Landlords to bear the cost of safety measures and certain repairs and maintenance

By Deborah Kliger, Law Graduate, MST Lawyers

On 1 May 2015 the President of the Victorian Civil and Administrative Tribunal (VCAT), Justice Garde, issued a significant advisory opinion. The opinion was handed down in response to an application by the Victorian Small Business Commissioner concerning the operation of s251 Building Act 1993 (“BA”) and s52 Retail Leases Act 2003 (“RLA”). In particular, the following questions were referred to Justice Garde for determination:

1. Who is responsible for the costs of complying with Essential Safety Measures (ESM) obligations?
2. Who bears the costs in respect of maintenance and repairs carried out by landlords in accordance with their obligations under the RLA?

In light of this recent opinion, landlords and tenants are urged to review lease terms relating to repairs and maintenance and outgoings. 

Who bears the cost of ESM obligations?

Section 251 of the BA and regulations impose obligations on landlords to maintain buildings that comply with ESM requirements (i.e. fire extinguishers, exit signs etc.).

With regard to the costs of ESM requirements, Justice Garde confirmed the following:

1. A term of a retail premises lease that requires the tenant to perform ESM obligations that the landlord must perform under the BA or its regulations is void;
2. A term of a retail premises lease that requires the tenant to pay the costs of complying with ESM obligations that the landlord must perform is void;
3. Where a landlord must ensure that a result is achieved or a standard is met in accordance with an ESM requirement, the tenant may agree to do work necessary to achieve that result or standard. However, the cost of that work must be borne by the landlord. The tenant may deduct the costs from the rental or recover the costs from the landlord.

Who is liable for the cost of landlords’ maintenance and repairs?

Section 52 of the RLA requires landlords to maintain the retail premises, including fixtures and plant and equipment, in a condition consistent with the condition of the premises when the lease was entered into.

Justice Garde confirmed that a landlord cannot recover as outgoings the cost of complying with the landlord’s repair and maintenance obligations. Accordingly, any term of a retail premises lease that passes on those costs to the tenant is void.

Is the advisory opinion binding on courts?

As distinct from a decision in a contested case, Justice Garde’s advisory opinion does not create a legally binding precedent. However, if the same issues come before a court or tribunal in the future, it is likely that  Justice Garde’s opinion will be highly persuasive.

Consequences for landlords and tenants:

The advisory opinion will have far-reaching consequences for landlords and tenants. It is expected that the opinion will heavily influence parties negotiating the terms of commercial leases. Lawyers acting for tenants should consider whether the tenant has paid the costs of ESM and maintenance obligations. Tenants who have paid compliance costs may seek to recover those costs from landlords.   

Further, the ability to recover the costs of ESM and maintenance obligations could have a significant impact on tenants facing re-entry for unpaid rent. In those circumstances, a tenant may be able to use the claim for recovery of compliance costs as part of a counter claim or set-off against rent arrears.    

It is recommended that landlords regularly inspect the retail premises to determine whether:

1. Any maintenance works are due to be carried out by the landlord or tenant; and
2. The tenant is misusing the premises or fixtures in any manner.

Regular inspections will assist the landlord in proving the tenant is liable for maintenance and repair costs where damage was caused by the tenant’s misuse of the premises. 

In addition, where certain fixtures are particularly expensive to maintain, landlords may consider transferring ownership of those fixtures to the tenant.   

For more information, please contact our Property & Leasing team by email property@mst.com.au or by telephone +613 8540 0200.