The Mortgagee’s Power Sale out soon

Some of you have suggested that this blog has been too quiet of late. There has been a good reason for that – I have been busy finishing the  The Mortgagee’s Power of Sale.   Clyde Croft (now The Honourable Justice Croft) wrote the first edition, was co-author of the second edition and is co-author of the 3rd edition. The Mortgagee’s Power of Sale will provide an up-to-date,  practical guide to the steps that a mortgagee must take to obtain possession of and sell land and a detailed analysis of a mortgagee’s duty in selling land. Registered and unregistered mortgages are considered together with the different issues that arise when considering Torrens system and general land. There is also a comprehensive discussion about a mortgagor’s rights including the lodging of caveats and obtaining an injunction t0 prevent a sale. While maintaining its practical emphasis the book considers recent significant decisions such as Bofinger  v Kingsway Group, MBF v Nolan Ltd and Residential Housing Corporation v Esber.   The book is likely to  be published in late November.

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Can the landlord pass on the costs of complying with the Building Act?

Some of Melbourne’s finest legal minds are spending long hours trying to solve the question of whether a landlord can recover from a tenant the costs of complying with the landlord’s obligations under the Building Act 1993 (Act) and regulations.

Much of the debate concerns s 251  which 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.”

Underlining added

 

In my  the view the effect of s.251 is that if the owner is required by the Act or the regulations to carry out any work or do any other thing and does not carry out the work or do the thing:

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

(b)        the tenant can set-off the costs of doing the work that the landlord owner was obliged to do against the rent; and

(c)        the usual rent covenant that rent must be paid “without deduction” will not assist the landlord if it fails to comply with s.251 and the tenant does the work that the landlord was obliged to do (Chen v Panmure Hotel Pty Ltd[1]). 

However, s 251 does not answer the question whether a building owner can recover from the tenant the owner’s costs of complying with its obligations under the Act and regulations. In other words, can the tenant be obliged to pay the owner’s costs of complying with the Act and regulations when s 251 has not been enlivened?

Section 39 of the Retail Leases Act 2003 (2003 Act) permits a landlord to recover outgoings from the tenant by appropriately drawn provisions in a lease. Section 41(1) of the 2003 Act makes void a provision in a lease that requires the tenant to pay an amount in respect of capital costs. Thus it is clear that the tenant could never be required to pay an amount in respect of capital works.

In my view, if s 251 is enlivened by the owner failing to do works that it was required to do under the Act and the tenant does that work, the owner cannot, pursuant to provisions in a lease, recover from the tenant the costs that the owner pays to the tenant under s 251.

But where 251 of the Act has not been enlivened and the owner seeks to recover from the tenant the costs that it has incurred in complying with the Act, it is not clear to me why the landlord should not be able to recover those costs from the tenant. Proponents of the view that the landlord cannot recover the costs will refer to Café Dansk Pty Ltd v Shiel[2] where Deputy President Macnamara (as his Honour then was) held that a landlord could not recover from the tenant the costs of complying with s 52 of the 2003 Act. In my view there are good arguments as to why Café Dansk is not correct, but even if it be assumed that the decision is correct the logic applied in Café Dansk does not necessarily apply when considering the Act. The Act and the 2003 Act are directed at different things. The Act is concerned with ensuring the safety of persons using buildings; its provisions are directed solely to that end; and it says nothing about the ultimate allocation of the costs of complying with the Act while the 2003 Act,  and s 52 in particular, is remedial leglislation concerned with restoring the balance of rights as between landlords and tenants. In my view it is not at all clear that there is anything in the Act that rebuts the presumption that an Act is not to be construed as taking away existing common law rights unless the legislative right to do so is clear[3]. I am not convinced that it is clear that Parliament intended to take away the contractual right to pass on the costs of compliance.    

 

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[1] [2007]VCAT 2463

[2] [2009]VCAT 2009.

[3] Pearce, D.C and Geddes, R.S, Statutory Interpretation in Australia, 7^th ed, LexisNexis, 2011, paragraphs 5.27, 5.28 and 5.35.

Consequences of repeal of Fair Trading Act

In yesterday’s post I stated that the Fair Trading Act 1999 had been repealed effective 1 July 2012 and replaced with the Australian Consumer Law and Fair Trading Act 2012.  Many commercial disputes brought in VCAT were “consumer and trader” disputes within the meaning of s.107 of the FTA. Chapter 7 of the new Act preserves the “consumer and trader” dispute regime.  Note should be taken of s.3(2) which provides that unless the contrary intention appears the words and expressions used in the new Act have the same meaning as they have in the Australian Consumer Law. This means, for example, that in deciding whether a dispute is a “consumer and trader” dispute recourse will have to be had to the definition of “goods” and “services” in s.2 of the Australian Consumer Law.

Section 8 of the new Act provides that the “Australian Consumer Law text” applies as a law of Victoria.  The expression “Australian Consumer Law Text” is defined in s.7 as meaning, among other things, schedule 2 to the Competition and Consumer Act 2010 (Cmlth), being the Australian Consumer Law. Thus, when considering, for example, a potential claim for misleading or deceptive conduct recourse must be had to s.18 of the the Australian Consumer Law and not to any provision in the new Act.  VCAT has jurisdiction to hear and determine disputes under the Australian Consumer Law and thus the full suite of remedies available under the Australian Consumer Law can be utilized in VCAT. See: s.224 of the ACLFTA.

Readers should also note that the Landlord and Tenant Act 1958 will be, but has not yet been, repealed by the ACLFTA with the consequence that the law concerning uncollected goods left in premises at the termination of a lease remains in Part IVA of the Landlord and Tenant Act. When Part IVA  is repealed Part 4.2 of the ACLFTA will be the statutory source of the law in Victoria concerning uncollected goods.

Farewell to the Fair Trading Act

The Fair Trading Act 1999 was repealed on 1 July 2012 and replaced by the Australian Consumer Law and Fair Trading Act 2012.  Some parts of the ACLFTA have not yet come into force including Part 4.2 (disposal of uncollected goods), Part 5.2 (liability of accommodation providers), s.234  (repeal of Disposal of Uncollected Goods Act 1961), s.235 (repeal of Carriers and Innkeepers Act 1958, s.236 (repeal of Landlord and Tenant Act 1958). Under the ACLFTA VCAT retains its jurisdiction to hear and determine ‘consumer and trader’ disputes (Chapter 7) with the consequence that VCAT will continue to be able to hear and determine disputes between landlords and the guarantors of the tenant’s obligation under a lease.

The PPSA – where does one start?

It is remarkable what our leaders can inflict upon us in the name of “reform”. At the very least the Personal Property Securities Act 2009 is confusing and messy. That it has been inflicted on business and their advisors in this form says much for how ‘out of touch’ our politicians and public servants are. Property lawyers are much relieved that an interest that provides for the creation or transfer of an interest in land is not caught by the Act[1]. But property lawyers cannot be complacent because many transactions that relate to property will come within the ambit of the Act. The complexity and confusion apparent in the Act is so overwhelming that the first question has to be: where does one start? In answering this question the most useful text that I have come across is Lionel Meehan’s The PPS Guide which is available in the Law Institute’s bookshop.  Unlike other authors Meehan sets out how to approach an Act matter.  Meehan says that in order to determine whether the Act applies to a secured transaction four questions must be asked:

(a)               is there a “security interest”;

(b)              is the security interest granted in personal property;

(c)               has the security interest attached to the personal property; and

(d)              does the transaction have an Australian connection?[2]

If the answer to all these questions is yes, the transaction is caught by the Act and how it is treated under the Act needs to be considered.  

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[1] Section 8(1)(f).

[2] Meehan, paragraphs 2.004 and 5.002.

More on s 251 of the Building Act

I have been asked to explain the opinion that I proferred on 13 April that a landlord which complies with s 251 of the Building Act 1993 could not  recover the costs of compliance from the tenant. Section 251 is similar in many respects to s 52 of the Retail Leases Act 2003: under both Acts the owner/landlord is required to do certain work and, if it is not done, the tenant can do the work and recover the cost of so doing from the owner/landlord. VCAT has considered the question of whether a landlord can recover the costs of complying with s 52 of the 2003 Act.  In Cafe Dansk Pty Ltd v Shiel [2009] VCAT 36 Deputy President Macnamara (as his Honour was then known) dismissed the landlord’s argument at  [44] as follows:

I find Dr Croft’s sceptical views on this point compelling. It would, in my view, make a mockery of s 52 if Parliament having allocated the responsibility for certain repairs to the landlord, the landlord could then send the bill to the tenant for the cost of carrying out those repairs….

In my view the same logic applies to s 251 of the Building Act.

Can the landlord require the tenant to pay the costs of complying with s 251 of the Building Act?

Yesterday I posted an article about s 251 of the Building Act 1993. The effect of s 251 is that if the owner of a property 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; 

(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.

After the article was posted I was asked if the landlord could recover from the tenant the costs of complying with s 251.  Section 39 of the Retail Leases Act 2003 permits the landlord to recover outgoings from the tenant in specified circumstances.  Section 41(1) of the 2003 Act makes void a provision in a lease that requires the tenant to pay an amount in respect of capital costs.  In my view, s 251 would take precedence over s 39 of the 2003 Act with the consequence that the costs of complying with s.251 would not be recoverable.

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.

Beware national lease registration system

Victorian landlords and tenants should be slow to embrace the draft Uniform Torrens Title Act that has just been published. At present there is no requirement in Victoria to register leases and s.42(2)(e) of the Transfer of Land Act 1958 provides that the interest of a tenant in possession of land is an exception to the rules regarding indefeasibility of title: in effect the interest of a tenant in possession is protected when land is sold despite the lease not being registered. The non-registration of leases in Victoria has worked well and landlords and tenants have not had to bear the cost of establishing and maintaining a registration system. Under the draft Act the exception to indefeasibility will apply only to leases of not more than 3 years (s.34(1)(g)).  Many real estate agents will be delighted by the change because one of their complaints is that it is difficult for them to determine “market rents” in the absence of a database of leases. However, I have not heard any compelling arguments for registration of leases in Victoria.  If registration is required, landlords and tenants can expect delays in the Titles Offer and inevitably rising registration fees.  Apart from the national “neatness” argument, the proponents of lease registration seem to have difficulty in pointing to its benefits.  The draft Act is the product of the Property Law Reform Alliance.

Michael Redfern

Michael Redfern died last Thursday night. Many readers will know Michael either personally or as one of Australia’s leading property lawyers. Michael had been ill for a number of years. Michael was a fine lawyer, a gentlemen, a mentor to many, generous and kind.  Any person who knew Michael could not help but like him. Apart from his many years as a solicitor, Michael made major contributions to the law in Australia as co-author of  ‘Australian Tenancy Practice and Precedents’, the author of many articles and the presenter of many seminars. Michael will be sadly missed.   Michael’s funeral will be held on Friday 9 March, 2:30pm at Le Pine, 1048 Whitehorse Rd Box Hill.