainted the entire contract. Consequently, the adjudicator treated the tenancy agreement as effectively void and unenforceable by the manager. In a decisive ruling, Mr. Park was ordered to repay the tenant the entire sum of her counterclaim, which, including filing fees, totaled $16,479.50. His own claim was completely dismissed. At this juncture, it appeared that the law had provided a clear answer: an illegal lease did indeed mean free rent, as the manager was stripped of all financial benefits derived from the unlawful arrangement, seemingly as a punitive measure for his misconduct.
The Appeal Tribunal Steps In A More Nuanced Decision
The Principle of Unjust Enrichment
Dissatisfied with the complete financial loss, Mr. Park was granted leave to appeal the decision. The Appeal Tribunal undertook a detailed review and identified what it described as a “fundamental error” in the original adjudicator’s legal reasoning, specifically concerning the remedies available when a tenancy is deemed unlawful. The Appeal Tribunal concurred with the initial finding that the property manager was at fault and his knowledge of the illegality rendered the tenancy agreement unenforceable by him. However, the tribunal diverged sharply on the appropriate consequence of this breach, particularly regarding the full restitution of rent. The appeal judgment pivoted away from a punitive approach and toward the equitable principle of “unjust enrichment.” Citing the High Court of Australia’s guidance in Equuscorp Pty Ltd v Haxton, the tribunal emphasized that restitution is granted only when it would be “unjust for the recipient of a benefit… to retain that benefit.” The core policy consideration is not to punish the wrongdoer but to maintain the overall “coherence of the law,” ensuring that legal remedies do not create absurd or unfair outcomes.
Applying this principle, the Appeal Tribunal meticulously analyzed the benefits each party had received. It reasoned that Ms. Saechun had obtained a significant and undeniable benefit from the agreement, despite its illegality. For 19 weeks, she had occupied the property, using it as both a home and a place to conduct her business. To order a full refund of the $12,350 in rent would, in the tribunal’s view, create a situation where she received that substantial benefit entirely for free. This outcome would constitute an unjust windfall, a result that the law of restitution is specifically designed to prevent. The tribunal’s logic was that while the manager’s actions were wrong, forcing him to return payment for a service that was actually rendered—providing shelter and premises—would unjustly enrich the tenant at his expense. Therefore, the tribunal overturned the order to refund the rent, allowing Mr. Park to retain the payments he had received for the period the property was occupied. This decision fundamentally shifted the outcome, demonstrating that the law seeks to restore balance rather than simply penalize one party.
Distinguishing Rent from Other Losses
In stark contrast to its ruling on the rent, the Appeal Tribunal viewed the tenant’s claim for the cost of her improvements through a different legal lens. Here, the principle of unjust enrichment worked in her favor. The tribunal found that Mr. Park had been unjustly enriched by the $2,450 expenditure Ms. Saechun made to construct the massage room. He had not only approved the construction but, after she vacated, he retained this valuable improvement. More significantly, he benefited directly from it by subsequently advertising the property as a two-bedroom tenancy, effectively leveraging her investment to increase the property’s rental appeal and potential value. Since Ms. Saechun had no other means to recover the value of her investment—the room was a fixture she could not take with her—the tribunal deemed that restitution was both appropriate and just in this instance. This part of the ruling highlights a critical distinction: the law separates the benefit of occupancy, for which payment is fair, from direct financial losses incurred by a tenant who relies on a landlord’s misrepresentations.
Similarly, the Appeal Tribunal upheld the tenant’s right to the full return of her security bond and the two weeks of advance rent she had paid. The reasoning was straightforward: the “legal impediment” established under section 181 of the RTRA meant the property manager could not enforce any terms of the lease agreement, including clauses related to breaking the lease. As such, he had no legal standing to make any claims against the bond, justifying its complete return to the tenant. The final outcome was a “mixed result” that meticulously balanced the rights and benefits of both parties. The property manager was required to pay the tenant for her improvements ($2,450), her bond ($2,600), and her advance rent ($1,300), but he was allowed to retain the $12,350 in rent paid during her occupancy. This judgment underscores a crucial legal distinction: while a property manager’s knowing participation in an illegal lease is a serious breach that invalidates their ability to enforce the contract, the law does not automatically seek to punish them by stripping them of all compensation for the benefits they provided.
A Lesson in Legal Balance
The final judgment in this case provided a clear and compelling lesson in legal equity. It established that while a property manager’s deliberate act of leasing a property for an unapproved purpose was a severe breach that rendered the contract unenforceable from their side, it did not automatically entitle the tenant to a rent-free occupancy. The court’s intervention was not aimed at punishing the manager by confiscating all his earnings but at restoring the tenant to the financial position she would have been in regarding her direct losses. This was achieved by ordering the reimbursement for the improvements she funded and the return of her bond, while preventing her from being unjustly enriched with free housing and business premises. This outcome served as a stark warning to property managers about the profound importance of due diligence. The avoidable error of leasing a property for an unapproved use ultimately rebounded severely, resulting in significant financial liability and a decisive legal defeat, even if it did not amount to a total financial loss. The case underscored the judiciary’s role in carefully balancing the scales, ensuring that remedies correct injustices without creating new ones.
