Hi, how could Susan make a claim of breach of contract against ABC Heating in this hypothetical situation? What remedy would likely result from the claim, and please provide any cases that either side could argue.

Susan purchased a house in Brunswick East as an investment property and rented it out to tenants (without using a real estate property agent).

On 1 June 2021, the heater in the rented property malfunctioned. The heater operates on gas, which is used to heat air in a unit outside the house and then blow the air into the house through a system of ducts under the floors. The tenants contacted Susan and provided an urgent repair notice. After three follow up emails and three follow up phone calls to Susan, she organised a Plumber to inspect the heater (Plumbers 'R' Us ('PRS'). After inspection PRS informed Susan that the heating unit located outside the house would need replacing. PRS advised that they worked with two main heating suppliers in Melbourne: ABC Heating Pty Ltd and DEF Heating Pty Ltd.

On 2 June 2021, Susan contacted both heating suppliers and obtained quotes. She decided to go with ABC Heating Ptd Limited which quoted for a unit which was efficient and had the following characteristics:

• The unit costs $4,000;
• Could be installed by any qualified plumber;
• Had a 95% energy efficiency rating (the energy efficiency rating determines how well the unit will perform in regard to how hard the unit must work to heat the air going into the space. These energy efficiency values are important to consider when purchasing a unit. The higher the rated value the lower the operating cost for the unit will be.

ABC Heating sent Susan a contract. The contract included the following terms:

12. The heating unit supplied under this contract has a 95% energy efficiency rating.

...

15. The heating unit must be installed correctly to achieve the outcomes promised under this contract. The unit may not work optimally with all duct systems or built structures and the supplier is not responsible for any loss if they are incompatible.

...

21. This agreement constitutes the entire agreement between the parties. The parties agree that no negotiations, commitments or representations form part of this agreement apart from those included in this document.

Susan reviewed the contract and paid particular notice to clause 15 of the Contract.She was concerned because her house was 100 years old and the ducted heating was at least 55 years old. The next day, Susan called ABC Heating and asked the representative, Dave, about the ducts in her house. The representative, Dave said that based on that information (55 years old) the unit would work fine.

However, what the representative, Dave, failed to tell Susan was that ABC Heating had done an investigation only the year before that had found that the heating unit failed to work properly in 40% of installations where the ducts were more than 50 years old. All agents of ABC Hearting had been informed about the investigation and the representative had a copy of the report on his desk. After the representative's reassurance, Susan agreed to buy the unit and signed the contract. PRS installed it, which cost $1000 including removing the old broken unit.

The following week Susan received a series of phone calls from her tenants complaining that the heater was not working. They said it would turn on and start heating but would turn itself off when it got to about 14 degrees Celsius. It would then only restart if the unit was switched off and on again at the wall. The tenants were furious that their heating was not working (as it was getting really cold in Autumn) and demanded that Susan fix it immediately.

Susan called ABC Heating to complain about the unit. ABC Heating said that they were extremely busy and would not be able to inspect the unit for two months. PRS was able to undertake an inspection of the installation that week and found that there was nothing wrong with the installation so the problem must be with the unit.

The tenants were adamant that they could not wait two months without heating for the unit to be inspected. They gave Susan a breach notice claiming that Susan had breached her duty to get the heater fixed urgently. Susan was so annoyed when she received the breach notice as she thought it was completely unreasonable when she could not fix the heater herself. However, in the face of possible VCAT proceedings Susan compromised.

She purchased seven large electric heaters for the tenants ($700) so they could heat the whole house and agreed to pay the increased cost of their electricity bills. The increased cost of the tenants' electricity bills for the three months of June, July and August was $1,500/month. The tenants did pay $100/month less in gas bills but did not tell Susan and she did not think to ask.

On 1 August ABC Heating sent a technician to inspect the unit. The technician found that the old system of ducts under the house had somewhat restricted airflow. The reason the unit was switching off was that the safety switch tripped, which required the electricity to be turned off and on to reset. ABC Heating offered to modify the unit so that it would work better with the old ducts. Susan agreed and the modification was completed by the end of August.

On 1 September ABC Heating sent Susan a bill of $2000 for the modification. This drove Susan into a wild fury. She stormed into ABC Heating's offices demanding to speak to the manager. Throwing the bill on the desk she shouted that she would never pay this and demanded that ABC Heating also pay the cost of her tenant's electricity bills. ABC Heating's manager pulled out the contract and pointed to cl 15 in the contract. Susan stormed out of the office.

In September the tenants discovered that, although it was improved, the gas heater was still not working properly. First, it would get the temperature up to 19 degrees, but would then cut out and require resetting. Second, even with that lower functionality the tenant's gas bills were not much lower than their bills in the 2019 and 2020 winter, when they had kept the house about 21 degrees.

After sending more breach notices stating that Susan was breaching the tenancy by not fixing the heater, the tenants validly terminated their $3000/month tenancy, which ended on 1 October 2021. Before the tenants left, one of them was seriously injured after being physically attacked during an argument at a local bowls club in Brunswick East. Because of the injury, the other tenant needed support to look after them and their child. The tenants cancelled the tenancy they had planned to move into in Melbourne and relocated to NSW so they could be supported by their family.

In October, for $1000, Susan hired an independent expert heating consultant, Daniel, to thoroughly inspect the system and advise on options. On the efficiency problem, Daniel used various specialised tools to check the efficiency of the unit. He found that it was converting the energy in each joule of burned gas to heated air with 85% efficiency. The remaining 15% of energy was being lost through heat in other ways. The old unit that had been replaced also had 85% efficiency. He advised that 95% efficiency was extremely rare in home heating systems. It could only be achieved if the unit was replaced with a specialist type of unit that was used in some commercial buildings. He advised that replacement of the unit with a commercial one that achieved 90% efficiency would cost $10,000, plus the standard installation cost ($1000). Daniel estimated that the commercial unit would not appreciably change the value of Susan's house because the value provided by extra efficiency would be offset by it creating slightly more noise.

Daniel also advised on the compatibility problem between the heating unit and the old ducts under the house. Daniel advised that Susan had three options: (A) replace the ABC unit with DEF's Heating Pty Ltd's heating model, which would come with a contractual guarantee that it would work properly; (B) replace the underfloor duct system entirely, which would cost $10,000; or (C) replace the gas heating with electric split system heating with multiple heads for the different rooms, which would cost $15,000 but would have a thermal efficiency of 300%. Daniel recommended option (C) because of the much better efficiency and it would be easier to install than getting under the floor. Daniel also advised that the Victorian state government had legislated new standards for rental properties. From June 2024, rental properties are required to have an efficient heating option, which would not be satisfied by the ducted gas heating and will require the installation of an electric split system. However, by this time Susan had spent her savings and had no funds available to undertake any of these options.

Also in October, as soon as her tenants left, Susan advertised the house for rent. Susan expected the house to be empty for two to four weeks because of the time it takes to do inspections and review tenancy applications. However, Susan did not receive any satisfactory applications because everyone who inspected the property asked about the heating and she had to explain that the heating was having problems. Susan turned down five applications by people who could not provide proof of income.

On 1 January of the following year, 1 January 2022, Susan lowered the asking price for her rent by 10% from $3,000 per month to $2700 per month. While several promising inquiries were made at this price, even with the broken heater, potential tenants still considered this rent to be too high. On 1 April 2022, Susan managed to rent the house for $2400 per month, which was 20% less than what had been previously charged (and the market rent at the time was $3,000).

Susan's financial position was devastated by the loss of rental income from 1 October 2021 to 1 April 2022. On 1 October 2021 Susan withdrew $10,000 from her superannuation account to cover the loss of income over the first six months without tenants. According to Australian Securities & Investment Commission data this withdrawal will cost Susan $5000 in lost investment returns when she retires in 10 years. Further, on 2 October, Susan borrowed $20,000 from the bank and is paying interest on this borrowing at 10%. She used $5,000 for living expenses, to cover her lost tenancy income from October. She used the remaining $15,000 to replace the heating system. She chose option (C), the electric split system, as David had recommended it.

On 1 April 2023, Susan's new tenants renewed their 12-month lease. Susan increased the rent 5% to $2520 per month justified because houses with electrical split systems had higher average rents than those with gas heating. Susan would have been justified in increasing the rent back to the 2020 price ($3,000 per month) as the average rents in the area had bounced back to very near their 2020 average. Susan did not do the research to find this out.

Susan has suffered significant emotional distress since June 2021. She has suffered distress from the confrontations with her tenants and with ABC Heating. She suffered further distress from the impact on her finances. Since June 2021 the distress of the heating and tenancy issues has prevented Susan in engaging in the daily practice of meditation required by her 'Reformed Neo Buddhist' beliefs. This has led to Susan suffering spiritually, doubting her place in the universe and being refused the rank of Level Five Lotus by her religious community.