A controversial opinion by Justice Garde, President of VCAT, could have significant implications for Landlords owning commercial property in Victoria. Recent advice, handed to the Small Business Commissioner by Justice Garde in 2015, has clarified the position in regards to Landlord maintenance obligations. Under the opinion, it is viewed that a Tenant can no longer be required to pay the costs of repair and maintenance associated with compliance with the Building Act 1993 (Vic) and section 52 of the Retail Leases Act 2003 (RLA).
According to Ingrid Filmer, Director, Asset Management at Burgess Rawson, who specialises in commercial/retail property management, this advice must be factored into future lease negotiations. “Net rent of commercial property has traditionally been based on the assumption that compliance and repair costs are recoverable. As this is no longer the case, it is important that the Landlord is aware of the potential implication to investment security. VCAT’s opinion should be taken into consideration in all new lease negotiations.”
The interesting aspect of Justice Garde’s opinion is that it is not derived from an existing case. It does not create a precedent. However, Ms Filmer believes it is just a matter of time before a case is brought before VCAT, at significant cost to the landlord.
“When and if this opinion becomes precedent, the management of Landlord items will become paramount. Section 52 requires the Landlord to ‘maintain in a condition consistent with the condition of the premises when the lease was entered into’,” said Ms Filmer.
Items for close consideration are fixtures and fittings which have been included as part of a lease incentive. For example, flooring, joinery, and other items with a shorter lifecycle than the usual landlord items of air conditioning, roofs and structure.
Essential Safety Measures are the responsibility of the Landlord – Justice Garde held that section 251 of the Building Act identifies this as solely a landlord responsibility. This circumstance identifies one of the hidden snares, which can occur in the drafting of a water tight lease agreement. It also highlights the importance of employing the services of a competent and knowledgeable managing agent for guidance through the requirements of the Building Act 1993 (Vic) and the Retail Leases Act 2003 (RLA).
For further information about this, or any other property management concerns visit our contact Ingrid Filmer