Service station leases – a Victorian perspective

A colleague recently sent me this excellent article by Bill Burrough from DibbsBarker titled ‘Service station lease: Ensuring the lease is manageable and saleable’.

The article talks about:

  1. leasing issues for investors considering a service station – an investment considered by some to be ‘recession proof’;  and
  2. the obligation to maintain the service station infrastructure and the impact of retail leasing and environmental legislation in Queensland and NSW.

The article also says:

It is common for the landlord to install and retain ownership of the infrastructure, while the tenant is obliged to carry out repairs and maintenance throughout the term. Replacement of certain items which reach the end of their useful life is normally considered to be a capital expense and would usually be the landlord’s responsibility.

This is good advice.  However, there may be a hidden trap for Victorian practitioners in the Retail Leases Act 2003 (Vic).

Section 52(2) of that Act says:

The landlord is responsible for maintaining in a condition consistent with the condition of the premises when the retail premises lease was entered into:

a)    the structure of, and fixtures in, the retail premises; and

b)    plant and equipment at the retail premises; and

c)     the appliances, fittings and fixtures provided under the lease by the landlord relating to the gas, electricity, water, drainage or other services.

There is also an exception in s 52(3), which states that:

However, the landlord is not responsible for maintaining those things if—

(a) the need for the repair arises out of misuse by the tenant; or

(b) the tenant is entitled or required to remove the thing at the end of the lease.

Importantly, under s 94 of the RLA, the parties cannot contract out of the covenants implied by the Act, including s 52.

Consequently, if the service station is a retail premises leases and the exception in s 52(3) does not apply, the landlord is probably responsible for maintaining the service station infrastructure.  This could be costly.

It is, of course, important to check whether the lease is governed by the RLA.  For example, a lease to a major petrol retailer is likely to be excluded by the public company exclusion (see s 4(2)(c) and (d) of the RLA).  However, a lease or a sub-lease to a franchisee will probably fall under the Act.

 Readers advising their clients in this area should also be aware that:
  1. there are a number of unresolved issues associated with attempting to recover the costs of maintenance from a tenant as an outgoing under s 52 of the RLA (see an earlier post here);
  2. the recovery of capital costs is prohibited under s 41 of the RLA;  and
  3. there is an ongoing issue over whether the costs compliance with essential safety measures can be recovered from the tenant (see earlier posts here and here).

Sam Hopper and Kate Brideoake

About Sam Hopper

Sam is a property and insolvency barrister.

View all posts by Sam Hopper

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4 Comments on “Service station leases – a Victorian perspective”

  1. Anonymous Says:

    Thanks Sam,

    But/ AND the BIG issue of responsibility for environmental pollution, leaking tanks etc.

    I have a client who is an environmental auditor and he’s done a lot of work over the years with petrol station clean-ups, and its mind boggling how far and wide the pollution can extend and pollute the soil in “adjoining’ sites, sometimes hundreds of meters away.

    The reports are very expensive to obtain, and the clean up can be $??????????

    Regards

    John Byrne LLB
    Accredited Business Law Specialist
    John J Byrne Lawyer Pty Ltd (ABN 66005483303)
    Real Estate | Commercial Law | Asset Protection | Wills & Estates
    216 Charman Road, Cheltenham 3192
    PO Box 2597 Cheltenham 3192
    DX 34803 Cheltenham
    Telephone: 613 9584 2088 Fax: 613 8456 6316

    Reply

  2. Stuart Monotti Says:

    The issue of liability for repair of fuel tanks under the RLA was canvassed in C&A Delaveris Pty Ltd v Bretair Pty Ltd [2009] VCAT 1663.

    Reply

  3. Anonymous Says:

    …and try enforcing the contamination remediation covenant if the tenant is not BP or Shell! Michael Trumble

    Reply

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