Archive for April 12th, 2012

The tenants’ new weapon – s.251 of the Building Act 1993

Recently I have attended a number of mediations at which tenants have invoked s.251 of the Building Act 1993 as part of the bargaining process. Section 251 affords tenants a powerful weapon. Section 251 provides that:

(1) If the owner of a building or land is required under this Act or the
regulations to carry out any work or do any other thing and the owner does not carry out the work or do the thing, the occupier of that building or land or
any registered mortgagee of the land or the land on which the building is
situated, may carry out the work or do the thing.

(2) An occupier may-

   (a)  recover any expenses necessarily incurred under subsection (1) from
        the owner as a debt due to the occupier; or

   (b)  deduct those expenses from or set them off against any rent due or to
        become due to the owner.

…..
(6) This section applies despite any covenant or agreement to the contrary.

The effect of s.251 is that if the owner is required by the Act or by the Building Regulations 2006 to keep premises in a specified state:

(i)  the owner cannot contract out of those obligations by, for example, including provisions in a lease that make the tenant liable to repair the particular items (Chen v Panmure Hotel Pty Ltd [2007] VCAT 2463);

(ii)  a tenant can do the work that the landlord was obliged to do and recover the costs from the landlord owner; and

(iii) a tenant can set-off the costs of doing the work that the landlord owner was obliged to do against the rent.

The usual rent covenant that rent must be paid “without deduction” will not avail the landlord if it fails to comply with s.251 and the tenant does the work that the landlord was obliged to do. 

Regulations 1212-1217 require the owner to maintain essential safety measures for a specified class of building built before 1 July 1994. Regulations 1201-1211 require the owner to maintain essential safety measures for the same classes of buildings built after 1 July 1994. Regulation 1217 requires the owner of a building to maintain essential safety measures in a state that enables them to fulfil their purpose.  Under regulation 1205 the owner of a building or place of public entertainment must comply with a maintenance determination regarding a building built after 1 July 1994.  Regulations 1202 and 1213 define essential safety measures. Regulations 1208 and 1214 requires an owner of a building to prepare an annual essential safety measure report.

Section 251 imposes more significant obligations on a landlord than those implied into leases by s.52 of the Retail Leases Act 2003. 

Before entering into a commercial lease both landlords and tenants should consider the effect of s.251 of the Act.

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The awarding of costs when Fair Trading Act claims are included in retail tenancy disputes

VCAT recently considered whether s.92 of the Retail Leases Act 2003 applied to claims made under the Fair Trading Act 1999 (FTA) in a proceeding that also involved what was undoubtedly a ‘retail tenancy dispute’.  The effect of s.92(1) of the 2003 Act is that each party bears its own costs in a dispute governed by Part 10 (ie the dispute resolution provisions) of the 2003 Act. In Complete Pets Pty Ltd v Coles Group Property Developments Pty Ltd [2012] VCAT 361 the head tenant was sued by a subtenant alleging that it was induced to enter into the lease by reason of misleading or deceptive conduct contrary to the FTA. The subtenant sought an order that the sublease was void ab initio. The guarantor of the subtenant’s obligations also claimed to have been induced to enter into the guarantee by reason of misleading or deceptive conduct contrary to the FTA and sought an order the the guarantee was void ab initi. Another applicant claimed to have been induced to invest in the business conducted at the leased premises by reason of misleading or deceptive conduct contrary to FTA and sought damages.  The head tenant counterclaimed against the guarantor for unpaid rent and outgoings.  The head tenant’s claim was the only claim that succeeded. The head tenant sought its costs under s.109 of the VCAT Act 1998. The head tenant contended that the dispute was made up of four claims and conceded that the tenant’s claim against the landlord was a ‘retail tenancy dispute’ within the meaning of s.81 of the 2003 Act and therefore were caught by s.92(1). However, the landlord contended that the other claims were ‘consumer-trader’ disputes under the FTA as defined in s.107 of the FTA and therefore the disputes were not covered by s.92 of the 2003 Act. The Tribunal held that it was irrelevant whether relief was being sought under the FTA and that the “critical question” was whether the parties were, pursuant to s.90 of the 2003 Act,  “parties to a proceeding before the Tribunal” on an application under s.89(1) of the 2003 Act. If the parties were parties to a proceeding under s.89(1)  s.92 of the 2003 Act applied and s.109 of the VCAT Act was irrelevant.  Section 89(1) of the 2003 Act provides that “The Tribunal has jurisdiction to hear and determine an application by a landlord or a tenant under a retail premises lease……seeking resolution of a retail tenancy dispute”. The Tribunal took a purposive construction of the 2003 Act and held that the guarantor and the investors were “parties to the proceeding” within the meaning of s.90  of the 2003 Act with the consequence that s.92(1) applied and the parties had to bear their own costs. The head tenant also unsuccessfully argued that even if s.92(1) applied it was entitled to costs because the proceeding had been conducted vexatiously with the consequence that the exception to the general contained in s.92(2)(b) of the 2003 Act  applied. The vexatious conduct alleged was a refusal to accept offers of settlement.

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