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Property: The cost of safety

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Cite as: March 2013 87 (3) LIJ, p.74

Who is responsible for essential safety measures for leased commercial premises, the landlord or the tenant? The question is causing controversy.

An article in the April 2012 issue of the LIJ ( LIJ article) by Mermelstein & Redfern stated that “These costs [for essential safety measures, or ESMs] must be met by the landlord”. A paper by Robert Hay, barrister, for Leo Cussen’s Property Law Conference in October 2012 and available on Hay’s blogsite The Property Law Blog (Hay article) takes the opposite view.

ESMs include services such as air conditioning, fire protection and exits.

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 ESMs, both in relation to maintenance and reports. The article concludes that the owner is responsible for maintenance of ESMs pursuant to regulations 1205 and 1217 and for the preparation of annual reports pursuant to regulations 1208 and 1214. The article then refers to s251 of the Building Act, which provides that if the owner fails to carry out ESMs, 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 ESMs 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, operates only when the owner fails to do the work and has no role 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 ESMs, both as to maintenance and reports.

The LIJ article relies on Chen v Panmure Hotel P/L [2007] VCAT 2464 as support for the proposition that the owner is responsible for the cost of ESMs, but that was a case where the owner had not undertaken the work, so s251 had a role. The owner sought an order that the tenant pay the ESMs compliance costs but VCAT refused to make such an order as the tenant would have been entitled to set off those costs pursuant to s251. The case is authority for the proposition that an owner who does not pay the cost of ESMs cannot require the tenant to do so. It is not authority for the proposition that an owner who does pay the cost of ESMs is unable to recover the cost from the tenant.

Subsequently, McIntyre v Kucminska Holdings P/L [2012] VCAT 1766 has considered the question, concluding that while a lease may provide that a tenant is responsible for compliance with ESM obligations, s251 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 on 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 ESMs. Any lease condition authorising the landlord to undertake ESMs will need to address the landlord’s right to access the premises for that purpose.

Retail Leases Act (RLA)

The RLA could include a prohibition against the landlord recovering the cost of ESMs 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 (s52). The LIJ article cites Café Dansk v Shiel [2009] VCAT 36 as authority for the proposition that the landlord is forbidden by s51 RLA from recovering from the tenant the cost of repairs required by s52. Presuming that ESMs fall within the general obligation to maintain imposed by s52, an RLA landlord would appear to be responsible for ESMs 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 that appears to suggest that the parties are free to negotiate allocation of cost in respect of s52 repairs but, until challenged, the case stands as authority for the proposition that any ESM that can be classified as “maintenance” within the meaning of s52 will be the responsibility of the landlord.



RUSSELL COCKS is author of 1001 Conveyancing Answers. For more information go to www.russellcocks.com.au.

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