Parties can agree to higher standard than that imposed by section.52 of The Retail Leases Act

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Section 52 of the Retail Leases Act 2003 implies into a “retail premises” lease an obligation on landlords to maintain “in a condition consistent with the condition of the premises when the retail premises lease was entered into” things such as the “structure of, and fixtures in” the premises, “plant and equipment at retail premises” and “the appliances, fittings and fixtures provided under the lease by the landlord relating to the gas, electricity, water drainage or other services”. When is the lease entered into if an option is exercised? Is it the date when the lease commenced or when the new lease arising by reason of the option being exercised commences? In Ross-Hunt Pty Ltd v Cianjan Pty Ltd[1] the Tribunal held that that the relevant date was the date that the new term commenced following the exercise of an option and not the commencing date of the first term of the lease. A further question then arose about whether a provision in a lease that imposes a higher standard on a landlord than that imposed by s.52 is void under s.94 on the ground that it is contrary to or inconsistent with s.52. In Savers INC (ARB 075 452 185) v Herosy Nominees[2][the Tribunal held that if parties wished to contract for more than was provided for under s.52 they were free to do so; in that case the leases (and earlier leases to which the landlords and tenant were parties) contained terms that obliged the landlords to undertake repairs to the premises and imposed obligations that were more onerous than those imposed by s.52. In the recent decision of Di & Li Australia Pty Ltd v Jin Dun Pty Ltd[3] Senior Member Riegler rejected an argument that lease provisions which imposed more onerous obligations on the landlord than those imposed by s.52 were void. The Senior Member said:

"[20] In my view, s 52 does not prohibit the parties from agreeing to extend the Landlord’s obligations to repair or maintain its installations. The situation might be different if s 52 was expressed as a provision limiting a landlord’s obligation to maintain plant and equipment to a condition consistent with its condition when the lease was entered into. However, the provision does not expressly limit a landlord’s obligations but rather, imposes what I consider to be a minimum obligation on a landlord.

[21] There is nothing inconsistent or contrary to s 52 for the parties to increase that obligation and in the present case, it made eminent sense for the Landlord to continue to have that obligation upon renewal, given that it held the reversionary interest in the plant and equipment. Further, it is not the case that s 52 is devoid of any limitation. In particular, sub-section (3) sets out various circumstances which limit its operation. Those circumstances do not include limiting the comparator to the commencement of the Lease. In my opinion, it was open for Parliament to have limited the operation of s 52(2) of the Act to the current term by stating words to the effect that a lease is not to include a term which requires the landlord to maintain plant and equipment, other than in a condition commensurate with the condition of the plant and equipment at the commencement of the lease. However, the section is not expressed in such prohibitory terms, nor is it expressed to indicate any intention on the part of the legislature to ‘cover the field’ in respect of a landlord’s repair liability.”

[1] [2009] VCAT 829.

[2]2011] VCAT 1160

[3] [2014] VCAT 349

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Author: Robert Hays Barrister subject to copyright under DMCA.

Landlord & Section 60 Retail Leases Act 2003 consideration of proposed assignment the Landlord must Act "Reasonably"

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Section 60 of the Retail Leases Act 2003 prescribes when a landlord can withhold consent to a proposed assignment of a retail premises lease. The most significant provision is sub-section 60(1)(b) which provides that:

"(1)           A landlord is only entitled to withhold consent to the assignment of a retail premises lease if one or                  more of the following applies –

(b)             the landlord considers that the proposed assignee does not have sufficient financial resources or                     business experience to meet the obligations under the lease;”

On its face s.60(1)(b) appears to give the landlord unfettered power to withhold consent - that is the landlord's subjective view is all that matters. Despite the wording of the section VCAT has implied a requirement that the landlord must act "reasonably" in undertaking its consideration. In AAMR Hospitality Group Pty Ltd v Goodpar Pty Ltd [2009] VCAT 2782 Deputy President Macnamara held at [45] that:

“With the utmost hesitation however I consider that the words ‘reasonably’ or ‘acting reasonably’ should be read into section 60(1)(b)……. The overriding policy evident in the Retail Leases Act is to provide special protection to a limited class of commercial tenants, namely those who are tenants of small retail tenancies and do not have the clout that say a listed corporation would have. The provisions of the statute are aimed at providing protection to this class of tenant and constraining and restricting a largely unrestricted power which landlords of these premises at common law and before the enactment of special retail tenancies legislation had available. To construe a provision such as section 60(1)(b) such that one of the protected class of tenants was to be at the mercy of the purely subjective determination of a lessor would not be conducive to the statute’s overall policy, per contra it would tend to subvert the wider policy of the statute, …”

In a recent decision Member Farrelly said  that he agreed with Deputy President Macnamara’s reasoning and construed s.60(1)(b) as if it the word “reasonably” appeared before “considers”. See: Villa v Emaan Pty Ltd [2014] VCAT 274 at [47]- [48].

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Settlement agreements must be genuine compromises

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Care needs to be taken in resolving disputes in which an allegation is made that an act or proposed act is prohibited by the Retail Leases Act 2003: settlement agreements must be genuine compromises or bona fide settlements and not merely attempts to avoid the Act.  On 24 January 2014 I posted a summary of Spirovski v Univest Asset Merchant Syndicators Pty Ltd [2013] VSC 728 in which Justice Croft refused an appeal against a determination by Deputy President Lulham in VCAT that terms of settlement made at a mediation conducted by the Small Business Commissioner were caught by the prohibition against the payment of “key-money” contained in s.23 of the Retail Leases Act 2003. See: Spirovski v Univest Assett Merchants Syndicators Pty Ltd [2013] VCAT 66. The Deputy President at [76] said that “Terms of Settlement are a form of contract. As such they are subject to the principles and requirements of contract law”.  A provision in a lease or an agreement is void to the extent that it is contrary to or inconsistent with the Act. See: s.94. Thus, terms of settlement that seek to avoid the Act’s provisions are void. When VCAT made its decision a number of practitioners expressed surprise that agreements made at or arising out of a mediation should be open to scrutiny.  Section 86 of the Act prevents statements or admissions made in the course of a mediation from being admitted in a proceeding; however, terms of settlement  made at mediations are not protected from scrutiny.  Provided a settlement agreement is bona fide a court will not re-open a settlement agreement merely because the dispute that has been settled involved legislation that the courts will not allow to be evaded. See: Binder v Alachouzos [1972] 2 QB 151. In Binder the compromise concerned a dispute about whether a party was acting as a money lender in contravention of the Money Lenders Acts. The parties settled the dispute with the settlement including a provision whereby the defendant admitted that the Money Lenders Act did not apply to the transactions.  While the English Court of Appeal  accepted that it was a policy of the courts not to allow the Money Lenders Acts to be evaded, it  held that it was also the policy of the court to encourage compromises and the settlement agreement was bona fide involving an agreement for good consideration and was therefore enforceable.  Justice Croft in Spirovski considered Binder and said at [76]  that:

“….it cannot be said that the evidence in the VCAT hearing indicates that the Terms and the Contract that arose out of the mediation were the fruits of a bona fide compromise, such as might attract the principles in Binder….”

At [79] His Honour said:

“The increasing role that the alternative dispute resolution techniques now play in the justice system cannot be overstated given that both courts and tribunals seek to encourage parties to identify and reach agreement on as many issues as possible to avoid the need for a trial, or to reduce its length and complexity where a hearing is needed. However, none of these considerations provide any basis for courts or tribunals to give effect to agreements that are rendered void or illegal, either by virtue of statute or common law….” (underlining added and citations removed)

In Spirovski, following the mediation, the parties entered into the terms of settlement, a lease and a contract of sale whereby the business allegedly conducted on the premises by the landlord was sold to the tenant. The purpose of the contract of sale was to take advantage of exceptions to the prohibition on the payment of "key-money" in circumstances where  goodwill is claimed from the tenant in relation to the sale of a business operated from the premises by the landlord immediately before its sale (s.23(3)(c)) and where plant, equipment, fixtures or fittings are sold by the landlord to the tenant (s.23(3)(f)).  Deputy President Lulham held at [70] that there was in fact no business to be sold so that the lease was not granted in the course of a sale and therefore the applicant's "device of preparing for execution a Contract of Sale of Business was a sham".

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My clerk can be contacted via this link http://www.greenslist.com.au/ if you wish to retain my services for any legal matter which is within the gamut of my legal experience. 

Settlement terms caught by prohibition on payment of key noney

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Despite the prohibition on the payment of “key-money” landlords persist in seeking the payment of substantial sums of money as the price for granting a lease.  A landlord who seeks or accepts “key-money” is liable to pay a penalty under s.23 of the Retail Leases Act 2003. 

A provision in a lease that requires the payment of “key-money” is void (s.23(2)).  Section 94 of the Act makes  a provision in a lease or an agreement is void to the extent that it is contrary to or inconsistent with the Act. Section 23(3) of the Act contains exceptions to the prohibition on payment of "key-money": among other exceptions  a landlord may seek and accept to payment for goodwill  from the tenant “in relation to the sale of a business that the landlord operated from the retail premises immediately before its sale, if the lease was granted to the tenant in the course of the sale of the business” and for  “plant, equipment, fixtures or fittings that are sold by the landlord to the tenant in connection with the lease being granted”.  See: ss.23(3)(c) and (f). 

Because of the Act parties attempt to disguise “key-money” payments as something else. Cases where the payment of “key-money” is alleged usually result in settlement at a mediation. The Supreme Court of Victoria recently determined a case where the parties had settled a dispute concerning the payment of “key-money” and then had a further dispute about whether the settlement provided for the payment of “key –money”. In Spirovksi v Univest Asset Merchants Syndicators Pty Ltd [2013] VSC 728  the landlords sent a draft lease to the tenant who refused to execute the lease on the basis that it did not accurately reflect the parties’ agreement and that the landlord had purported to charge “key-money”.

The alleged “key-money” was payable in two instalments; $90,000 was to be paid before the tenant took possession; and $90,000 when the first option to renew the lease was exercised. The parties subsequently attended a mediation under the auspices of the Small Business Commissioner where terms of settlement were signed. The terms of settlement provided for the landlords to retain $90,000 that had already been paid and that the tenant would pay a further $90,000 on the exercise of the first option.

The terms also provided that the landlord would sign a transfer of the lease from the tenant to a new tenant.  The parties signed a lease and other documents pursuant to the terms. The first option was exercised. The landlords commenced a proceeding claiming payment of rent arrears and the second instalment of $90,000. VCAT dismissed the landlords’ claim and declared that the terms of settlement were void to the extent that they required the tenant to pay the $90,000 that the landlord had retained and required the second payment of $90,000. 

VCAT also declared void a contract of sale of business and the lease executed by the parties following execution of the terms of settlement insofar as they required the prohibited payments.  The landlords appealed  on the basis that the exceptions to the prohibition on the payment of “key-money” contained in ss.23(3)(c) and (f) applied. 

These sections permits a landlord to seek payment for goodwill  from the tenant “in relation to the sale of a business that the landlord operated from the retail premises immediately before its sale, if the lease was granted to the tenant in the course of the sale of the business”.

Section 23(3)(f) permits the landlord to seek payment for “plant, equipment, fixtures or fittings that are sold by the landlord to the tenant in connection with the lease being granted”. 

The Tribunal had determined that  s.23(3)(c) did not apply because the landlords were not operating a business from the premises and that there was no business to be sold. The Tribunal had also determined that the furniture in the premises was “junk” and “valueless”. Justice Croft dismissed the landlords'  appeal holding that there was no error of law in the Tribunal’s findings.

His Honour also rejected a claim that the tenants were estopped from claiming the benefit of the prohibition contained in s.23 of the Act. As part of that argument the landlord argued that by the terms of settlement the parties had "put to bed" the issue of "key-money".

After an extensive review of the authorities and the provisions of the Act His Honour concluded that it was not possible for the parties to agree to a transaction  which breached s.23.  The decision contains a detailed discussion about the meaning of "goodwill" and the circumstances in which a party seeking to enforce an agreement the terms of which are prohibited can be precluded from relying on principles of estoppel.

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Author: Robert Hays Barrister subject to copyright under DMCA.

VCAT not bound to refer matters to arbitration

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On 17 October 2013 I posted a note about Subway Systems Australia Pty Ltd v Ireland [2013] VSC 550 which concerned a dispute between a franchisor and a franchisee. The franchise agreement contained an arbitration clause.  VCAT refused to refer the dispute to arbitration pursuant to s.8 of the Commercial Arbitration Act 2011 which provides that:

“A court before which an action is brought in a matter which is the subject of an arbitration agreement must, if a party so requests not later than when the submitting party’s first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.”

Justice Croft held that VCAT was not a “court” within the meaning of s.8 and therefore the dispute could be heard and determined in VCAT.

The decision is significant because many agreements, particularly franchising agreements, contain arbitration clauses. The effect of the judgment is that if a proceeding is commenced in VCAT concerning an agreement that contains an arbitration clause a party to that agreement cannot request the Tribunal to refer the matter to arbitration pursuant to s.8.  If the same proceeding were commenced in the Magistrates’ Court, the County Court or the Supreme Court, the Court could refer the proceeding to arbitration. According to Justice Croft this did not produce an absurdity because VCAT was intended to be a forum for speedy and inexpensive resolution of disputes.

Justice Croft noted that a party to a proceeding in VCAT could still apply under s.77 of the VCAT Act to have the matter referred to the arbitral tribunal on the basis that it was a more appropriate forum.

In the earlier post about Subway  the Commercial Arbitration Act 2011 was erroneously referred to as a Commonwealth Act; the reference should have been to a Victorian Act.

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Management fees - Practice Note for LIV's November 2012 lease revision

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The Law Institute of Victoria is issuing a Practice Notice concerning the reference to the amount of, and the calculation of, management fees in item 10 of  the schedule in the November 2012 Revision. The Practice Note says:

"When using the LIV Commercial lease for a retail premises lease containing an option to renew and under which management fees will be payable, it is recommended that:

• Item 10 of the Schedule be modified by deleting the paragraph beginning ‘If the Act applies’ and ending ‘section 49(4)’.


• The information relating to the amount of the management fee and the method of calculating the amount payable by the tenant, for the first accounting period of the lease term, be specified in the disclosure statement rather than the lease.  This will satisfy section 49(1)(b) without creating potential issues where an option is exercised.  When an option is exercised, the disclosure statement for the new term should also specify the management fee and the method of calculating the amount payable by the tenant for the first accounting period of the new lease."

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Author: Robert Hays Barrister and Derry Devine subject to copyright under DMCA.

The Practice Note was drafted by Derry Davine and Robert Hay.

Most tenants who provide services engaged in retail provision of services

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Many readers will be familiar with the "ultimate consumer" test that is commonly used to determine whether premises are "retail premises" within the meaning of s.4(1) of the Retail Leases Act 2003. If the premises are "retail premises" the Act applies; if premises are not "retail premises" the Act does not apply. Premises are "retail premises" if "under the terms of the lease relating to the premises" they "are used, or are to be used, wholly or predominantly for.....(a) the sale or hire of goods by retail or the retail provision of services". See: s.4(1). Nathan J in Wellington v Norwich Union Life Insurance Society Limited [1991] VR 333 held that patent attorneys (and other professional businesses such as solicitors, architects and medical specialists) conducted a business providing retail services.  His Honour held that the  "essential feature of retailing" was the provision of an item or service "to the ultimate consumer for fee or reward".  The end user might be a member of the public but was not necessarily so. The problem has been to identify the "ultimate consumer". Nathan J did not regard it as significant that a patent attorney's advice might pass through the hands of an intermediary on the way to the ultimate consumer. But what would the position be if the patent attorney's advice was used as "input" into a solicitor's advice to the solicitor's client? Would the solicitor be the "ultimate consumer"?

It will be much easier to answer these questions following the recent decision of Fitzroy Dental Pty Ltd v Metropolitan Management Pty Ltd [2013] VSC 344. The effect of the decision is that most tenants whose business provide any sort of service will be engaged in the "retail provision of services" and the Act will apply.

In Fitzroy Dental the landlord leased premises premises comprising a cafe/restaurant and a conference centre and facilities to a tenant who in turn received bookings from conference or function providers to conduct functions and conferences. The cafe/restaurant was used only for the provision of food and drink to the attendees at the functions and conferences. The landlord commenced a proceeding against the tenant in the Supreme Court. The tenant contended that VCAT had exclusive jurisdiction to hear and determine the  dispute because it was "retail tenancy dispute" within the meaning of s.81(1) of the Act. See: s.89(4). The permitted use under the lease was "Conference Centre, Cafe/Restaurant Area and associated office and storage area".

Justice Croft held that the dispute between the landlord and the tenant was a "retail tenancy dispute" that had to be determined by VCAT. The conference facilities were open to the public in the sense that a member of the public (ie the conference provider) could approach the tenant to book the conference facilities. After reviewing the authorities His Honour held that conference provider was the "ultimate consumer" of services provided to him by the tenant. Those services were in turn an "input" into the different services provided to the attendees at functions and conferences.  Thus, there were two transactions involving the retail provision of services. The transaction between the tenant and the conference organising entity was for monetary consideration while the second transaction with the attendees did not always involve a fee or reward for the provision of services. It did not matter that the bodies organising the conferences and hiring the premises from the tenant were governmental authorities or public bodies such as a university, the Metropolitan Fire Brigade, the Police Federation or an industry association because such bodies had the capacity to enter into ordinary commercial agreements.

The case contains a helpful analysis of the relevant caselaw.

Author: Robert Hays Barrister subject to copyright under DMCA.

My clerk can be contacted via this link http://www.greenslist.com.au/ if you wish to retain my services for any legal matter which is within the gamut of my legal experience. Green

Be wary of unrepresented parties at mediations

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Mediations at which parties are unrepresented or not represented by lawyers are fraught with risk. Even with legal representation mediations are stressful, particularly where the mediation is only fixed for a half day and there is pressure to avoid long winded discussions about the facts. Experienced mediators invariably offer unrepresented parties an adjournment so that legal advice can be obtained. VCAT recently decided case in which landlords sought to set aside terms of settlement agreed at a half day mediation conducted by the Small Business Commissioner. In Wong v Hook Line and Sinker Fish and Chips Pty Ltd [2013] VCAT 263 the landlords sought to have the terms of settlement set aside on the grounds of undue influence or duress by the mediator and a barrister.  At the mediation the parties had been in dispute about whether the tenant was being required to pay “key money” under a lease contrary to s.23 of the Retail Leases Act 2003. The terms of settlement required the parties to appoint a valuer to determine the market rent. The landlords were not represented by a lawyer at the mediation but were represented by an advocate who held himself out as an expert in retail tenancy matters and who prepared written submissions. The mediator was highly experienced and was accompanied by a trainee mediator. The tenant was represented by an experienced barrister. The mediator offered the landlords the opportunity to adjourn the mediation to enable them to obtain legal advice but the offer was declined. The landlords subsequently refused to appoint the valuer to determine the market rent and commenced a proceeding alleging that the terms of settlement had been obtained by undue influence or duress. At the hearing the mediator, the trainee mediator, the tenant's barrister at the mediation, representatives of the tenant, the landlords and the landlords' advocate all gave evidence. The Tribunal rejected all of the the landlords’ claims. An application for leave to appeal has been filed.

My clerk can be contacted via this link http://www.greenslist.com.au/ 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.

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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Author: Robert Hays Barrister subject to copyright under DMCA.

Damages assessed on breach of collateral contract to grant a new term

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In an earlier post I referred to two cases in which the operator of restaurants in the Melbourne Casino and Entertainment Complex  succeeded in claims that they were entitled to additional 5 year terms despite their leases not containing such a term. See: Cosmopolitan Hotel (Vic) Pty Ltd v Crown Melbourne Limited and Fish and Company (Vic) Pty Ltd v Crown  Melbourne Limited [2012] VCAT 225. The tenants, who operated the restaurants "Waterfront" and "Cafe Greco", succeeded in claims that Crown had breached a collateral contract that they would be granted an additional 5 year term after the expiry of the 5 year term provided for in their leases. The tenants claimed that they were induced to spend millions of dollars on fit-outs because of a promise that there existing leases would be renewed. At the end of the intial 5 year term Crown refused to renew the leases and the area occupied by restaurants was leased to new tenants. Crown denied the existence of any collateral contract. Damages and interest have now been assessed with the tenants being awarded a total of more than $2,000,000. See: Cosmopolitan Hotel (Vic) Pty Ltd v Crown Melbourne Limited and Fish and Company (Vic) Pty Ltd v Crown  Melbourne Limited (VCAT, unreported, 8 February 2013).

My clerk can be contacted via this link http://www.greenslist.com.au/ 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.

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 http://www.greenslist.com.au/ 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.

Option not exercised because of default

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In Computer & Parts Land Pty Ltd v Property Sunrise Pty Ltd [2012] VCAT 1522 the Tribunal was asked to determine whether an option contained in a lease was not exercisable by the tenant because of breaches of the lease that enlivened s.27(2) of the Retail Leases Act 2003 .  Section 27(2) provides that the "only circumstances" in which an option is not exercisable is if the "tenant has not remedied any defaults under the lease about which the landlord has given the tenant written notice" (s.27(2)(a)) or " the tenant has persistently defaulted under the lease throughout its term and the landlord has given the tenant written notice of the defaults" (s.27(2)(b)). Section 27(2)(b) is ambiguous: what is meant by "persistently", what is meant by "throughout its term", does a landlord have to give notice of each default or is one notice that describes all the defaults adequate? There have been a number of cases concerning s.27(2) all of which have avoided giving any definitive answers to these questions. 

See: for example, Westgate Battery  Company Pty Ltd v GCA Pty Ltd [2005] VCAT 2080 and Westside Real Estate Investments Pty Ltd [2011] VCAT 1830. In this case the term of  the lease was four years with two options for four year terms. The landlord relied on s.27(2)(a) and (b) in alleging that the option had not been exercised because at the time of the purported exercise the tenant had not remedied a default and the tenant had persistently defaulted under the lease throughout the four year term of the first option period. Firstly, the  Tribunal held that s.27(2) prevailed over the provisions contained in the lease concerning the exercise of the option.  

There had been nine occasions “over two stretches” when the rent was not paid on time and the rent had never been more than five weeks’ late. The Tribunal held that in those circumstances it was not “persuaded that the late payments could be described as ‘persistent’ (in the sense of ‘persevering’ or ‘constantly repeated’)" and that the late repayments had not occurred “throughout” the term of the lease.  Nevertheless, the Tribunal held that the option had not been exercised because when the tenant exercised the option it had failed to provide a bank guarantee as required by the lease and the landlord had given written notice of the default  (s. 27(2)(a)).  Rectification of the default after the purported exercise of the option did not alter the position.

The tenant sought relief against forfeiture of the option. The Tribunal followed the decision of Dixon J in Lontav Pty Ltd v Pineross Custodial Services Pty Ltd (No. 2) [2011] VSC 485 in  holding that VCAT had no power to grant relief against forfeiture of an option.

My clerk can be contacted via this link http://www.greenslist.com.au/ 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.

No easy answers to whether premises are "retail premises"

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It is often difficult to determine whether premises are “retail premises” within the meaning of s 4 of the Retail Leases Act 2003 Act. Section 4(1) provides that “retail premises” means premises that:

“under the terms of the lease relating to the premises are used, or are to be used, wholly or predominantly for –

(a)    the sale or hire of goods by retail or the retail provision of services.”

One difficulty that arises is that the definition excludes premises that are “intended for use as a residence” with the result that it is not always clear  whether premises such as motels, serviced apartments and caravan parks are “retail premises”.  In the recent decision of String v Gilandos Pty Ltd [2012] VSC 361 Croft J highlighted that there are no easy or broad brush answers: in each case the terms of the lease and the nature of the premises needs to be examined carefully.

His Honour was required to decide whether leases by owners of units in an apartment/resort  complex to the operator of the resort were “retail premises leases” within the meaning of the Retail Tenancies Act 1986, the Retail Tenancies Reform Act 1998 and the 2003 Act. The operator paid rent to the owners and rented the units to members of the public. The units were used as “serviced apartments” and the members of the public did not know who the owners were. From at least 2007 to January 2012, no member of the public had stayed at the units on a permanent or semi-permanent basis and members of the public had only occupied the units for a day or few days at a time. His Honour determined (at [42]) that the units were used for short-term holiday accommodation in a manner difficult to distinguish in any meaningful way from the manner in which motel and hotel rooms were used.

At [47] His Honour considered the meaning of “serviced apartments” and said:

The term or description “serviced apartments” seems to be a relatively modern one; which probably accounts for the lack of assistance from dictionaries. Thus it cannot be assumed that this term or description has any settled meaning. Consequently it is only a term or description that derives meaning – other than in a very general sense – from the particular circumstances in which it is used; and, in most cases with respect to particular premises. This is, in my view, clear from the cases in which the term or description has been considered.

After reviewing the authorities, Croft J said at [52]:

Thus these cases indicate that there may be very fine distinctions between use of premises as a motel on the one hand or as a serviced apartment or serviced apartment complex on the other hand. The observations by the various courts and tribunals with respect to motels and serviced apartments indicate that the characteristics of both types of premises can overlap, thus adding to difficulties in characterising the mode of usage. A clear example is to be found in St Kilda City Council v Perplat Investments Pty Ltd [(1990) 72 LGRA 378] where Young CJ observed that, while it was open to the Tribunal to make a finding of fact based on the evidence before it that the proposed building would be used as serviced apartments, in his view, the proposed buildings looked more to be a motel.

Following Wellington v Norwich Uniton Life Insurance Society Limited [1991] 1 VR 333 and similar cases (at [58]), His Honour held that that the “ultimate consumer” test was the “touchstone of retailing, whether goods or services” and (at [65]) that members of the public were ultimate consumers for fee or reward (being fees paid for accommodation) and the units were used “wholly or predominantly for the carrying on of a business involving the sale or hire of goods by retail or the retail provision of services”.  Thus, each of the leases were “retail premises leases”.

At [65] His Honour said:

Motels, hotels or resort complexes, generally speaking, provide retail services for fee or reward, including the hiring out of rooms. They may also sell food, liquor and other beverages, by retail, at any restaurant faculty provided. In any event, the hiring out of rooms or units for fee or reward to members of the public clearly constitutes the provison of retail services.

His Honour stressed that in each case the nature of the premises had to be analysed together with the manner in which the occupancy was provided. His Honour said at [68]:

I should, however, sound a note of caution in relation to this finding by emphasising that whether or not premises described as “serviced apartments” is to be characterised as “retail premises” depends upon the particular circumstances, including the nature of the premises, the manner in which occupancy is provided and the nature of that occupancy (see Meerkin v 24 Redan Street Pty Ltd [2007] VCAT 2182 (Deputy President Macnamara); though see Bradfield & Ors v QOB Tenancy Pty Ltd (Retail Tenancies) [2012] VCAT 755 (Senior Member Davis) where the parties took the common view that the serviced apartments ought to be considered as retail premises for the purposes of the 2003 Act (see paragraph [82]) .  As I have said, the term or description, “serviced apartments”, is not a term of art. Rather, it is a term or description of premises which connotes a range of possibilities. At one end of the range one would find premises managed and occupied in a manner indistinguishable from a motel or hotel and at the other end premises indistinguishable from long term residential accommodation, separately let but with the attribute of being serviced. In the former case it would be expected that the Acts would apply on the basis that the premises are “retail premises” and in the latter case they would not, any more than they would to any block of residential units. In between there are a range of possibilities each of which may have different consequences in terms of the application of the Acts.

As to the exclusion from the definition of “any area intended for use as a residence”, His Honour said at [64]:

For the sake of completeness I observe that the Retail Leases (Amendment) Act 2005 amended the 2003 Act to include the words “not including any area intended for use as a residence” in the provisions defining the meaning of “retail premises”. In my view, the expression residential accommodation connotes accommodation of this type which is occupied with a degree of permanence. I observe that, consistent with this view, the Full Federal Court of Australia said, in Marana Holdings Pty Ltd v Commissioner of Taxation (2004) 141 FCR; 214 ALR 190; [2004] FCAC 307 (“Marana Holdings”) that: [citation omitted]

"It may be that the expression “residential accommodation” is sometimes used to describe short-term accommodation in an hotel or a motel. We are not sure that any such usage is as common in Australia as the Court of Appeal in Owen v Elliott [(Inspector of Taxes) [1900] 1 Ch 786] considered it to be in England. We would have thought that such accommodation is more often described as “temporary accommodation”, “holiday accommodation” or perhaps as “hotel accommodation” or “motel accommodation”".

Although Marana Holdings was not a retail leases case this statement is, in my view, one of general application. In the present case the agreed facts are that the Plaintiffs’ Units have been used as only temporary accommodation by its occupants,[citation omitted] so no issue arises with respect to the possibility of residential use.

The agency exception

His Honour also considered a claim by the operator the units were not "retail premises" because the employee or agency exception applied. Section 4(2)(b) of the 2003 Act exempts premises where the tenant is “carrying on” a business “on behalf of the landlord as the landlord’s employee or agent”. After a comprehensive consideration of the terms of the leases His Honour at [69] – [95] rejected the operator’s claim that it was carrying on a business as the landlord’s agent.  Helpfully, His Honour at [94] said:

….in my view, the agency exception only applies if the tenant and landlord relationship is merely incidental to the agency relationship. So even if I am wrong in finding that there is no agency relationship, it cannot be said that the landlord and tenant relationship between the Plaintiffs and the Defendant is incidental to the agency relationship.

(italics added)

My clerk can be contacted via this link http://www.greenslist.com.au/ 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.

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

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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.

My clerk can be contacted via this link http://www.greenslist.com.au/ 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.

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

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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 initio.

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 VVCAT 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.

My clerk can be contacted via this link http://www.greenslist.com.au/ 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.

Why no requirement for a s.146 notice?

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I have had a number of queries about my last post in which I referred to N.C.Reid & Co v Pencarl Pty Ltd [2011] VCAT 2241 in which Judge O'Neill held that before re-entering leased premises the landlord did not have to serve a notice that complied with s.146 of the Property Law Act 1958.

The lease permitted the landlord to re-enter if the guarantor became bankrupt. 

Readers asked why s.146 did not apply? 

Section 146 requires service of a notice where a right of re-entry or forfeiture under any proviso or stipulation in a lease or otherwise arising by operation of law for "a breach of any covenant or condition in the lease, including a breach amounting to a repudiation". 

For s.146 to apply there must be a breach. The tenant argued that there had been  a repudiation. His Honour rejected the tenant's argument and held that the re-entry took place by reason of a contractual right; there had not been a breach and therefore no notice was required.

My clerk can be contacted via this link http://www.greenslist.com.au/ 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.

No s.146 notice required for contractual right to terminate

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Leases often provide that the landlord may re-enter premises and end the lease if a guarantor becomes bankrupt.

In N.C.Reid & Co Pty Ltd v Pencarl Pty Ltd  [2011] VCAT2241 the guarantor became bankrupt, the landlord re-entered the premises and leased the premises to a new tenant.

The existing tenant sought relief against forfeiture and/or damages.

The tenant claimed, among other things, that the landlord should have served a notice under s.146 of the Property Law Act 1958 because the lease had been terminated "for repudiation" with the consequence that the tenant would have had 14 days to remedy the breach.

The tenant's claim was unsuccessful. Judge O'Neill held that the lease had been terminated pursuant to a contractual right and not because of a repudiation of the lease and therefore a notice that  complied with s.146 did not have to be served.

His Honour also said that in if there were a breach it could not have been rectified.

My clerk can be contacted via this link http://www.greenslist.com.au/ 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.

Ministerial determination valid

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My previous post contended that the Ministerial Determination dated 29 April 2003 made pursuant to s. 5 of the Retail Leases Act 2003 (2003 Act) was made with power by reason of s.13(3) of the Interpretation of Legislation Act 1984. By the Determination the Minister excluded from the definition of "retail premises" in s.4 of the 2003 Act certain premises that were used wholly or predominantly for the retail provision of "services" and located above the first three storeys of a building.

Section 5 of the 2003 Act came into effect on 1 May 2003. The Determination was made on 29 April 2003 and thus before  s.5 commenced.

Section 13 of the Interpretation Act permits the exercise of certain powers provided for in legislation the commencing date of which is postponed. In the absence this provision it would be necessary to include in an Act specific power, for example, to make regulations or appointments that have to be in place when the Act commences operation[1].

Section 13(3) was not incorporated in the Interpretation Act until April 2006.

The Minister's Determination was effective because of s.13 of the Interpretation Act as it appeared in 2003 and not by reason of s.13(3).  When the Interpretation Act was enacted, and when the 2003 Act commenced on 1 May 2003, s.13 provided that:

“Where an Act or a provision of an Act which does not come into operation immediately on the passing of the Act will, upon its coming into operation, confer power or amend another Act so as to confer power under the other Act as so amended to make subordinate instruments, give notices, make appointments, prescribe forms or do any other thing for the purposes of the first-mentioned Act or provision or that other Act, the power may be exercised at any time after the passing of the first-mentioned Act but the exercise of the power does not confer a right or impose an obligation on a person before the coming into operation of the first mentioned Act or the provision of that Act in question except insofar as is necessary or expedient for the purpose of –

 (a)        bringing the first-mentioned Act or the provision of that Act in question into operation;

 (b)        making the first-mentioned Act or the provision of that Act in question fully effective at              or after the time at which it comes into operation; or

 (c)        making the amendment made to the other Act by the first-mentioned Act or the                        provision of that Act in question fully effective at or after the time at which the first-                    mentioned Act or provision comes into operation.”

 (underlining added)

 Where an Act has passed but had not come into operation, s.13 of the Interpretation Act confers power to, among other things, “give notices” or “do any other thing for the purpose of the Act”.  This power does not confer a right or impose an obligation on a person before the Act comes into operation except so far as it is necessary to make the Act fully effective when it comes into operation.

Because of s.13 of the Interpretation Act the Minister had the power to make the Determination: although the 2003 Act had not commenced:

(a)        the 2003 Act had passed; and

(b)        the Determination was made by “notice”, or, at the very least, the Minister had done “any other thing for the purpose of the Act” within the meaning of s.13 of the Interpretation Act.

---

[1] See Pearce and Geddes, Statutory Interpretation in Australia, 7th ed, paragraph 6.7.

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Author: Robert Hays Barrister subject to copyright under DMCA.

Ministerial determination not invalid

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My friend Sam Hopper has said in his blog http://samhopperbarrister.com/ that Judge Anderson in the County Court found that the  Ministerial Determination which effectively excludes premises above the third storey from being "retail premises" was not a valid exercise of power.

While Judge Anderson did express the view that it appeared the determination was made without power, His Honour said that he did not consider it necessary to decide the matter.  See: Evans, Tapsall and Van Veen v Thurau Pty Ltd [2011] VCC 1354  at [19]. 

The  argument put to Judge Anderson was that s 5(1)(f) of the Retail Leases Act 2003 did not come into effect until 1 May 2003 and therefore the Ministerial Determination (which is dated 29 April 2003) could not be valid. 

The determination is stated to have been made under s 5(1)(f).  In my view the argument put to Judge Anderson was not correct. The Ministerial Determination says that it does not come into effect until 1 May 2003. Section 5(1B) says that an instrument made under 5(1):

may provide that it has effect on and from 1 May 2003 or such later date (whether before, on or after the date on which the instrument is made) as is specified in the instrument as the date on which it comes into effect.

Sections 13(2) and (3) of the Interpretation of Legislation Act 1984 appear to cure any potential problems. Sam's blog can be found here

My clerk can be contacted via this link http://www.greenslist.com.au/ 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.

Breach of s.52 can amount to repudiatory conduct

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On 9 September 2011 I posted an article entitled "Can a landlord's failure to comply with s.52 constitute repudiatory conduct?". 

In Hann-Woodlock v ADMR Pty Ltd [2011] VCAT 1776  Senior Member Walker held that the landlord had breached repair covenants contained in the lease and, with respect to a leaking roof, had breached the repair term imported into retail leases by s.52 of the Retail Leases Act 2003.

Section 52 imposes an obligation on landlords to maintain in a condition consistent with the condition of the premises when the lease was entered "the structure" of the premises, among other things. 

The Senior Member held that the breaches amounted to a repudiation which had been accepted by the tenant. Damages were awarded to the tenant.

Thanks to Jamie Bedelis for alerting me to this.

My clerk can be contacted via this link http://www.greenslist.com.au/ 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.