Section 52(2) of the RLA 2003 creates a ‘keep in repair’ covenant.  The landlord is required under s 52 to keep the premises in a condition consistent with the condition of the premises when the retail premises lease was entered into.

In Computer & Parts Land Pty Ltd v Aust-China Yan Tai Pty Ltd [2010] VCAT 2054, a decision of Senior Member Lothian, the tenant complained about deterioration to the roof and a failure of the air conditioning system.  Prior to the commencement of the lease, the landlord and the tenant agreed in a special condition in the lease that the landlord would complete certain work to bring the premises to a particular standard before commencement of the lease.  The landlord never completed that work and the tenant ultimately sued for specific performance of the landlord’s repair and maintenance obligations.

The decision is long and tackles a number of complicated issues.  The following sub-paragraphs summarise some of the interesting findings for practitioners in this area:

1. the tenant’s knowledge of any defects in the premises is not relevant to the operation of s 52 (para [78]);
2. the condition of the premises for the purposes of s 52 is determined by reference to what was in fact demised and from the intention of the parties (para [79]).  The tenant need not rely solely on the condition of the premises, but can rely on an agreement to put the premises into a particular state at the commencement of the lease (para [101]).  The condition of the premises for the purposes of s 52 is the condition that the parties agreed to put it into at the commencement of the lease (paras [104] to [108]).  The standard for s 52 is what was agreed, not what the condition of the premises in fact was when the lease was entered into (para [146]);
3. but for the special condition in the lease creating an obligation on the landlord to put the premises into a particular state, the landlord had no obligation to do more than ensure that the poor system did not deteriorate further (para [103]);
4. s 52 does not require the landlord to re-design or improve the premises (paras [90] to [97]);
5. the obligation to keep in repair could, in extreme circumstances, mean replacement if it is the only option open to the landlord (paragraph [84]). On balance, the only way to ensure that the roof in that case would survive the lease was to replace it (para [127]).  On the other hand, the Member said she intended to order repair of the roof because it was likely (rather than certain) that the roof will not survive (para [128]);  and
6. the submission was rejected that s 52 should give to the tenant the intended benefit of the premises (para [100]).

Similar issues were raised in Savers INC v Herosy Nominees Pty Ltd [2011] VCAT 1160.  The decision was delivered on 20 June 2011, also by Senior Member Lothian.

The landlord in that case argued that:

1. s 52 should not be read beneficially in favour of the tenant;  and
2. the landlord’s obligations to maintain the premises to a standard higher than that specified in s 52 should be read down.

The tenant argued that s 52 creates a ‘baseline’ obligation and that the parties are entitled to agree to a wider obligation.

The Tribunal:

1. accepted that s 52 should not be read to benefit the tenant;
2. acknowledged that, on one view, the tenant’s interpretation of s 52 favoured the tenant;  and
3. nevertheless found that the parties could agree to a wider obligation than that imposed by s 52.

It is not entirely clear how the intentions of the parties can be relevant to the operation of s 52 in light of s 94 of the RLA, which prohibits parties to a retail premises lease from contracting out of the operation of the RLA.

Nevertheless, we now have two Tribunal decisions (albeit from the same member) indicating that it is possible for the parties to a lease to enforce against the landlord an obligation higher than that imposed by s 52.

VCAT recently held that s 92 of the RLA 2003 prevents recovery of costs in a dispute between landlord and tenant of a retail premises lease of less than one year.

Section 12 of the RLA 2003 states that the Act does not apply to retail premises leases of less than 1 year.

However, the finding relies on s 81(1)(c) of the RLA 2003, which states that a retail tenancy dispute under part 10 of the Act includes a dispute between a landlord and a tenant:

arising under a lease that provides for the occupation of retail premises in Victoria to which none of those Acts apply or applied

The reference to “those Acts” is a reference to the RLA 2003, the Retail Tenancies Act 1986 or the Retail Tenancies Reform Act 1998.

The decision is worth noting because disputes arising out of leases with a term of less than one year are likely to be relatively small claims where the impact of costs is significant.

The discussion is located in Burd & Cooper Pty Ltd (ACN 119 808 034) v C & P Cooper Pty Ltd (ACN 119 813 133) and Ors (Retail Tenancies) [2011] VCAT 1416 at [44] to [69].

The operation of s 81(1) was also discussed in State of Victoria v Tymbook Pty Ltd [2005] VSC 267.

Thanks to Jamie Bedelis of Cornwalls for alerting me to this judgment.

As most readers are aware, Victoria has had a new disclosure statement under the RLA 2003 since 1 January 2011.

A copy of the regulations with the new disclosure statement can be found here.

I previously posted some comments on the new disclosure statement here.

I have been looking at this again recently and have set out below some additional comments that readers might find useful.

Sections 17 and 18 of the RLA 2003 set out the consequences for failing to give a disclosure statement. There are also consequences for giving a statement that is ‘false, misleading or materially incomplete’.

In addition to the consequences set out in the statute, it seems to me that the main risk arising out of a landlord’s disclosure statement is their use by the tenant in a damages claim arising out of pre-contractual representations.  Damages claims are often used defensively by a tenant seeking to set-off damages against rental arrears (click here for a discussion on using a damages claim and equitable set-off defensively).  As discussed in my earlier post on the new disclosure statement, there are some parts of the disclosure statement that may be difficult to complete and may give rise to errors.  Solicitors advising landlords on the completion of the new disclosure statement should be aware of those difficult clauses and be careful to avoid inadvertent misrepresentations.

Clause 28.1 of the new disclosure statement requires the landlord to disclose ‘[a]ny other representations by the landlord or the landlord’s agent’.  I have been told that most landlords are saying something to the effect of ‘nil, other than those contained in the lease and this disclosure statement’.  This, on its own, will not absolve the landlord of any liability under the TPA or the FTA for pre-contractual representations.  However, as the statement is usually signed by the tenant, it supports an argument that the tenant did not rely on any pre-contractual representations.  For a discussion on the effect of acknowledgements of this kind, see Poulet Frai Pty Ltd v The Silver Fox Company Pty Ltd (2005) 220 ALR 211; [2005] FCAFA 131 (otherwise known as “Lenard’s Chicken case”).

Clause 16.1 of the new disclosure statement suggests that legal costs may be recoverable.  However, costs associated with the negotiation, preparation or execution of a lease cannot be recovered under s 51 of the RLA 2003 and legal costs of a retail tenancies dispute generally cannot be recovered under s 92 of the RLA 2003.

Some other issues that have been drawn to my attention by solicitors who practice in this area are:[1]

• the ‘tick-a-box’ format of the new form invites error, particularly from ‘mum and dad’ landlords;
• clause 17.1 of the statement asks for:

…any alteration works, planned or known to the landlord at this point in time, to the premises or building/centre, including the surrounding roads, during the terms or any further term or terms…

It is not clear how far this reaches.  Are the roads limited to roads within the shopping centre, or does it extend to roads outside the centre and in the control of the council?  How much investigation is required?  At this stage, again, the best that landlords can do is disclose everything they are aware of and then add an appropriate qualifier.  It may also be prudent to add that the landlord has not made any inquiries or detail the inquiries that have been made.  This will not necessarily prevent the document from being materially incomplete, but it is difficult to see what else a landlord can do;

• clause 14 asks for estimates of outgoings including GST.  I am told that landlords often give their estimates of these figures pre-GST in negotiations.  Clause 22, on the other hand, specifies the figure as both including and excluding GST.  This could give rise to errors when completing the document;
• clause 4.2 asks whether the landlord has provided a copy of any Crown lease to the tenant and clause 33.2 only allows for either a ‘yes’ or a ‘not applicable’ to be completed.  It is not clear whether the landlord is obliged to provide a copy of any Crown lease.  However, as provision of a completed disclosure statement is required under the Act, it is prudent to provide a copy of any Crown lease (if applicable);
• clause 14.10 refers to the prohibition on recovery of capital costs under s 41 of the RLA, but does not make reference to the landlord’s obligation to conduct repair and maintenance under s 52 of the RLA and the difficulties associated with recovery by the landlord of those costs (for a discussion of this issue, click here);  and
• there is no obligation to disclose the security required by the landlord.  Some practitioners include this in the landlord’s representations in clause 28.1.

Another issue in the Primary RE case was whether a replacement RE can seek relief from forfeiture of part only of a terminated lease.

Primary RE was appointed as replacement RE for only the 2007 scheme.  However, some of the leased land was used for other schemes as well.   Consequently, Primary RE would be able to seek relief from forfeiture of part only of the terminated lease.

The Court found that:

• a right to seek relief from forfeiture of part only of a lease would not transfer under s 601FS;  and
• even if it did transfer, the unfairness created by seeking relief of part only of a lease would be a good reason to deny the grant of relief.

This finding may present a significant obstacle to responsible entities seeking to rescue distressed managed investment schemes where the lease has already been terminated.

However, the Court was willing to accept that part of a lease that had not been terminated could vest in a replacement RE.  Justice Rares in Huntley Management Ltd v Timbercorp Securities Ltd [2010] FCA 576 stated that two REs could be tenants of the same lease under s 601FT.  Justice Judd distinguished the Primary RE case on the basis that the right to seek relief against forfeiture is indivisible.  With respect, it is not clear why a single estate in land should be viewed as divisible by statute but that a right to seek relief from forfeiture of the same estate(s) in land is not divisible by the same statute.

The relevant discussion takes place in paragraphs [199] to [207] of the judgment.

The Federal Government recently published a discussion paper on Managed Investment Schemes.

The discussion paper arises out of recent high profile collapsed managed investment schemes and raises issues in relation to the transfer of a viable MIS, restructuring a potentially viable MIS and winding up a non-viable MIS.

A copy of the discussion paper is available here.

Submissions are due on 30 September 2011.