Safety is free – for tenants

Essential safety measures, essentially

Over the past few years, a vexed issue confronting landlords and tenants in retail and commercial leases has involved consideration of:

whether section 251 of the Building Act 1993 (Vic) (Building Act) prevents a landlord from recovering from a tenant the cost of essential safety measures (ESM) as an outgoing under the lease;
other steps required to comply with obligations under the Building Act; and
whether a landlord can recover the associated costs of maintenance and repair as outgoings.

Essential safety measures include a wide range of safety related provisions including airconditioning systems, emergency lifts, fire detectors, fire extinguishers and standby power supplies.

These issues have been brought to the Victorian Small Business Commissioner (VSBC) on countless occasions – the VSBC being the compulsory forum for mediation in retail lease disputes. But it was only recently that the Commissioner Mr Browne, referred the matter to VCAT for an advisory opinion, under the powers granted to him by the Small Business Commissioner Amendment Act 2014 (Vic).

You’re invited

VCAT invited submissions from key stakeholders, government bodies and various other organisations including the Shopping Centre Council of Australia and the Real Estate Institute of Victoria. The President of VCAT, Justice Garde, handed down his advisory opinion on 1 May 2015.

Before looking at his decision we must consider the background of these issues.

Pay it forward?

Section 251 of the Building Act is similar in many respects to Section 52 of the Retail Leases Act 2003 (Vic) (RLA). Under both Acts the landlord/owner is required to do certain work and, if it is not done, the tenant can do the work and recover the costs of so doing from the owner/landlord. VCAT has considered the question of whether a landlord can recover the costs of complying with s52 of the RLA before. In Café Dansk Pty Ltd v Shiel [2009] VCAT 36, the Deputy President Michael MacNamara dismissed the landlord’s arguments, stating that:

‘It would be, in my view, a mockery of s52 if Parliament having allocated the responsibility for certain repairs to the landlord, the landlord could then send the bill to the tenant for the cost of carrying out those repairs…’

It has been argued that the same logic applies to s251 of the Building Act.

And the decision is …

The advisory opinion handed down by Justice Garde determined that a landlord is prohibited from passing on the costs of ESM to a tenant either by s52 of the RLA or s251 of the Building Act. A landlord of a commercial or retail premises can only require a tenant to undertake ESM obligations under the Building Act and Building Regulations 2006 (Vic) in very limited circumstances, and only at the landlord’s expense.

Landlords be-ware

The order is not legally binding, but it is likely to carry substantial weight in any court proceedings. Landlords need to consider whether their existing leases seek to impose ESM compliance obligations on tenants, and whether such provisions are void as a result of this decision. They should also review the costs passed on to tenants to ensure that they are recoverable.

Tenants be-wary

Lawyers acting for tenants should:

ask whether they have paid significant outgoings to their landlords for the costs of the landlord’s compliance with s52 of the RLA and s251 of the Building Act; and
consider whether recovery action is feasible.

The VSBC is expecting a flood of applications in this regard. When considering a lease, and more particularly the repair, maintenance and outgoings provisions, this decision should be taken into consideration.

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