By Russell Cocks, Solicitor
First published in the Law Institute Journal
The issue of which party, landlord or tenant is responsible for the cost of essential safety measures and associated annual reports in relation to leased commercial premises is causing controversy.
Essential safety measures include such services as:
- air conditioning;
- fire protection; and
- exits.
An article published in April 2012 86 (04) Law Institute Journal p. 28 by Mermelstein & Redfern (LIJ article) stated boldly that ‘These costs must be met by the landlord’ and a paper presented in October 2012 by Robert Hay, Barrister for Leo Cussens Property Law Conference, and available on Hay’s blogsite The Property Law Blog (Hay article) takes the opposite view.
The LIJ article bases its conclusion on the Building Act 1993 and the Building Regulations 2006. This regime imposes obligations on landlords (as ‘owners’) in respect of essential safety measures, both in relation to maintenance and reports. The article concludes that the owner is responsible for maintenance of essential safety measures pursuant to regulations 1205 and 1217 and for the preparation of annual reports pursuant to regulations 1208 and 1214. The article then refers to s 251 Building Act, which provides that, if the owner fails to carry out essential safety measures, then the occupier (tenant) may do so and is entitled to set-off the cost against rent without objection from the landlord.
The Hay article takes no objection to this analysis but rejects the proposition that any of the above supports the conclusion that the owner is not able to contractually pass on the cost of essential safety measures to the tenant, provided that the owner does in fact carry out the work. Hay’s point is that the Building Act regime is primarily directed at establishing responsibility for performance of the work, not payment. Section 251, which is concerned with payment, only operates when the owner fails to do the work and has no role to play when the owner does the work. Hay therefore concludes that an appropriately worded lease may allow the landlord to recover the cost incurred by the landlord in respect of essential safety measures, both as to maintenance and reports.
The LIJ article relies on Chen v Panmure Hotel P/L (Retail Tenancies) [2007] VCAT 2464 as support for the proposition that the owner is responsible for the cost of essential safety measures, however that was a case where the owner had not undertaken the work, so s 251 had a role to play. The owner sought an order that the tenant pay the essential safety measures compliance costs but VCAT refused to make such an order as the tenant would have been entitled to set-off those costs pursuant to s 251. The case is authority for the proposition that an owner who does not pay the cost of essential safety measures cannot require the tenant to do so. It is not authority for the proposition that an owner who does pay the cost of essential safety measures is unable to recover the cost from the tenant.
Subsequently, McIntyre & Anor v Kucminska Holdings P/L (Retail Tenancies) [2012] VCAT 1766 has considered the question, concluding that, whilst a lease may provide that a tenant is responsible for compliance with essential safety measure obligations, s 251 means that ‘the landlord must reimburse the tenant for the costs associated therewith’. Again, this was a case where the work had not been done.
Hay’s argument depends upon the landlord undertaking the work and then seeking reimbursement from the tenant but, as is pointed out in McIntyre, the tenant is entitled to possession of the premises and therefore in a better position to comply with essential safety measures. Any lease condition authorising the landlord to undertake essential safety measures will need to address the landlord’s right to access the premises for that purpose.
Retail Leases Act
The Retail Leases Act could include a prohibition against the landlord recovering the cost of essential safety measures from the tenant, as it does in respect of recovery of land tax, but it does not. Therefore, theoretically Hay’s argument may apply to a retail lease. However it does include an obligation on the landlord to maintain the premises: s 52. The LIJ article cites Café Dansk P/L v. Shiel & Ors (Retail Tenancies) [2009] VCAT 36 as authority for the proposition that the landlord is forbidden by s 51 Retail Leases Act from recovering from the tenant the cost of repairs required by s 52. Presuming that essential safety measures fall within the general obligation to maintain imposed by s 52, a landlord would appear to be responsible for essential safety measures and cannot recover the cost from the tenant.
Hay suggests that it may be possible to overcome Café Dansk by reference to the Explanatory Memorandum, which appears to suggest that the parties are free to negotiate allocation of cost in respect of s 52 repairs but, until challenged, the case stands as authority for the proposition that any essential safety measure that can be classified as ‘maintenance’ within the meaning of s 52 will be the responsibility of the landlord.
Tip Box
Whilst written for Victoria this article has interest and relevance for practitioners in all states.