A need to resection

Cite as: October 2013 87 (10) LIJ, p.36

There has been consternation in the legal and real estate communities over the operation of s251 of the Building Act 1993 (Vic). Legislative change may be needed.

By Sam Hopper

A need to resection

Property Law Special Issue

Related articles

Section 251 of the Building Act (the Act) states that:

(1) If the owner of a building or land is required under this Act or the regulations to carry out any work or do any other thing and the owner does not carry out the work or do the thing, the occupier of that building or land or any registered mortgagee of the land or the land on which the building is situated, may carry out the work or do the thing.

(2) An occupier may: (a) recover any expenses necessarily incurred under subsection (1) from the owner as a debt due to the occupier; or (b) deduct those expenses from or set them off against any rent due or to become due to the owner. . .

Subsection 6 states that s251 applies despite any covenant or agreement to the contrary.

Recent cases and commentary raise questions as to the ability of landowners to require tenants to carry out work or do things required by the Act and the Building Regulations 1993 (Vic) and pay the costs of undertaking that work or doing that thing. This article:

  • considers recent cases and commentary in this area;
  • argues that s251 of the Act is silent on whether a landowner can pass on the cost of compliance with the Act or the Regulations, provided that the landowner carries out the work, or has done the thing required by the Act or the Regulation;
  • notes anecdotal evidence that there are leases in Victoria that purport to oblige tenants to undertake some or all of the landowner’s obligations under the Act and Regulations and the costs of compliance and suggests that those leases are arguably enforceable, but this approach is not without risks in light of recent cases and commentary;
  • recommends (while noting that there are risks) that the best approach for landowners is to draft leases in which the landlord is:

(a) required to carry out the work or do the thing prescribed by the Act or Regulations; and

(b) entitled to pass on the costs of doing so to the tenant; or

(c) bears the risk and cost of compliance with the Act and Regulations possibly in exchange for an associated increase in rent; and suggests that, in the light of recent confusion, legislative intervention or a ruling from the Supreme Court is required.

Recent cases and commentaries

Chen v Panmure Hotel Pty Ltd

The decision in Chen v Panmure Hotel Pty Ltd [2007] VCAT 2464 (Chen) suggests that a clause in a lease requiring a tenant to take steps to comply with essential safety measures (which a landowner is required under the Act to do) at the tenant’s own costs will be unenforceable due to the operation of s251 of the Act as it creates circularity that is abhorrent to the law.

Deputy President Macnamara (as he then was) considered an attempt by a landlord to enforce against its tenant an obligation to install hard-wired smoke alarms at the leased premises and held at [38] that:

“The effect of s251 of the Act is that the lessee can carry out the work and recover its outlays as a debt from Ms Chen. The section is said to apply ‘despite any covenant or agreement to the contrary’ (s251(6)) . . . It would in my view be inconsistent with the law’s abhorrence of circuitry for me to make an order which purports to impose the obligation of carrying out these works upon the lessee when the Building Act itself has clearly imposed the obligation upon the lessor and given the lessee the right to recover the cost of carrying out the works as against the lessor despite any provision in the lease to the contrary. Hence no determination should be made against the lessee with respect to the smoke detectors”.

Norman Mermelstein and Michael Redfern in the April 2012 LIJ1 stated that, in light of the decision in Chen, s251 of the Act prohibits a landowner from passing on to an occupier the costs of compliance with an obligation placed on the landowner by the Act or the Regulations. They argue that:

“Where a tenant carries out essential safety measures work pursuant to a clause in a lease, s251(2) of the Building Act will allow the tenant to recover its costs from the owner. To avoid such circuitry, VCAT decided that no determination should be made against the tenant, with the result that the relevant clause in the lease was effectively unenforceable . . .

“The effect of Chen’s case in that . . . repairs required by the Building Act to be carried out by a landlord cannot be passed on to a tenant despite any provisions contained in the lease purporting to do so.”

McIntyre v Kucminska

In the recent decision of McIntyre v Kucminska [2012] VCAT 1766 (McIntyre), Senior Member Riegler made findings suggesting that the terms of the lease involved required the tenant to do and pay for essential safety measures at its own cost.

Senior Member Riegler found at [64] this obligation to be enforceable against the tenant, but that the tenant could recover the costs from the landlord:

“In my view . . . the obligation to bear the cost of the essential safety measures ultimately rests with the owner of the land. I do not consider it open for a landlord to contract out of that obligation, even if at first instance the lease requires the tenant to undertake the work.”

And at [69]:

“In my view, s251 of the Building Act 1993 does not necessarily prohibit a landlord from placing such an obligation on a tenant, save and except that the landlord must reimburse the tenant for the costs associated therewith, failing which the tenant is entitled to set off those costs against rent due and payable under the lease. The relevant regulation does not state that the owner of the land must be the entity that carries out the relevant work but merely states that the owner must ensure that the essential safety measures are carried out. The regulation does not prohibit a landlord from placing a contractual obligation on a tenant to undertake that work, albeit that the landlord ultimately remains legislatively responsible to ensure that the work is carried out”.

Senior Member Riegler found at [71] that:

“Moreover, it seems that the Building Act 1993 contemplates such a scenario, given that the Act expressly provides for the tenant to undertake that work and recoup its expenditure by setting off the costs of compliance against rent. Therefore, I do not consider that a contractual obligation, placed on the tenant to undertake whatever work is required in order to comply with an essential safety measures report, offends s251 of the Building Act 1993. The contractual and the statutory obligations are able to sit side by side”.

Chen suggests that the landlord cannot require the tenant to do the work. To that extent, the decision in McIntyre appears to be inconsistent with it.

Section 251 of the Act does not, in this author’s view, prevent the landlord from recovering from the tenant under the terms of the lease the costs of compliance with the Act and the Regulations if the landlord carries out the required work or does the required thing. There are seven reasons for holding this view.

1. Section 251 is triggered only when the landlord has failed to comply with its obligations. If the landlord is derelict in its duties, the tenant can step in and carry out the work or do the thing and recover the costs of doing so from the landlord. However, if the landlord carries out the work or does the thing required by the Act or the Regulations, s251 is not triggered and the section has no work to do.2

2. There is a common law presumption that Parliament did not intend to interfere with established common law rights and freedoms, such as freedom of contract.3 Neither the Act nor any material surrounding that Act suggests that Parliament intended to interfere with vested rights in the way suggested by recent cases and commentary.

To the contrary, ss 1 and 4 state that the main purposes and objectives of the Act are to maintain building standards.

The Act places various obligations on owners and occupiers. For example, owners are responsible for all essential safety measures except maintaining paths of travel to exits, responsibility for which is imposed upon occupants (see Part 12, Subdivision 3 of the Building Regulations 2006 (Vic)).

This is consistent with Parliament forming the view that owners of land are most likely to have the ability to carry out structural or other significant work to the property, whereas tenants or other occupants of the buildings are likely to have a restricted right to alter the building. Consequently, imposing an obligation on an owner to carry out the work and or do the thing is the most efficient way for Parliament to ensure that the work is in fact carried out; and the occupant is the person with day-to-day control of the building and the person most likely to have the ability to keep pathways to exits clear.

Parliament’s main concern appears to be to ensure that the work is carried out or the thing is done in the most efficient way possible. In this author’s view, that can be satisfied without taking the further step of restricting the parties’ ability to make an enforceable bargain about the costs of carrying out the work or doing the thing.

3. Section 251 is in Part 13 of the Act, which is titled General Enforcement Provisions. The section follows immediately after s250, which gives the owner the right to enter the land to do work required by that Act. This is consistent with s251 operating as:

  • a form of self-help so that the occupant has a summary method of enforcing those requirements; and
  • a form of penalty against a delinquent land owner.

4. Statements of intention in material surrounding the Building Bill 1993 (Vic) (which became the Building Act when passed) give no indication that the Act was intended to be a form of consumer protection or to restrict the ability of parties to a lease to agree to the costs of compliance being an outgoing or otherwise paid by the tenant.

To the contrary, parliamentary debates make no reference to s251 or any obligations that it creates and there is no reference to the obligation in the preliminary reports leading up to that Bill.

5. Section 251 of the Act appears to be modelled on s173 of the Building Control Act 1981 (Vic). None of the material supporting that Act gives any indication to that effect either.4

6. If s251 of the Act prohibits the recovery by the landowner from the occupier of all costs of compliance with the Act and the Regulations, then some unexpected consequences follow. For example, a tenant may take a ground lease for, say, 40 years and erect its own building with the right to remove the building before the end of the term. The tenant effectively owns the building for its commercial life. Defects in the tenant’s work could mean that the landowner is required under the Building Act and Regulation to carry out work on the building; and a lease may permit the tenant to undertake major work to a building to make it suitable to the tenant’s needs. As a result of the tenant’s defective work, the landlord may be required to carry out work or do things at the property to make it comply with the Act.

If s251 of the Act prevents the recovery by the landlord of the costs of complying with its obligations under the Act or the Regulations, then the landowner would be required to carry out the work in these scenarios at its expense. It is, in this author’s view, unlikely that this was intended by Parliament.

7. Mermelstein and Redfern’s argument relies on the decision in Chen.


However, Deputy President Macnamara was not concerned in that passage with a landlord who had complied with its obligations under the Act but with the circularity created by a lease imposing the obligation to install smoke alarms on the tenant, when the Act and Regulations impose the obligation on the landlord.

While Chen suggests that a provision in a lease may be unenforceable if it requires the tenant to carry out work or do other things that the Act or Regulations impose on the landlord, it says nothing about whether a landlord can pass on the costs of compliance if the landlord carries out the work or does the thing required by the statute.

Both Chen and McIntyre suggest that there are conceptual difficulties with imposing both the obligation and the cost of compliance with the Act and the Regulations on tenants.

This author has received anecdotal reports of leases in Victoria that do precisely that. Practitioners may well ask whether those provisions are enforceable.

Senior Member Riegler in McIntyre indicates at [69] that a landlord can engage the tenant to carry out the work or do the thing required by the Act or the Regulations.

Section 251 of the Act only operates when the landlord “does not carry out the work or do the thing”. Only then does sub-s251(1) permit the tenant to complete the work or do the thing and to recover the costs necessarily incurred in doing so under sub-s251(2).

However, on one view, if the landlord has engaged the tenant to complete the work or do the thing, then sub-s251(1) is only triggered if the tenant has failed to comply with its contractual obligations. That is, by entering a contract with the tenant to carry out the work or do the thing, the landlord has satisfied its obligations under statute (at least as far as the tenant is concerned), and the tenant should not be entitled to rely on its own breach of contract to invoke the recovery provisions of s251 of the Act.

Consequently, s251 is arguably only triggered by the tenant’s own wrong and the law generally will not permit one party to profit from its own wrong.

This may well be the very circularity that so concerned the Deputy President in Chen. However, it does not necessarily follow that this circularity leaves the landlord in the lurch – it may be more appropriate for the tenant to miss out given that, in this situation, the problem is triggered by the tenant’s breach of contract.

Drafting leases

Even though there is an argument that may allow landlords to defend leases that impose both the obligation and the cost of compliance with the Act and the Regulations, that argument is not without risks and stands in direct contrast to the findings in Chen and McIntyre.

Consequently, it is prudent for solicitors to recommend to landlord clients leases in which the landlord bears the risks of compliance with the Act and the Regulations, possibly in exchange for an associated increase in rent or other consideration. However, this may be unpalatable to some landlords.

As an alternative, solicitors acting for landlords should consider recommending leases that:

  • require the landlord to carry out the work or do the things required of landowners under the Act or the Regulations; and
  • while noting that there are risks associated with this approach in light of recent cases and commentary, pass on to the tenant as an outgoing the costs of carrying out that work or doing those things.

In light of the inconsistent views on the operation of s251 of the Act, there may be a need for legislative reform to clarify the operation of the section or for a test case to be conducted in the Supreme Court.



Sam Hopper is a property and insolvency barrister at the Victorian Bar. The numbers in square brackets in the text refer to the paragraph numbers in the judgment.

1. Norman Mermelstein and Michael Redfern, Tenants beware: Don’t get hit by safety maintenance costs (2012) 86(04) LIJ 28).

2. The LIV’s PELS Leases Committee created a subcommittee to look at this issue. The author thanks the members of that subcommittee for alerting him to this argument.

3. For example, see Lionsgate Australia Pty Ltd v Macquarie Private Portfolio Manageme´╗┐nt Ltd – (2007) 240 ALR 385, Austin J at [22] to [26]; see also Pearce and Geddes, Statutory Interpretation in Australia, 7th edn, 2011, paragraph [5.35]; see also Potter v Minahan (1908) 7 CLR 277 at 304; 14 ALR 635 at 661–2; [1908] HCA 63.

4. See the second reading speeches for the Building Control Bill 1981 (Vic). These refer to two reports prepared by the Building and Development Approvals Committee that were relied on in the preparation of that Bill and a later report submitted to the Minister. Those reports appear to be the reports titled “Report on the building and development control system in Victoria. Part 1. Building controls: report of the Building and Development Approvals Committee submitted to the Premier”, April 1977; “Report on the building and development control system in Victoria. Part 2. Planning controls: interim report on the appeal system: 2nd report of the Building and Development Approvals Committee submitted to the Premier”, February 1977; and “Report on the building and development control system in Victoria. Part II, Planning controls/Victoria. Building and Development Approvals Committee”, 1979.

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