By Russell Cocks, Solicitor

First published in the Law Institute Journal

The Victorian Court of Appeal has introduced an element of uncertainty into conveyancing settlements that will have property lawyers anxious to adopt the (hopefully) soon to be introduced electronic settlement regime.

Settlement Group P/L v Purcell Partners [2013] VSCA 370 conducts a post-mortem on a conveyancing settlement that will have all parties looking over their shoulder as they leave settlement, fearful that someone will be waving at them to return. In brief, the facts are:

1. PP retained SG to act as settlement agents. PP instructed SG in relation to distribution of cheques to discharge a number of encumbrances over 4 properties and the documents to receive in return for those cheques;
2. SG conducted the settlement in accordance with those instructions and all attending parties confirmed their satisfaction in relation to settlement and left settlement, however G, a very inexperienced clerk who represented one of the discharging mortgagees, remained to telephone his office;
3. G was told by his office to retrieve the Discharge of Mortgage as he had not received sufficient funds;
4. SG rang PP and was instructed to hold the discharge, nevertheless SG shortly thereafter returned the discharge to G;
5. Subsequently, PP’s client was registered as second, rather than a first, mortgagee and ultimately suffered a loss of $200,000 as a result of a default under the mortgage.

PP was liable to its client and joined SG to the proceedings. In the County Court, SG was held liable to PP for the full amount as a consequence of breach of its contract of retainer with PP, however the Court of Appeal reversed this decision and PP alone was responsible for the loss.

There is no doubt that PP was negligent. It was a complex transaction and a simple error was made. PP sought payout figures from the various out-going mortgagees in respect of the various securities. One mortgagee gave payout figures in respect of some but not all of the securities, and PP failed to recognise the absence of this information. Arguably, the outgoing mortgagee created the circumstances that led PP to make the mistake but, between PP and its client, PP was liable for its negligence.

In the County Court, the subsequent decision by SG to act contrary to PP’s instructions by returning the discharge was found to be the cause of the loss but the majority of the Court of Appeal, placing emphasis on the mortgagor’s contractual right to receive a discharge only after repayment of the mortgage, concluded that the mortgagee was entitled to demand return of the discharge as the mortgage had not been repaid. Indeed, the court characterised SG as an agent of the borrower when it said: ‘the settlement agent had no right (acting, as it been authorised to do, on behalf of the borrowers) to refuse the request … to return the DM’.

It seems a long bow to suggest that SG was an agent of the borrower. The only connection between the two was that SG had a contract with PP, who in turn had a contract with the incoming mortgagee. PP did not act for the borrower and the only connection was an authority to seek payout figures and arrange discharges. A simple test to determine whether SG was an agent of the borrower would be to ask whether, if PP did not pay SG’s settlement fee, would the borrower have been liable to do so?

Dixon AJA was in the minority and held that whilst PP’s negligence was a contributing factor, SG’s decision to hand back the discharge contrary to PP’s specific instructions was negligent and deprived PP of the ability to control subsequent events. He therefore would have apportioned liability two-thirds to SG and one-third to PP.

If PP had have retained control of the discharge it would have been in a better position to secure a more favourable outcome for its incoming mortgagee client, thereby reducing liability for its negligence. Notwithstanding mistakenly handing over the discharge, the outgoing mortgagee would have retained a right to payment against the mortgagor and could have taken steps to secure its interest. This would have called into question the original failure of the out-going mortgagee to fully respond to PP’s inquiry for payout figures which led PP into making the error in the first place. By returning the discharge, SG gave the party that had arguably made two mistakes a ‘get-out-of-jail-free card’.

Electronic settlements will solve this problem but, in the meantime, don’t look back!

Tip Box

Whilst written for Victoria this article has interest and relevance for practitioners in all states.

By Russell Cocks, Solicitor

First published in the Law Institute Journal

Property lawyers do not often hold ‘privileged’ information. All information that comes to a lawyer about a client is confidential and is protected from disclosure by the duty to the client of confidentiality. The concept of legal professional privilege or, as it has come to be known recently, client professional privilege applies to a small subset of confidential information, being information relating to legal proceedings, current or anticipated.

Most property law is in the nature of process work – we process a transaction from inception (contract) to completion (settlement). Despite a tendency for some practitioners to adopt a combative attitude to the process – probably brought about by dissatisfaction with being involved in the process at all – relatively few property law transactions end up in legal proceedings. However a quick glance through the legal reports – and indeed through prior Property columns – reveals that the mundane processes of property law are responsible for a fair proportion of the cases that come before our courts. As a proportion of the number of transactions, disputes are few, but as a proportion of the number of disputes, property law is significant.

Therefore property lawyers, as well as litigators, need to be aware of Expense Reduction Analysts Group P/L v Armstrong Strategic Management and Marketing P/L [2013] HCA 46 (Armstrong). This judgment of the High Court has concluded that the overriding duty that lawyers owe to the court requires a lawyer who receives information from a lawyer acting for another party in legal proceedings, which has been inadvertently disclosed by that other lawyer, to return that information to the other lawyer and refrain from making use of that information in the proceedings.

This can only be described as a momentous decision. That it appeared to be so self-evident to all five judges who delivered a joint judgment is itself significant as the topic of inadvertent disclosure had lingered like a bad smell for many years. Legal scholars struggled with it and the Law Institute’s own guidelines could be described as ‘vague’ at best, and yet the High Court (overruling the NSW Court of Appeal) had absolutely no problems with concluding that, in relation to inadvertent disclosure, the duty to the court trumps the duty to the client.

This may be variously viewed as a triumph for the majesty of the law or another example of the law protecting its own. The language of the Armstrong judgment is all about the proper administration of justice and the ethical duty of practitioners to assist the court to efficiently resolve the real matters in dispute between the parties. There is even a suggestion that ‘in the not too distant past’ there would have been no need for the recently introduced – but not yet adopted in Victoria – rule 31 of the Australian Solicitors’ Conduct Rules that requires return of inadvertently disclosed information.

On the other hand, consider the issue from the point of view of the client who may be facing ruin because of a ‘little slip-up’ made by the client. Due to another ‘little slip-up’ the client’s lawyer has received information that is extraordinarily helpful to the conduct of the client’s case, indeed could lead to a speedy settlement of the dispute and allow the client to get on with his/her life. Disclosure of that ‘little slip-up’ may have dire consequences for the lawyer who was responsible for it but will that be of any concern to the client? When the client is told that, unfortunately for the client, the lawyer must return that information and can make no reference to it in the proceedings. Will the client gratefully bow to the majesty of the law? Or will the client simply regard the law as protecting its own?

The simple solution for the lawyers is that, in acknowledgement of our duty to the court, we return the information and do not bother our client with the details. What they don’t know will not hurt them. But can this be the correct way to fulfill our duty to the client – shield them from matters that do not concern them? This sounds like ‘secret men’s business’ and would be grist for the mills of the shock jocks.

Armstrong concerned privileged information but rule 31 of the Australian Solicitors’ Conduct Rules relates to confidential information – a much wider category. The reference to the rule in Armstrong would appear to be a strong endorsement of it by our highest court and so all information coming to a lawyer would now appear to be subject to suppression if inadvertently disclosed.

Tip Box

Whilst written for Victoria this article has interest and relevance for practitioners in all states.

By Russell Cocks, Solicitor

First published in the Law Institute Journal

The article Caveats – Forcible removal 1 considered the question of removal of caveats from the point of view of a caveator who had a legitimate caveat but was faced with a demand from a third party to provide a withdrawal to allow a dealing to proceed. This article considers removal of caveats from the point of view of the registered proprietor who believes the caveat to be illegitimate and requires it to be removed.

Section 89A Transfer of Land Act 1958 (Vic) provides a relatively simple procedure to achieve removal. The registered proprietor, or other interested party, makes application to the Registrar for service of a notice upon the caveator that the caveat will lapse unless the caveator issues proceedings to substantiate the caveat. If those proceedings are not issued, the caveat ‘shall lapse’ and the applicant will have achieved the desired result in a relatively quick and cost effective way.

The application is supported by a certificate signed by a legal practitioner who certifies that ‘the caveator does not have the estate or interest claimed’. This requirement places some limits on the suitability of this process as the certifier must be satisfied that the certificate is based on sound evidence. One common example of the use of this procedure is where a purchaser has lodged a caveat, but the contract has subsequently been rescinded. Typically the purchaser shows no interest in withdrawing the caveat but the certifier is able to conclude that the ‘estate or interest claimed’ has been terminated by rescission and can safely certify as to that legal situation.

At the other end of the spectrum is a caveat claiming an interest arising pursuant to a trust. Such an interest is much more amorphous in nature and it would be unsafe to certify that the interest does not exist until a court had ruled on its validity, and consequently the s 89A procedure is not appropriate in such circumstances. Indeed, it is probably professional misconduct to certify in such circumstances.

Somewhere between the clearly certifiable lack of an interest in the rescinded contract scenario and the non-certifiable trust claim lies the common situation of a very old caveat lodged on the basis of a loan made by a now-defunct finance company which the registered proprietor assures the legal practitioner has been repaid. Assuming that those instructions are correct, the ‘caveator does not have the estate or interest claimed’ but the certifier is not able to rely on any objective evidence in that regard and must weigh up the subjective evidence provided by the registered proprietor. Whilst never wanting to sign an inappropriate certificate, the certifier can take some solace in the fact that the certificate itself will not operate to defeat the caveat but merely serves to bring the application to the notice of the caveator and the caveator remains free to take action to justify the caveat.

If the caveator does not give notice to the Registrar that proceedings to substantiate the caveator’s claim are on foot then ‘the caveat shall lapse’ and the Registrar may remove the caveat after a period of not less than 30 days – reduced from 35 days in 2009 – has elapsed from service on the caveator by the Registrar of notice of the application. The Registrar allows some number of days as a grace period for service by post, so the number of days from certification until removal may be closer to 40.

Section 90(3) Transfer of Land Act 1958 provides an alternative method of forcible removal if the legal practitioner is unable to provide the certificate required by s 89A. This section requires the issue of proceedings and will therefore be many times more expensive than the s 89A method, although undefended proceedings might result in an order that the caveat be removed in a relatively short period of time. The cases indicate that the touchstone for determination of the application is the ‘balance of convenience’ test and if the application is contested the applicant will have the onus of establishing that the balance of convenience favours removal of the caveat. See Rogers v Censori & Anor [2009] VSC 309.

If a caveat lapses pursuant to s 89A or is removed pursuant to s 90(3) then s 91(4) provides that the caveat ‘shall not be renewed by or on behalf of the same person in respect of the same interest’ and s 118 makes a person who lodges a caveat ‘without reasonable cause’ liable to pay compensation. But both provisions offer little comfort to a registered proprietor who has achieved lapsing or removal, only to find a second caveat lodged. Some solace may be taken from Westpac Banking Corporation v Chilver & Ors[2008] VSC 587 where the court also ordered that the Registrar not register (sic.) a caveat lodged by the caveator when the court was satisfied that there was a real possibility that the caveator would seek to re-lodge and Deutsch v Rodkin & Ors [2012] VSC 450 where the court awarded substantial damages against relatives of the caveator who successively lodged caveats contrary to s 118.

Tip Box

Whilst written for Victoria this article has interest and relevance for practitioners in all states.

By Russell Cocks, Solicitor

First published in the Law Institute Journal

In September 2011 I wrote a column in relation to sheriff sales based on the case of Kousal v Suncorp-Metway Limited [2011] VSC 312. The case exposed the sheriff sales process as flawed and likely to lead to injustice but at that time Mukhtar AsJ. lamented that “the Court can do no more”.

In fact the court was subsequently able to do more when the judgment debtor sought review of a subsequent sale conducted by the sheriff in accordance with the orders of AsJ. Mukhtar. This review was the subject of the case of Zhou v Kousal [2012] VSC 187(Zhou). That sale was conducted at the office of the sheriff and two prospective bidders were in attendance. The potential equity in the property was in the order of $165,000 and the highest bid was $1,000. As the property was being sold ‘without reserve’ in accordance with AsJ. Mukhtar’s orders, the property was knocked down to that bidder. The judgment debtor sought review against both the bidder and the sheriff.

An argument based on unconscionability was unsuccessful but an argument that the sale was in breach of the Sheriff Act 2009 resulted in an order that the sale be set aside as it was in breach of the sheriff’s duties under the common law and the Sheriff Act 2009. The case has not returned to court and one may therefore assume that the judgment debtor, having finally responded to a litany of proceedings by attending court with a legal representative, was able to negotiate a satisfactory resolution of the overall dispute.

The aftermath of Zhou left the sheriff’s office in a state of shock. The time honoured process of conducting sheriff sales at the office of the sheriff (rather than on site) and only advertising in the Government Gazette appeared to expose the sheriff to attack. To protect himself the Sheriff therefore sought orders from the Court as to the appropriate process to be followed when the next ‘without reserve’ auction rolled around. This was the case of JG King P/L v Kim Ngan Thi Do [2012] VSC 545 (JG King). The sheriff had conducted an unsuccessful sale and sought court permission to conduct a further sale ‘without reserve’. There was evidence before the court that the property was valued at $700,000, that the judgment debt was in the order of $230,000 and unpaid rates were approximately $10,000. The judgment debtor’s equity was therefore approximately $450,000.

The court ordered that the property be sold but that any sale be subject to review by the court, thus introducing into the sheriff’s sale process a step that had previously not existed – one of judicial review of a ‘without reserve’ sale. This example of judicial law reform is in response to what was clearly an unsatisfactory situation that was finally exposed by Zhou, but one wonders whether it should not be the role of parliament, rather than the courts, to effect such change.

JG King led to an auction on Saturday 6 April 2013. Little, if any, advertising of this auction was evident and it was left to readers of the Government Gazette to be aware of the date. The auction was conducted on site and (unusually) prospective bidders were given access to the house, which was vacant, for one hour prior. The auction was conducted by a sheriff’s officer and there was a crowd of more than 50 people in attendance. After reading out the terms of the contract and emphasising that the sale would need to be approved by the court, the officer invited bids. At least five interested bidders took the price from an opening bid of $300,000 to a successful bid of $450,000.

At the time of writing there was no report of the outcome of the subsequent hearing but one would imagine that the court would be satisfied that a genuine sale had been conducted and that approval would follow. The purchaser would then be required to pay the purchase price to the sheriff, who would retain the costs of the process, pay out the judgment debtor and presumably pay any balance into unclaimed money, as the registered proprietor appears to have left the jurisdiction. The purchaser would be faced with the problem of obtaining registration without the duplicate certificate of title, although perhaps an application to the court for an order in that regard might be made when court approval for the sale was sought.

The question however remains: is the sheriff sale process fair to judgment debtors? The debtor in JG King showed no interest in the outcome but many other judgment debtors may be desperate to ensure that full value of their asset is achieved. Consideration should be given to legislative reform of the process to give the sheriff the ability to contract out sales to a panel of estate agents so that sales may be conducted in a more commercial manner.

Tip Box

Whilst written for Victoria this article has interest and relevance for practitioners in all states.

By Russell Cocks, Solicitor

First published in the Law Institute Journal

Recurring outgoings, such as rates and taxes, are adjusted between the parties as at the settlement date. This right/obligation has long been a part of the standard form contract of sale of land and its present incarnation is general condition 15. Whilst requiring apportionment of outgoings between the parties at settlement, the general condition does not specify the actual method of adjustment and logically there are two such methods.

If the vendor has paid the outgoings in advance then the adjustment is achieved by simply calculating the number of days after settlement that the vendor has prepaid and allowing an appropriate amount, calculated at a daily rate, by way of addition to the purchase price. If the vendor is in arrears as at settlement, it may appear simple to likewise calculate an amount on a daily basis and deduct that amount from the balance of purchase price paid to the vendor. The problem with this method is that the purchaser is then immediately in arrears in respect of the outgoings and the vendor may be entitled to argue that a debt issued in the name of the vendor remains outstanding.

It is therefore arguably ‘more correct’ to adjust on a ‘rates paid’ basis so that, even if the vendor has not paid the outgoings, the adjustments are prepared on the basis that outgoings are paid and the full amount (or balance outstanding) is deducted from the amount due to the vendor and remitted by the purchaser (after sighting by the vendor) to the rating authority. This complied with s 175 Local Government Act 1989 which (previously) required a purchaser to pay any outstanding rates in full after settlement.

The advent of quarterly charges for rates is a relatively recent consideration that may justify a review of past practices, at least in relation to rates or instalments of rates which are not presently due and payable. In this regard s 175, whilst still requiring payment of any arrears in full, now entitles a purchaser to the benefit of any instalment payment plan that was available to the vendor.

When rates were properly regarded as an annual charge it was appropriate that adjustment was made on an annual basis, calculated by reference to the number of days between the end of the rating period and the date of settlement. This accorded with s 53 Supreme Court Act 1986 which, whilst not applying directly to rate adjustments, indicates that apportionment is generally conducted on a daily basis. However such logic is equally applicable to a daily adjustment in respect of a period of time of less than a year, such as a quarter.

Water rates were also in past times assessed on an annual basis and therefore usually adjusted on that basis, but s 139 Water Industry Act 1994 now allows the Minister to authorise annual, half yearly or quarterly payments and it is fair to say that quarterly instalments are the rule. Most water authorities now issue separate assessments for service and related charges, which are adjustable; and usage, which is not adjustable as the authority accepts liability for recovery of the usage charges from the outgoing vendor. However, as of 1 July 2013 City West Water has reverted to treating existing usage charges as a charge on the land, thereby passing responsibility back to purchasers to allow such charges as an adjustment at settlement and remit payment to the authority after settlement. Other authorities may well follow suit.

The other common outgoing requiring adjustment is owners corporation fees. Section 28 Owners Corporations Act 2006 makes the owner for the time being responsible for payment of fees and therefore, whilst they are not a charge on the land as rates are, effectively the purchaser becomes liable for payment in the same way as rates. The Act does not specify how fees are to be levied and it is fair to say that, whilst annual and monthly fees are sometimes levied, the most common method is quarterly, including annual fees payable quarterly. It is also fair to say that it is normal to adjust owners corporation fees on a quarterly basis when they are levied on that basis.

It may now be time to step into the world of quarterly payments and adjust all rates and outgoings that are assessed on a quarterly basis, on that basis. This will add the complication that not all quarters are equal (most, but not all, are 92 days) but this additional calculation may be justified to achieve an adjustment process that accords with current assessment regimes.

Tips

Whilst written for Victoria this article has interest and relevance for practitioners in all states.

By Russell Cocks, Solicitor

First published in the Law Institute Journal

GST needs to be at the forefront of every property lawyers mind when dealing with the sale (supply) of real estate.

If the transaction relates to ‘residential premises’ then GST does not apply, but it does apply if those ‘residential premises’ are ‘new residential premises’ or are not ‘premises’ – that is, vacant land. The guiding presumption in the residential environment is that GST does not apply unless the property falls into one of the specific categories.

Conversely, when dealing with commercial real estate sold during the course of an enterprise, GST ordinarily applies unless the transaction is the sale of a ‘going concern’ or a ‘farming business’. Thus the guiding presumption in the commercial environment is that GST does apply unless the property falls into one of the specific categories.

The final consideration is, if GST is a factor in the transaction, does the margin scheme apply and, if so, do the parties want to use the margin scheme?

More than a decade after the introduction of GST most practitioners have a fair understanding of GST and the introduction of the 2008 standard contract now requires the parties to address the GST issue at the start of the transaction by imposing a presumed GST outcome in default of use of the boxes to prescribe a different outcome. However, even if practitioners have a good understanding of GST, it is still possible for disputes to arise based on the faulty understanding of the parties to the transaction.

Booth v Cityrose Trading P/L (ACN 077934671) [2011] VCAT 278 arose because the vendor sold ‘new residential premises’ and sought to recover GST in addition to the price. The purchaser argued that the contract either did not provide for the addition of GST to the purchase price or, if it did so provide, that the contract should be rectified. The contract was pre-2008 and included, as was common at that time, a very poorly worded special condition that the tribunal concluded did mean that GST was to be added to the price. However the tribunal considered the surrounding circumstances of the transaction and concluded that at the time the contract was signed, which was the relevant time for determining the intention of the parties, the director of the vendor who signed the contract on behalf of the vendor did not intend that GST should be added, as his evidence was that he had not thought about GST. This is despite there being evidence that the vendor’s manager did intend the contract to be plus GST when he gave instructions for preparation of the auction contract. Presumably, if the manager had have signed the contract, then GST would have been payable and the decision appears to be limited to its facts. An alternative basis for the decision based on misleading and deceptive conduct also confirms the importance of all of the facts, not just the written word, and that courts will hold parties to their agreement even if the contract needs to be rectified to achieve that outcome.

Duoedge P/L v Leong & Anor [2013] VSC 36 also arose due to a misunderstanding by the parties as to the GST consequences of the contract. The property was existing ‘residential premises’ and therefore GST exempt. The purchaser intended to undertake a commercial redevelopment of the site and the parties incorrectly concluded that this meant that GST did apply. The undoubted intention of the parties was that the price was GST inclusive and the plus GST box was struck out. The vendor provided a tax invoice and it was intended that the vendor would account to the Australian Taxation Office for the GST and that a refund of the GST would be made by the ATO to the purchaser. However the vendor made annual GST returns and so when the purchaser sought a refund after three months the ATO had not received the GST from the vendor and inquired into the transaction, concluded that it related to existing residential property and denied the purchaser’s claim for a refund on the basis that it was not a taxable supply.

The purchaser sought a refund from the vendor and, despite success in the Magistrates’ Court, lost on appeal. The court interpreted the contract as allocating risk in respect of payment of GST and, in this case, allocating that risk to the vendor. It followed that, if no GST was payable, the vendor was entitled to keep the GST. Dixon J. suggested that the purchaser would be able to ‘recover’ the GST by the application of the margin scheme to any resale, as the ATO had concluded that the purchase was on a no-tax basis, thereby qualifying the purchaser to sell on the margin scheme.

The ‘winner’ here was the vendor who had an extra 10%. But the purchaser would get that money back on resale by applying the margin scheme, so the purchaser was no worse off.

The ‘loser’ was the ATO, which would ultimately get less money from the purchaser’s resale, but that was because the original sale was not taxable. The vendor’s gain simply arose from the false expectation of the parties that GST was payable on the original transaction. The ATO lost something it did not want.

Tip Box

Whilst written for Victoria this article has interest and relevance for practitioners in all states.

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.