What Costs Can a Landlord Recover from a Retail Tenant in VIC?

If you are a retail tenant operating a shop front in Victoria, the Retail Leases Act 2002 (VIC) (the Act) sets out your leasing rights. Generally speaking, the Act will override the lease agreement if its terms or provisions are inconsistent. We explain your rights as a tenant, focusing mainly on costs associated with a lease that the landlord cannot recover due to the Act’s operation.

Essential Safety Measure Costs

The Building Act 1993 (VIC) requires that buildings undergo maintenance that complies with essential safety requirements. These requirements under Part 12 of the Building Regulations 2006 include:

• smoke hazard management,
• proper exit doors and signs,
• fire extinguishers,
• functioning fire detection and alarm systems,
• sprinkler systems, and
• working smoke alarms.

Municipal councils are responsible for enforcing the ‘essential safety’ requirements and may require building owners to keep records of the following:  

• maintenance checks, 
• safety and repair works, and 
• annual ‘essential safety’ measure reports. 

Previously, landlords have passed on these compliance costs to tenants as either part of outgoings or as a direct cost. However, following VCAT’s President Justice Greg Garde advisory opinion in 2015, any obligation under a lease that requires a tenant to comply with essential safety requirements is void. Furthermore, the Act prevents a landlord from passing on its costs of complying with the Act to a tenant.

Costs of Repairs Under Section 52 of the Act

Section 52 of the Act states who is responsible for certain types of repairs under a Victorian retail lease. Considering the condition of the premises when the parties first execute the lease agreement, the landlord is responsible for repairing the following:

• structural elements of the premises such as the wall and the roof,
• landlord’s plant and equipment (for example, if the air conditioning unit breaks down),
• servicing the premises, and
• landlord’s installation such as fixtures and fittings.

An exception is where the tenant damages or misuses the property. The tenant is responsible for keeping the premises in good condition with reasonable wear and tear.

Implications of Section 52 of the Retail Leases Act 2003 (VIC)

So, a landlord cannot require the tenant to carry out structural repairs or general repairs to the fittings and plants and equipment. However, can they still pass on or recover the cost of performing a Section 52 repair as part of the tenant’s outgoings?

A landlord was able to pass on the cost of repairs to a tenant until the decision in the matter of Café Dansk Pty Ltd v Shiel & Ors (Retail Tenancies) [2009] VCAT 36 (Dansk Case). Before that decision, landlords could recover costs under Section 52 of the Act due to the definition of “outgoings”, which included maintenance and repair costs.

Fortunately for tenants, Deputy President McNamara overturned that position. McNamara expressed the view that it was contradictory for maintenance repairs to be the landlord’s obligation, but that they were also entitled to send the tenant a bill to cover the cost of those repairs. McNamara insisted that this made a mockery of Section 52. 

Other Costs That Are Not Recoverable

The Act also provides that the landlord cannot recover the following costs from the tenant:

• the landlord’s legal costs for preparing, negotiating and finalising the lease, even if the tenant decides at the last minute not to go ahead,
• the landlord’s legal costs for preparing an option lease, and
• capital costs under the lease (per section 41 of the Act).

Key Takeaways

As a tenant, you should understand your obligations under the lease and the relevant legislation. As a Victorian retail tenant, you are afforded protection under the Act against certain repair and maintenance costs which the Act considers the landlord’s responsibility. Even if the lease agreement fails to refer to the landlord’s repair obligations, the Act makes it clear that the obligation falls on the landlord and not the tenant.

If you are a retail tenant in Victoria and have any questions or need assistance reviewing your lease documents, get in touch with our specialist leasing lawyers on 1300 544 755.