Property Law: 18 March 2019
Small Business Commissioner: reference For Advisory Opinion (Building and Property)  VCAT 478
The question of who bears the responsibility and expense of repair and maintenance of leased premises is a question that Landlords and Tenants have difficulty with. The answer to this question has been the subject of inconsistent views in legal journals and of legal commentary and debate in recent times .
The fact that there was no definitive answer to this question prompted the Small Business Commissioner ('SBC') to seek an advisory opinion from the Victorian Civil and Administrative Tribunal ('VCAT'). One of the reasons that the SBC applied to VCAT was that the answer to this question would benefit many commercial and retail tenants and commercial and retail landlords across Australia  . The advisory opinion was delivered by Justice Garde the President of VCAT ('President') on 1 May 2015 in the case of Small Business Commissioner: Reference for Advisory Opinion (Building And Property)  VCAT 478 ('Opinion').
The SBC asked a number of questions of the President in relation to the operation and effect of sections in the Building Act 1993 ('Building Act'), the Building Regulations 2006 ('Regulations') and the Retail Leases Act2003 ('RLA'). The President considered whether certain sections were inconsistent, which section would prevail in the case of inconsistency and whether or not the various sections could operate harmoniously.
The main sections and regulations that were considered in the Opinion are:
Section 251 of the Building Act: Which in summary says that if the owner of a building is required to carry out any work or do any thing and fails to do so, the occupier or mortgagee of the building or the land can do that work or thing.
Costs and the Building Act: Pursuant to section 251 (2), if the occupier or mortgagee does the work or thing then it can recover from the Landlord the expenses incurred as a debt or set off the expenses against the rent.
Essential Safety Measures ('ESM'): ESM's are listed in Schedule 9 of the Building Regulations 2006. ESM's include such things as fire alarms, sprinkler systems, fire doors and emergency lifts.
Section 52 of the RLA: Which is applicable to retail premises only and imports an obligation into a retail lease that the Landlord is responsible for maintaining in a condition consistent with the condition of the premises when the lease was entered into the following items:
There are two exceptions to the Landlord's obligation to maintain: (i) when the need for repair arises out of misuse by the Tenant; or (ii) the Tenant is entitled or required to remove the thing at the end of the lease. The note to section 52 was also considered by the President, it says: 'Section 39 regulates the ability of the landlord to recover outgoings (including the cost of repairs). Section 41 provides that capital costs are not recoverable from a Tenant'.
The Explanatory Memorandum for the Retail (Leases) Amendment Act 2005 (which inserted the note to section 52) commented that the effect of the added note 'is to highlight other provisions of the Act which, together with the application of section 52 of the Act, clarify that while the landlord is responsible to arrange and carry out the repairs under sub-section (2), the cost of those repairs, other than capital costs and the cost of urgent repairs, may be passed on to the tenant if they have been specified in the lease as recoverable outgoings under the lease'.
Outgoings and the RLA: A number of sections relating to outgoings were considered including, the definition of outgoings which includes expenses directly attributable to the maintenance and repair of a building that the retail premises are located in and section 39 which outlines what outgoings are recoverable from a Tenant (noting that there must be a specific provision in the lease that states a certain outgoing is recoverable).
Costs and the RLA: Section 41 states that capital costs are not recoverable and section 51 that a Landlord cannot claim the Landlord's legal or other expenses in relation to the negotiation, preparation or execution of the lease, obtaining the consent of a mortgagee to the lease or the Landlord's compliance with the RLA.
The RLA prevails: Pursuant to section 94, a provision of a retail lease (or other agreement) is void if it is contrary to or inconsistent with anything in the RLA.
In summary the questions asked by the SBC were:
To summarise the President's Opinion:
It would, in my view, make a mockery of s 52 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. To attempt to reach this unlikely result by reliance on the note at the end of the section is, to quote Lord Salmon, 'like trying to suspend a 3 tonne truck from a cobweb' (Broome v Cassell & Co  2 QB 354, 390).
This effect of the Opinion is far reaching. Although it is an Opinion of the President of VCAT it is likely to be persuasive not only in relation to retail leases but for Landlords and Tenants of commercial leases, as the Building Act (and its regulations) applies to the standard of all buildings. In practice, at Aitken Partners we have already seen and referred to the Opinion in both retail and commercial lease negotiations. Generally, the Opinion is considered as a good outcome for Tenants as costs incurred by the Landlord associated with compliance with the Building Act, Regulations and the RLA are not able to be on charged to the Tenant and may be recoverable if already paid. Tenants should note that some costs are still recoverable (however limited) and should seek legal advice on how the Opinion will apply to their particular circumstances.
If you have a legal enquiry in relation to this Opinion and how it applies to you, please contact Sarah Ward of Aitken Partners. This post is not intended to cover all the issues that the Opinion raises or to constitute legal advice.
 Small Business Commissioner: reference for advisory opinion (Building and Property)  VCAT 478;
 Application of Geoffrey Martin Browne (in his capacity as The Small Business Commissioner) to The Victorian Civil and Administrative Tribunal (Retail Tenancies List), 15 May 2014.
 Essential Safety Measures are defined in Building Regulations 2006, Schedule 9.
 Retail (Leases) Amendment Act 2005 (Vic), s25.
 Retail Leases (Amendment) Bill 2005, clause 25, sub-clause 6.
 Pursuant to section 41 of the Retail Leases Act (2003) Capital Costs are not recoverable. This section does not render void a provisions in a retail lease that requires a tenant to undertake capital works at the tenant's cost.
 Pursuant to section 39 of the Retail Leases Act (2003), a tenant under a retail premises lease is not liable to pay an amount to the landlord in respect of an outgoings unless the lease specifies that the outgoing is recoverable
 Small Business Commissioner: reference for advisory opinion (Building and Property)  VCAT 478, para 33 (Justice Garde)
 Chen v Panmure Hotel Pty Ltd (Retail Tenancies)  VCAT 2464
 Small Business Commissioner: reference for advisory opinion (Building and Property)  VCAT 478, para 50 (Justice Garde)
 McIntyre v Kucminska Holdings Pty Ltd  VCAT 1266
 Small Business Commissioner: reference for advisory opinion (Building and Property)  VCAT 478, para 72 (Justice Garde)
 Small Business Commissioner: reference for advisory opinion (Building and Property)  VCAT 478, para 76 (Justice Garde)
 CafÃ© Dansk Pty Ltd v Shiel (Retail Tenancies)  VCAT 36
 Caltex Oil (Aust) Pty Ltd v Best (1990) 170 CLR 516
 Small Business Commissioner: reference for advisory opinion (Building and Property)  VCAT 478, para 28 (Justice Garde)