FOR several years, a debate has raged between landlords and tenants of both commercial and retail leases regarding the right of a landlord to recover from the tenant as an outgoing the following costs:
- Essential Safety Measures (ESMs) compliance under Section 250 and 251 of the Building Act 1993 (BA) and Building Regulations 2006 (BR);
- repair and maintenance obligations including repairs of ESMs subject to Section 52 of the Retail Leases Act 2003 (RLA).
The Victorian Small Business Commissioner (VSBC), concerned by the lack of certainty and inconsistent legal views, sought clarification by referring the matter to the Victorian Civil and Administrative Tribunal (VCAT) for an advisory opinion.
What are Essential Safety Measures?
ESMs include items listed in Schedule 9 of the BR such as exit doors, exit signs, sprinkler systems, smoke control systems, smoke alarms, emergency lighting, fire hydrants, fire extinguishers paths of travel to exits and mechanical ventilation.
The maintenance of ESMs by the building owner is obligatory under the BA and BR. There are different obligations under the BR depending on the date that the building was erected or when works was undertaken in the building.
Building owners must arrange for an annual ESM inspection report to be prepared and hold records of maintenance checks and repairs, available for inspection by the municipal building surveyor or chief officer of the fire brigade upon 24 hours’ notice. Non-compliance may result in prosecutions and hefty fines.
Section 52 of Retail Leases Act 2003
The landlord is responsible for maintaining the following (in the same condition as they were in when the lease was entered into), as outlined in s52 of the RLA:
- the structure of and fixtures in the premises;
- plant and equipment at the premises;
- he appliances, fittings and fixtures provided by the landlord relating to the gas, electricity, water, drainage or other services.
However, the landlord is not responsible for maintaining those things if:
- the need for the repair arises out of the tenant’s misuse of that item; or
- the tenant is entitled or required by the lease to remove the item at the end of the lease.
On 1 May 2015, the President of VCAT, Justice Garde, handed down his opinion that in short:
- a landlord cannot pass on the costs of compliance with ESMs to a tenant;
- a landlord may, by agreement with a tenant, allow the tenant to meet the requirements for some obligations but at the landlord’s expense;
- a landlord cannot pass on to the tenant as an outgoing the cost of complying with certain repair and maintenance obligations under s52 of the RLA.
Although the opinion expressly applies to leases under the RLA the portion of the opinion regarding ESMs under the BA and BR is probably applicable to commercial leases.
Application of the Advisory Opinion
The opinion is not binding. The advice was prepared by Justice Garde without a particular set of facts or particular lease provisions at hand. Although the advice sets no precedent, it is likely to guide VCAT members when deciding disputes regarding such issues until the matter is tested in Court or resolved by Parliament.
The advisory opinion is good news for tenants but not so great for landlords with the following implications:
- Landlords: In our view it would be prudent for landlords to immediately follow Justice Garde’s advice. When negotiating leases, rent should be fixed on the basis that the costs of ESMs and s52 RLA maintenance and repairs are not recoverable from the tenant.
- Tenants: Tenants should investigate whether these maintenance and compliance costs are being passed on to them as an outgoing and if so, the possibility of claiming back wrongly paid outgoings.