Demolition Clauses and Genuine Intent: What Retail Tenants Must Know

Property Law: 15 August 2025

Author: Bao Ngo - Our People

Landlords undertaking refurbishment, renovation, or demolition of retail premises can significantly disrupt tenants’ businesses. The Retail Leases Act 2003 (Vic) (RLA) and lease agreements provide key protections for tenants, especially when access is restricted, operations are disrupted, or relocation is required.

Introduction

Landlords undertaking refurbishment, renovation, or demolition of retail premises can significantly disrupt tenants’ businesses. The Retail Leases Act 2003 (Vic) (RLA) and lease agreements provide key protections for tenants, especially when access is restricted, operations are disrupted, or relocation is required.

This article explores the legal framework governing such landlord works, focusing on lease terms, statutory obligations, tenant rights and compensation entitlements.

1. Lease Terms and Statutory Framework

A. Lease Agreement

The lease is the primary source of the landlord and tenant’s rights and obligations. Critical clauses include:

• Right of entry for works
• Quiet enjoyment and interference with use
• Renovation, refurbishment, and demolition rights
• Relocation or termination mechanisms
• Make good/yield up obligations

The covenant for quiet enjoyment ensures tenants are not substantially interfered with in their use of the premises.

B. The Retail Leases Act 2003 (Vic)

The RLA supplements lease provisions with statutory protections. Key provisions include:

• s.53 – 60 days’ written notice required for alterations or refurbishments likely to adversely affect tenant’s business.
• s.54 – Tenants must be compensated for significant interference with access, customer flow, or trading.
• s.55 – Relocation permitted only where genuine redevelopment requires vacant possession; tenants must be offered comparable premises on similar terms, with relocation costs covered.
• s.56 – Demolition clauses require at least 6 months' notice and a genuine proposal to demolish. Compensation is payable if demolition does not proceed.
• s.57 – Provisions for rent abatement or lease termination where premises are damaged.
• s.58 – Tenant refurbishment clauses are void unless the lease provides sufficient detail about timing and nature of the works.

2. Compensation and Remedies

Interference with Business Operations

Under s.54, landlords are liable for reasonable compensation where actions:

• Substantially inhibit access or trading
• Alter customer flow
• Fail to remedy defects or disruptions within their control

Tenant remedies include:

• Damages
• Rent abatement
• Injunctions
• Lease termination (in limited circumstances)

3. Relocation and Demolition

A. Relocation (s.55)

To relocate a tenant, a retail landlord must:

• Provide 3 months’ notice
• Prove a genuine proposal for works that cannot be done without vacant possession
• Offer comparable premises on similar terms
• Pay reasonable relocation costs

If the tenant does not object, they are deemed to have accepted the new lease. Otherwise, they may terminate the lease with 7 days’ notice within one month of receiving the relocation notice.

B. Demolition (s.56)

Landlords may terminate leases only if:

• They have a genuine proposal for demolition (defined to include substantial renovations that require vacant possession)
• Provide at least 6 months' notice

If demolition is not carried out within a reasonably practicable time, tenants are entitled to compensation for early termination and unrecouped fit-out costs, unless the landlord can prove a genuine intention to demolish at the time of the notice.

4. Case Law

Zen Holistic Health Group v Bacchus Marsh Centre [2022] VCAT 716

The Landlord served a demolition notice seeking to terminate the lease. The notice stated that the intention was to commence a redevelopment of the shopping centre which included the premises.

The tenant challenged the validity of the notice submitting:

1. The redevelopment of the premises into leaseholds did not fall within the meaning of “demolition” in either the relevant lease clause or section 56(7) of the RLA and by extension could not be a genuine proposal to demolish the premises; and
2. There was an implied term of good faith in the lease. The landlord’s underlying motivation to terminate the lease was to attract another tenant with a higher rental and was thus not in good faith.

VCAT had to determine whether the proposed works by the landlord constituted “demolition”.

Section 56(7) of the RLA provides demolition includes “substantial repair, renovation or reconstruction of the building that cannot practicably be carried out without vacant possession of the premises”.

VCAT found that the landlord’s proposed redevelopment including subdivision of premises encompasses “bringing something to a more advanced or developed state” whereas substantial repair, renovation or reconstruction is premised on the building requiring work because of disrepair, dilapidation or to reinstate to its original form.

VCAT ruled that subdivision and redevelopment works did not constitute "demolition" under s.56(7). The landlord's notice lacked detail and failed to show the works could not proceed without vacant possession. Motivation to secure a higher-paying tenant was held irrelevant to whether the proposal was "genuine."

Key Takeaway: A landlord must provide specific and detailed demolition proposals that demonstrate necessity for vacant possession. In determining what is a genuine proposal, the Landlord's purpose for demolishing the premises is irrelevant but detailed notices with sufficient details will indicate a genuine proposal.

Versus (Aus) Pty Ltd v ANH Nominees Pty Ltd [2017] VCAT 859

Tenant suffered losses due to persistent leaks, mould, and landlord-sanctioned construction works. Despite initial findings of lease breach and compensation awarded, later proceedings held that compensation under s.54 was limited where defects were apparent at lease renewal. However, the tenant was granted damages based on estoppel.

Key Takeaway: Section 54 entitles tenants to compensation for disruption but not automatic lease termination. Tenant expectations and reliance can support estoppel claims.

Conclusion

Landlords undertaking redevelopment must tread carefully. The Retail Leases Act 2003 and relevant case law impose strict conditions for altering premises, relocating tenants, or terminating leases for demolition.

Tenants are entitled to compensation where their business is disrupted, but remedies depend on lease terms, statutory interpretation, and individual facts.

Landlords should ensure compliance with statutory notice requirements and provide detailed, genuine proposals.

Tenants should seek legal advice when facing relocation or disruption to ensure their rights are protected.