Landlord liable to pay compensation under s.54 of Retail Leases Act

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Tenants commonly complain about water entering leased premises and affecting their use and enjoyment of a tenancy. In National Hospitality Group Pty Ltd v Regal Hotels Pty Ltd [2013] VCAT 413 a landlord was held to be liable to pay compensation to a tenant under s.54 of the Retail Leases Act 2003 despite there being no defects in the leased premises. The tenant complained on many occasions to the landlord about water entering the premises.  The tenant sued for damages relying, among other provisions, s.54 of the Act. Section 54 implies into a  lease a requirement that the landlord pay reasonable compensation to the tenant for loss or disruption suffered by the tenant because the landlord fails to, among other things, take reasonable steps to prevent or stop significant disruption with the landlord's control to the tenant's trading at the premises.  Despite the cause of the water entering the premises being damage to storm water drains outside the leased area and there being no defects in the premises, the Vice President, Judge Jenkins held that the landlord was liable to pay the tenant damages of  $35,000. Judge Jenkins held that the landlord was liable to pay compensation under s.54(2) of the Act because it had "breached the covenant of quiet enjoyment by failing or refusing to take steps which were reasonably available to it", the breach being that the landlord had not kept the tenant informed of progress or investigations or provide it with any reports or advice and did not engage its own engineering or plumbing consultant to give advice and undertaken appropriate investigations.  It is  respectfully submitted that the decision shows a misunderstanding of the covenant of quiet enjoyment and imposes obligations on landlords that are not supported by the Act. Pursuant to a provision in the lease the tenant also entitled to an abatement of rent for the period when the premises was unfit for use.

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Further elaborations on s.52 of the Retail Leases Act

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Section 52 of the Retail Leases Act 2003 implies into a retail premises lease a term that:

"The landlord is responsible for maintaining in a condition consistent with the condition of the premises when the retail premises lease was entered into -

(a)     the structures of, and fixtures in, the retal premises lease; and

(b)     plant and equipment at the retail premises; and

....." (s.52(2))

In Savers INC (ARB 075 452 185) v Herosy Nominees [2011] VCAT 1160 the  tenant claimed that the landlords of two premises that the tenant operated as a single shop had failed to maintain the premises in good repair: in particular it was alleged that the roof, drainage and floors had fallen into poor repair and caused consequential damage within the premises.

Breaches of the leases and s.52 of the Retail Leases Act 2003 were alleged. The tenant sought orders that the landlords undertake repairs.   The leases (and earlier leases to which the landlords and tenant were parties) contained terms that obliged the landlords to undertake certain repairs to the premises; these terms were more onerous than those imposed by s.52 (“the good repair and condition terms”).

The landlords contended that s.52 limited their obligations - that is because of  s.94 of the Act it was not possible to “contract out” of s.52 and the good repair and condition terms were either contrary to or inconsistent with s.52 and therefore void.

The Tribunal rejected this argument. It was also argued that s.52 did not extend to that that part of a building “including common areas (such as the roof or perhaps the sub-floor) that is not part of the premises demised to the lessee”.

The Tribunal rejected this submission on the basis that a “canny landlord”  could attempt to get around s.52 by expressly excluding areas such as the external structure from the definition of demised premises but at the same time impose a separate obligation upon the tenant to maintain those exterior parts of the building which did not form part of the demise.

Because the good repair and condition terms had appeared in earlier leases the Tribunal was able to determine what state the premises should have been in and it was this standard that was applied in determining what the condition of the premises were when the lease was entered into for the purpose of s.52; the landlords could not take advantage of their failure to comply with the good repair and conditions terms by seeking to rely on the condition the premises were in fact in when the lease was entered into.

The Tribunal also held that an agreement to settle a dispute between a landlord and a tenant was not “contemplated by section 94”; it appears that the Tribunal was saying that s.94 cannot be relied upon to void a provision in terms of settlement.

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