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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  1. #1 by Vesna Smigowski on April 12, 2012 - 1:43 pm

    Hi Robert – What are your views on the Landlord being able to pass the costs of such works on to the tenant as an outgoing under the Lease (as opposed to makiing the Tenant liable for those works)? I have come accross a number of conflicting views on this point.

  2. #2 by Robert Hay Property Law Barrister on April 12, 2012 - 2:20 pm

    I doubt whether a landlord could pass these costs on to the tenant. The RLA enables the landlord to recover outgoings, but it would be very odd for the landlord to be able to recover outgoings for work that under the Building Act the landlord should have undertaken. In Chen the landlord contended that under the lease the tenant was obliged to carry out works that the landlord was obliged to carry out by reason of the Building Act and regulations. The Tribunal held that under the lease the tenant was obliged to do the work; however, if the tenant was obliged to carry out the work it could recover the cost from the landlord (see para 38). In [38] the Tribunal said that “There is nothing in section 251 which would preclude its operation where an occupier carried out the works in question under the compulsion of a Tribunal determination”. The Tribunal decided that in order to avoid circularity it would not order the tenant to carry out the work under the lease.

  3. #3 by Dr Stephen Silk on April 30, 2012 - 12:32 pm

    Robert,
    What if the Tenant chose not to carry out the work relating to complying with Essential Services or OH&S. Then a serious accident happened as a result of the non complance. Would the Tenants PI insurance be void and would the Landlord be liable? If so, should landlords pay more attention to property compliance matters.

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