Clarity on costs recovery for essential safety measures
There is good news on the horizon for retail landlords. If the Retail Leases Amendment Bill 2019 (Vic) (Bill) passes in its current form, there will no longer be doubt over a landlord's ability to:
- require a retail tenant to undertake the repair and maintenance of essential safety measures (ESMs) that a landlord (as owner) is obliged to carry out under the Building Act 1993 (Vic) (Building Act) and the Building Regulations 2018 (Vic) (Regulations), or
- if the lease allows, recover the cost of complying with those obligations as an outgoing if the landlord carries out the works itself.
The Bill amends the Retail Leases Act 2003 (Vic) (RLA) and the Building Act to facilitate this, while reiterating that the statutory liability for repair and maintenance of ESMs under the Building Act and the Regulations will remain with the landlord, as owner. This clarity will be welcomed by landlords given the significant debate on the issue in recent times.
These provisions will take effect from the day after the date on which the Bill receives assent. They will also apply retrospectively to a retail lease that was entered into prior to, and is in force on, the date the provisions commence, if that retail lease contains a provision to the effect that the tenant must pay the landlord as a contribution to outgoings, for the cost, or part of the cost, of installation, repairs or maintenance work in respect of an ESM.
Landlords should also be alert to other changes proposed by the Bill and review their processes and documentation in light of these. Time frames relating to landlord disclosure on grant of a retail lease will be shortened, and the scope of certain landlord disclosure obligations, both on a grant and a renewal of a retail lease, is extended. A tenant will be given a new right to require an early rent review in order to inform its decision about whether to exercise an option to renew, as well as a 14 day cooling off period during which it can change its mind after exercising its option, as long as it has not sought an early rent review.
These provisions are anticipated to commence on 1 October 2020 unless proclaimed earlier and, in some cases, will apply retrospectively. For a more detailed explanation of the proposed changes, and their application, please click here.
Once a retail lease, always a retail lease
The Supreme Court of Victoria recently held that a lease which at its commencement is a “retail premises lease” for the purposes of the RLA cannot cease to be a “retail premises lease” during its term. In Richmond Football Club Ltd v Verraty Pty Ltd [2019] VSC 597, the Supreme Court determined that the enquiry is whether premises are “retail premises” at the time the lease is entered into (or renewed). If they are “retail premises” at this point in time, then the lease is a “retail premises lease” and the RLA applies for its term. In this case, the fact that the level of occupancy costs during the lease term exceeded $1 million (the upper threshold for a retail premises lease under the RLA), was irrelevant, since at the time the lease was entered into they were below the threshold.
This decision, which overturned a VCAT ruling indicating that a lease could effectively “jump out” of the RLA during its term if it no longer satisfied the requirements of a “retail premises lease”, ensures that the practical complications and uncertainty that would otherwise arise from a fluid situation, are avoided.
The importance of a statement of outgoings
The recent case of Phillips v Abel [2019] VCAT 1031 serves as a timely reminder to a landlord of the importance of complying with its obligation to issue a written and itemised estimate of outgoings to which a tenant is liable to contribute. Under the RLA, a landlord must give this estimate to its tenant before the lease is entered into, and again in respect of each of the landlord's accounting periods during the term of the lease, at least 1 month before the start of that period.
At issue in this case was the meaning of section 46(4) of the RLA which states that a tenant is not liable to contribute to any outgoings of which an estimate is required to be given to the tenant, until the tenant is given that estimate. Does the belated issue of an estimate entitle a landlord to recover outgoing accrued prior to its issue, essentially reviving or establishing liability for outgoings previously incurred?
The case held that it did not. The issuing of the statement crystallises the tenant’s obligation to pay outgoings incurred from the date of issue only, and the tenant is not obliged to pay outgoings incurred prior to the date of issue. This situation was distinguished from that where a tenant seeks to reclaim outgoings already paid to a landlord. In these circumstances, a tenant cannot use the lack of a statement as a basis for clawing back outgoings already paid.
A lease of premises for certain farming purposes is not a "retail premises lease"
A recent determination made under the RLA means that, effective 29 October 2019, a lease of premises that may be used wholly or predominantly for any of the following activities for commercial gain is not a "retail premises lease" for the purposes of the RLA:
- agricultural, pastoral, horticultural or agricultural activities
- poultry farming, dairy farming, aquaculture, tree-farming or any business that consists of the cultivation of soils, the gathering of crops or rearing of livestock
- grazing, including agistment, and
- any other activities that may be prescribed as a farming operation for the purpose of the Farm Debt Mediation Act 2011 (Vic).
