Part 2 – Standard of repair under s 52 of the Retail Leases Act 2003 (Vic)

November 10, 2014

Uncategorized

A number of VCAT decisions in recent years have found that:

  1. s 52(2) of the Retail Leases Act 2003 (Vic) creates a ‘baseline’ standard of repair that the landlord cannot contract out of;
  2. but that the parties can agree to put and maintain the premises in a higher standard than that required by s 52(2).

For a discussion of the earlier decisions, see here.

Whether the decisions are correct has been doubted in some quarters.

A recent VCAT decision followed that line of reasoning and the landlord sought leave to appeal to the Supreme Court. Associate Justice Mukhtar held last Friday that the correctness of the decision is not attended by sufficient doubt to warrant the grant of leave to appeal.

While this is not necessarily the end of the matter, practitioners advising clients on repair and maintenance obligations under retail premises leases should be aware of the line of earlier decisions and the recent approval of those decisions by Mukhtar AsJ.

The background to the cases is set out below.

Decision at first instance

In Di & Li Australia Pty Ltd v Jin Dun Pty Ltd (Retail Tenancies) [2014] VCAT 349 (31 March 2014):

  1. the tenant operated a service station from the leased premises;
  2. the first term of the tenant’s lease ran from 31 August 2007 to 30 August 2012;
  3. in around October 2010, a defect in the petrol tanks was discovered that caused water to enter the tanks;
  4. the lease was then renewed for a further term commencing on 31 August 2012.

Section 52(2) of the RLA states that:

(2) 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.

Section 94(1) of the RLA states that:

94 The Act prevails over retail premises leases, agreements etc.

(1) A provision of a retail premises lease or of an agreement (whether or not the agreement is between parties to a retail premises lease) is void to the extent that it is contrary to or inconsistent with anything in this Act (including anything that the lease is taken to include or provide because of a provision of this Act).

The lease stated that:

6.4 The landlord must keep the structure (including the external faces and roof) of the building and the landlord’s installations in a condition consistent with their condition at the start of the lease, …

However, the lease also contained the following definition:

Start of the lease the first day of the term but, if this lease is renewable under an option in an earlier lease (whether or not this lease is on terms that are materially different to those contemplated by the earlier lease), the starting date of the first lease to contain an option for renewal.

The landlord argued that, by operation of both ss 52(2) and 94 of the RLA:

  1. it was only required to maintain the premises in a condition consistent with the condition of the premises when the lease was renewed; and
  2. the definition of ‘Start of the lease’ was inconsistent with the RLA and void.

The necessary consequence of the argument is that the landlord would not be responsible for repairing the leaks to the petrol tanks.

The landlord relied on the decision of Deputy President Macnamara in Ross-Hunt  Pty Ltd v Cianjan Pty Ltd (Retail Tenancies) [2009] VCAT 829 (4 May 2009), in which the Tribunal held that:

[32] Since until 1 August 2007 Ross-Hunt was in possession and was paying rent ‘under’ the previous lease term and not the now current lease term neither paragraphs (b) and (c) of Section 7 can have the effect of bringing the date upon which the relevant lease was entered into forward until before 1 August. Had the parties executed a new lease for the new term it may be that paragraph (c) would have had some operation and would have brought forward the date upon which the current lease could be regarded as having been entered into. Since no such new lease deed was executed paragraph (c) has no operation. The result then is that for the purposes of applying Section 52 the relevant lease is the current lease and it was entered into on 1 August 2007.

[33] Mr Strang sought to avoid this conclusion by arguing that the Retail Leases Act in general and Section 52 in particular should be regarded as ‘beneficial’ legislation and therefore given the benevolent construction in favour of the tenant. He referred to the well known authorities on ‘beneficial’ legislation. In my view this is not the appropriate approach to construing a provision such as Section 52. The Retail Leases Act and cognate legislation regulates the rights and liabilities between one another of landlords and tenants; it is a zero sum game. A right given to a tenant is an obligation imposed on the landlord. An immunity given to a landlord is a right removed from the tenant. The policy of a statute such as the Retail Leases Act is to draw what Parliament regards as a proper balance between the rights and liabilities of landlords and tenants in the particular area regulated by the Retail Leases Act. There is no broad outer area from which ‘beneficial’ principles can be drawn. The only way in which it can be determined exactly how the balance between the rights and liabilities of landlords and tenants has been struck by Parliament is to analyse in accordance with normal statutory maxims the words which Parliament has used. Carrying out that process leads me to the view that Mr Williams’ construction of Section 52 should be adopted. Hence it is only if it can be demonstrated on the balance of probabilities that there has been a deterioration of the state of these air-conditioning appliance since 1 August that the applicant  Ross-Hunt  will be entitled to any relief under Section 52.

The tenant, however, relied on the decisions Computer and Parts Land and Savers Inc v Herosy, discussed here, arguing that s 52(2) created a ‘baseline’ obligation, and that the parties are able to agree to put and maintain the premises in a higher or better condition.

Senior Member Riegler followed the decisions in Compueter and Parts Land and Savers Inc v Herosy, and held that the landlord was obliged to repair the tanks (see paras [9] to [22]).

Leave to appeal

In Jin Dun Pty Ltd v Di & Li Australia Pty Ltd [2014] VSC 562 (7 November 2014), Mukhtar AsJ considered the various arguments and the extract from Ross-Hunt above, then made the following findings:

[28] Great care must be taken with that general statement. It was there to dispel the proposition that a beneficent construction of s 52 ought to lead to the conclusion that despite the words of the statute, the relevant lease is not the current lease but the originating lease. In the present case, the Tribunal accepted that the relevant lease had to be the renewal lease. The difference in this case was that clause 6.4 of the original lease had the effect of placing into the renewed lease an obligation on the landlord not different in kind but which was referable to the condition of the installations at the start of the first lease. Ross-Hunt was unconcerned with s 94 of the Act and the issue in the present case.

[29] Despite that, on this application, Mr Mackay’s submission was:

By passing s 52 in combination with s 94, Parliament has laid down a compulsory and uniform standard of maintenance for all retail leases in Victoria. If it were possible to ‘extend’ the obligation in s 52 in ways that operated favourably to tenants by imposing a different and more expansive maintenance obligation in the express terms of the lease, then the ‘proper balance’ referred to by the learned Deputy President [in Ross-Hunt] would be altered, as an extension of a tenant’s rights commensurately increases the burden assumed by a landlord. The legislature has effected a compromise between these competing interests and has prohibited the parties to a particular lease from altering that compromise by forming a contradictory agreement.

[30] As is evident in the Tribunal’s reasons, the approach to that question can be an adoption from the field of public law which analyses inconsistency according to whether it is direct or indirect.[1] In essence, the technique of statutory construction looks to see whether the clause here would alter, impair or detract from the operation of section 52(2), or whether it is capable of concurrent operation in a supplementary or cumulative way. It will be detraction if section 52 was intended to be a complete and exclusive statement of the limits within which the terms of a lease concerning repairs are to be confined. The landlord’s submission was in effect that a ‘direct collision’ has occurred here because the clause puts a greater obligation (as far as timing is concerned) than that for which s 52(2) provides and the reasoning in Ross-Hunt is a sound basis for concluding a confinement or exclusivity to that section.

[31] The question is whether the enlargement of the landlord’s responsibility ― enlargement only in the sense of pushing back the comparator to the commencement of the original lease ― is contrary to or inconsistent with the comparator under s 52(2) and therefore forbidden under s 94.

[32] As matter of comparison, the clause is ‘inconsistent’ in one sense: a strict literal sense. But the enquiry does not stop there, as the landlord’s argument seems to do. The question is whether the different clause alters, impairs or detracts from the operation of section 52(2). The Tribunal in this case concluded that s 52 does not prohibit the parties from agreeing to extend the landlord’s obligations to repair or maintain its installations.[2] The Tribunal held in essence that s 52 does not limit a landlord’s obligations but rather imposes a minimum obligation on the landlord, and it was not ‘contrary or inconsistent’ for the landlord to agree to a greater obligation.

[33] I think it is clear textually that section 52 (2) is not a restriction on the responsibility of the landlord. That is not to beg the question. It is to look at the words and see, without obscurity, that it is not couched in the language of a restriction of responsibility. The words state a responsibility for something. And, as the Tribunal observed, the only restriction or limitation is one that qualifies that responsibility under sub section (3). If it is not a restriction on liability, then the enlargement of the timing of liability cannot be said to alter, impair or detract from the operation of s 52(2).

[34] Other factors fortify this view. First, the responsibility under the provision is there for the benefit of the tenant. If the landlord is willing to enlarge the statutory benefit, then to my mind, that does not negate or impair the statute. The two can operate consistently. It is in that sense I think the Tribunal’s view that the section imposes a minimum obligation can be endorsed. That is, nothing in the statute curtails the landlord’s freedom to agree to give more. If the statute had intended to go that far, there would need to be clear words to reveal such an intention.

[35] Thirdly, I think the consequences of the landlord’s contention in this demonstrate how an alternative construction can produce capricious results. A lease is a contract, like any other. A breach, which was conceded here by the landlord, sounds in damages. The damages here, from a breach in the initial term, were proven to have inured beyond the expiration of the first term as the breach had ongoing business effect on profits. On the modern purposive approach to statutory interpretation which looks to context in its widest sense (see CIC Insurance Ltd v Bankstown Football Club Ltd[3]) I cannot accept it as being faithful to the apparent objects of this legislation that having agreed to clause 6.4, the landlord can use s 52(2) to deprive justly the tenant of damages for that loss because of the fortuitous renewal of the lease.

Conclusion

It is not known whether the landlord will appeal Mukhtar AsJ’s decision.

The upshot of the decision is that, at this stage, it appears to be the law in Victoria that the parties to a retail premises lease are able to agree to put or maintain the retail premises to a higher standard than is required by that section.

Practitioners should be aware of this decision and its predecessors when advising clients of their repair and maintenance obligations under a retail premises lease.

[1] See amongst many authorities, Bow Ye Investments Pty Ltd v DPP [2009] VSCA 149 at [20], [70] ff.

[2] See reasons at 20-21.

[3] (1997) 187 CLR 384 at 408.

About Sam Hopper

Sam is a property and insolvency barrister.

View all posts by Sam Hopper

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