Thursday, 7 February 2013

Recovery of outgoings and the November 2012 LIV Lease

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The November 2012 LIV Lease excuses a tenant from performing any work that is the responsibility of the owner under the Building Act 1993. See: clause 3.3.3 which provides that the tenant is not obliged “to carry out any work that applicable legislation makes the responsibility of the landlord”. The new LIV Lease  also excludes from outgoings recoverable from the tenant “capital expenses and expenses whose recovery from the tenant would be contrary to applicable legislation”. See: the definition of “building outgoings in clause 1.1.  However, the LIV Lease includes in the definition of “building outgoings” the costs of “maintaining and repairing the building and the landlord’s installations and carrying works as required by relevant authorities…” (sub-paragraph (c) of the definition).

Thus it appears that provided recovery is not contrary to the Act, costs incurred by the landlord in complying with the owner’s obligations under the Act are recoverable from the tenant under the LIV Lease.  The question remains whether a landlord can or cannot recover from the tenant its costs in complying with owner’s obligations under the Act. The recent case of McIntyre v Kucminska Holdings Pty Ltd  [2012] VCAT 1766 did not determine that question. In McIntyre the lease required the tenant to arrange for an essential safety measure report and to purchase whatever fire fighting equipment was required in order to comply with the report. Section 251 of the Act 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.”

Section 251 is enlivened if the landlord does not carry out the work or thing that the Act requires it to do. In McIntyre the Tribunal had to consider regulation 1217 of the Building Regulations 2006 which states:
“The owner of a building or place of public entertainment must ensure that any essential safety     measure required to be provided in relation to that building or place under the Act or these       Regulations or any corresponding previous Act or regulation-

(a)        is maintained in a state which enables the essential safety measure to fulfil its purpose;               and...”

Senior Member Riegler said at [64] that:
“In my view, the words of the provision [Regulation 217] made it clear that the obligation to bear the cost of the essential safety measures ultimately rests with the owner of land. I do not consider it open for a landlord to contract out of that obligation, even if at first instance the lease requires the tenant to undertake the work required in order to comply with whatever essential safety measures are applicable…”

And at [69]:
“In my view, s 251 of the Building Act 1993 does not necessarily prohibit a landlord from        placing such an obligation [to arrange for a essential safety measures report and to purchase  fire fighting equipment] on a tenant, save and except that the Landlord must reimburse the  Tenant for the costs associated therewith, failing which the Tenant is entitled to set-off those  costs against rent due and payable under the lease.”

And at [71}:
“I do not consider that a contractual obligation, placed on the tenant to undertake whatever  work is required in order to comply with an essential safety measures report, offends s 251 of  the Building Act 1993. The contractual and the statutory obligations are able to sit side-by-  side.”

In summary, the Senior Member’s view is that:

(a)          the owner landlord cannot contract out of its obligation under the Act;

(b)         if the owner landlord is required by the Act to do any work and the lease requires the tenant to do                 that work, the tenant must do the work but is  entitled to recover its costs from the landlord under s              251.

Assuming that the landlord does the work required by the Act or engages a person (other than the tenant) to do the work, it remains an open question whether a landlord can recover from the tenant as an outgoing the costs of complying with the Act. In my view there is nothing in the Act that suggests Parliament intended to interfere with a landlord’s right and a tenant’s right to bargain about the recovery of costs.

My clerk can be contacted via this link if you wish to retain my services for any legal matter which is within the gamut of my legal experience. 

Author: Robert Hays Barrister subject to copyright under DMCA.


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  5. […] [7] Robert Hay, Recovery of outgoings and the November 2012 LIV Lease <…>. […]

  6. What SM Riegler said at 64 and 69 quoted in your blog above is very clear. He said that the obligation to bear the cost rests with the owner, and that can't be contracted out of (presumably because of s.251(6) of the Building Act. He said also at para 119 in the decision that the cost of ESM is to be borne by the owner and not the tenant. So particularly given his comment that it can't be contracted out of, how can it be said that it is still not clear about whether a landlord can pass on ESM compliance costs to a tenant as outgoings? The decision is very clear on that point - they cannot be contracted out of according to SM Riegler.

  7. It appears your argument is that s.251 only applies if the landlord doesn't do the work when required to do so. And since for example Reg 1217 only requires the owner 'to ensure' the work is carried out, the owner can require the tenant to do it. I think the requirement 'to ensure' the work is carried out means that the owner is required under the Act to do it, and that being the case, if the tenant has done it - the owner hasn't and therefore under s.251 the tenant can look to the owner to pay for it (which can't be excluded). It is not clear that Parliament meant that on the one hand the owner has to do it, but then on the other, can pass on those costs to the tenant.