Commercial Property: Retail Landlords to Pay!

READ LATER – Download this Article as a PDF >> CLICK HERE <<

Derelict-Building

THE VICTORIAN CIVIL and Administrative Tribunal has given an opinion at the behest of an application from the Victorian Small Business Commissioner.

President Garde determined that compliance costs under the Building Act 1993 (Vic) (Building Act) and repair and maintenance costs under the Retail Leases Act 2003 (Vic) (Retail Leases Act) are the responsibility of landlords and cannot be recovered from tenants.

Specifically, President Garde looked at s 251 of the Building Act and s 52 of the Retail Leases Act. He determined that under the Building Act, a landlord cannot recover costs from complying with essential safety measures.

These include fire safety elements such as the installation and service of sprinklers, fire alarms and fire stairs.

A landlord may require tenants to perform limited measures themselves, but this must be at the expense of the landlord.

Under s 52 of the Retail Leases Act, President Garde confirmed that the Landlord is responsible for the maintenance of a retail premises as at the commencement of the lease.

This includes the structure of the building, its fixtures and its plant and equipment.

However, the tenant is responsible for such payments, but only when the need for repair has arisen from direct misuse by the tenant.

President Garde and the High Court ruling

President Garde adopts the High Court test espoused in Caltex Oil v Best[1] to suggest that where there is a provision in a lease agreement that is inconsistent with either a specific law, or where there is a provision of a lease agreement that is inconsistent with the ‘purpose’ of an Act, the provision of the lease agreement is void.

It is important to note the status of President Garde’s decision. As an opinion, it is contrasted against decisions stemming from specific disputes, and therefore cannot stand alone as a precedent.

Yet it is likely to be highly persuasive in its nature, both at a litigious level but also in giving weight to tenants’ negotiations between parties over lease agreements.

What this means for Landlords and Tenants

Landlords and tenants should look at whether outgoings levied against a tenant have captured compliance costs under the Building Act or repair and maintenance costs for a retail premises.

Also, they should consider their lease agreement to determine whether there are obligations on the tenant that are inconsistent with specific provisions or the purpose of the Retail Leases or Building Acts.

Tenants may wish to assess whether it is commercially viable to make a claim against their landlord or set off payments against rent.

Protection of Landlords

For the future protection of landlords, some commentators have suggested the use of gross leases. A gross lease removes extra payments such as outgoings and provides for the amount of rent payable in one lump sum.

Alternatively (with the approval of the Small Business Commissioner) entering into leases of less than five years would allow landlords greater bargaining power.

The ramifications of President Garde’s decision will undoubtedly affect not only current commercial and retail lease agreements, but also re-negotiations for leases in favour of tenants who have historically paid for all outgoings.

Bottom Line: These changes are likely to be built into rental prices, while valuations of land and businesses may also be affected when considering what further costs will be enforced on land owners.

If you have any questions or concerns, please feel free to contact HWL Ebsworth Lawyers.

[1] Caltex Oil (Aust) Pty Ltd v Best (1990) 170 CLR 516

Disclaimer: If you think a similar situation may apply to you, then you should contact us for detailed legal advice relating to the particular facts and circumstances of your property or lease agreement. This article is not intended to provide such detailed and specific advice. And, you should not act on the basis of any matter contained in this article without first obtaining more comprehensive professional advice.

Xenos

READ LATER – Download this Article as a PDF >> CLICK HERE <<