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Property update: Essential safety measures and landlord’s maintenance of retail premises. Who pays? Landlord or tenant?

May 5, 2015

It is now certain who is responsible for:

  • the costs associated with complying with Essential Safety Measures (ESM)obligations;
  • the costs incurred in respect of maintenance works carried out in retail tenancies by landlords in accordance with their obligations under the Retail Leases Act 2003.

VCAT decision

On 1 May 2015 the President of VCAT provided an answer to these issues in a well written and well reasoned advisory opinion. His opinion is unlikely to be tested or reversed by the courts.

Who pays for ESM?

Very simply, the landlord is to pay for all requirements relating to ESM, including audits and reports, except in one situation {see below} where the tenant must comply.

The tenant is responsible for ESM required in connection with keeping in an efficient condition, functional and clear of obstructions so that egress is maintained:

  • exits;
  • paths of travel to exits; and
  • paths of travel from exits to a road.

The tenant is liable for the associated costs incurred in this regard (Building Regulations 2006 Regulation 1218).

What happens if a landlord does not comply?

When a landlord fails to carry out ESM work, a tenant may carry out the works and deduct those costs from rent (Building Act 1993 Section 251).

What should a landlord do?

A landlord should, at its own cost, comply with its obligations to maintain ESM.

Apart from having a tenant deduct from rent the costs of the works carried out by it if the landlord does not do so, the landlord may find itself involved in a costly dispute with the tenant if the landlord believes that the tenant has:

  • carried out unnecessary works; or
  • improperly carried out works; or
  • incurred unreasonable costs in carrying out the works.

What happens if the tenant paid for ESM in the past?

A tenant may seek to recover from its landlord costs paid by it to a landlord for the ESM works carried out and for ESM audits and reports obtained by its landlord.

A landlord should promptly make repayment of those costs when requested or demanded by its tenant to avoid incurring unnecessary legal costs and interest that may be payable to the tenant if payment is not promptly made.

A landlord should keep in mind that it has enjoyed the use of the tenant’s money from when those moneys were originally paid to the date of repayment.

Who pays for the landlord’s maintenance works in retail tenancies?

Under Section 52 of the Retail Leases Act 2003 (RL Act) a landlord is responsible for maintaining in a condition consistent with the condition of the premises when the lease was entered into:

  • the structure of, and fixtures in, the retail premises;
  • plant and equipment at the retail premises; and
  • the appliances, fittings and fixtures provided under the lease by the landlord relating to the gas, electricity, water, drainage or other services.

A landlord is not required to carry out those works if:

  • the need for repair arises out of misuse by the tenant; and
  • the tenant is entitled, or required, to remove the thing at the end of the lease.

A tenant may, subject to giving a landlord notices as required under the RL Act, recover from the landlord reasonable repair costs the tenant incurs in carrying out works if its landlord fails to carry out the required maintenance works.

Specific examples of landlord’s maintenance works required. Examples of maintenance works the landlord is responsible for, subject to the exceptions noted above, are:

  • maintenance of bathroom and kitchen fixtures;
  • maintenance of air conditioning equipment;
  • maintenance of lighting electrical systems;
  • maintenance and elevators and escalators;
  • maintenance of mechanical doors;
  • maintenance of automatic door opening systems;
  • maintenance of roofs, drainpipes and other similar weatherproofing elements of premises.

What happens if a retail tenant paid for landlord’s maintenance in the past?

A tenant may seek to recover from its landlord the costs  paid for its landlord’s maintenance works carried out in accordance with Section 52 of the RL Act.

Possibly the most common cost a tenant would seek to recover in this regard are costs paid to the landlord for maintenance of mechanical plant such as air conditioning.

A landlord should promptly repay its tenant when it seeks or demands repayment to avoid incurring unnecessary legal costs, and possibly interest, if it does not do so.

A landlord should keep in mind that it has had the use of the tenant’s money from the time it was paid until repayment.

What should a landlord do?

A landlord should:

PREPARE a condition report or, at the very least, take photographs of premises before they are let so that the condition of the premises at commencement of the tenancy can be determined at a later date.

CONSIDER transferring to its tenant, if the tenant agrees, ownership of fixtures in the premises that may be particularly expensive to maintain.

CONSIDER including in the lease a provision that either the tenant must remove, or is entitled to remove, from the premises at the end of the lease fixtures that may be particularly costly to maintain.

ENGAGE appropriate contractors to maintain mechanical plant in the premises and, in particular, air conditioning systems and similar complex mechanical installations.

INSPECT premises regularly to determine:

  • what (if any) maintenance works need to be carried out by the landlord or by the tenant; and
  • determine if the tenant is in any way misusing the premises or fixtures.

Sometimes failure by a tenant to clean parts of the premises may result in acceleration of its deterioration.

In that case, without regular inspection of the premises, it may be very difficult, if not impossible, for a landlord to prove that the landlord is not liable for costs to maintain or repair because of the tenant’s failure to clean caused the damage.

A common example in this regard is in respect of metal roofs, gutters and drainpipes.

Rusting of these fixtures may be accelerated if debris is not regularly removed.

ESTABLISH and incorporate into leases regimes a tenant is required to comply with so that a landlord’s maintenance responsibilities are kept to a minimum.

For example, a tenant could be required to inspect roofs gutters and drains, say, at least once every three months and clear them of debris.

The lease can also specify the types of things the tenant may use in the premises.  For example the types of wheels on chairs and trolleys and other similar items can be specified having regard to the floor surfaces in the areas where they are to be used.

More information

For further information, please contact Geoff Kliger, Principal Lawyer and Accredited Property Law Specialist, on (03) 8600 8878 or gkliger@kcllaw.com.au.

Note: This update is a guide only and is not intended to constitute legal advice.