Landlords and tenants should review the repair and maintenance provisions and outgoings provisions of leases in light of a very significant advisory opinion given by the President of the Victorian Civil and Administrative Tribunal, Justice Garde, on Friday, 1 May 2015.
The advisory opinion confirms the following:
- The Building Act and its regulations impose obligations on landlords to provide and maintain Essential Safety Measures (ESM). If a term of a retail premises lease requires a tenant to perform ESM obligations that the landlord must perform under the Building Act or regulations, that term of the lease is void;
- If a term of a retail premises lease (or non-retail commercial lease) requires a tenant to pay the costs associated with compliance with ESM obligations that the landlord must perform under the Building Act or regulations, that term of the lease is void;
- If the ESM obligations imposed by the Building Act and regulations require the landlord to ensure that a result is achieved or a standard is met (eg. under Regulation 1217 of the Building Regulations, the owner of a building must ensure that any ESM required to be provided in the building is maintained in a state which enables the ESM to fulfil its purpose and is not removed from its approved location), the landlord and tenant may agree that the tenant will achieve that standard or result (though the landlord will remain legislatively responsible). However, the tenant’s performance of this obligation will be at the landlord’s expense. The tenant may deduct the costs from the rental or recover the costs from the landlord.
- A landlord cannot require a tenant to pay as an outgoing the costs incurred by the landlord in complying with section 52 of the RLA.
The advisory opinion was the result of an application by the Victorian Small Business Commissioner referring a number of questions to the Tribunal about the operation of section 251 of the Building Actand section 52 of the RLA. The application was made in order to assist in preventing disputes regarding these provisions and to settle the confusion and opposing views in the commercial tenancy sector generated by an article in the Law Institute Journal in April 2012 authored by the late Michael Redfern of Russell Kennedy, and Norman Mermelstein of Law Ink Pty Ltd. VCAT’s advisory opinion endorses the views expressed by those authors.
While the opinion does not arise from a contested case, which would normally create a legally binding precedent, the opinion is likely to be considered highly persuasive by a Court or Tribunal considering the same issues. The opinion is expected to carry significant weight in commercial negotiations. Tenants are also now likely to seek to recover from landlords any costs incurred by tenants associated with the maintenance of ESMs. The opinion may also lead to landlords preferring gross rental leases (inclusive of outgoings) in the future.
The President’s opinion is available in full here.