Robert Hay Senior Counsel Commercial Law

Thursday, 12 April 2012

The tenants' new weapon - s.251 of the Building Act 1993

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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.

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

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.

Friday, 23 March 2012

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.

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.

Thursday, 22 March 2012

Tenants need the protection of s.146 of the Property Law Act

I have had a number of queries about a recent post concerning N.C.Reid & Co v Pencarl Pty Ltd [2011] VCAT 2241. In Reid 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. 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".

Judge O'Neill held that there was no "breach" and therefore a notice under s.146 was not required. If the case of Reid stands it has major implications for tenants who will lose the protection afforded by s.146.

Judge O'Neill does not appear to have been referred to authorities that might have persuaded him to adopt a different interpretation of s.146. For example, the application of the reasoning applied by McLelland J in Della Imports Pty Ltd v Birkenhead Investments Pty Ltd (1987) NSW Conv R 55-538 might have resulted in a different outcome.

McLelland J had to consider a lease that permitted the lessor to enter premises and determine the lease without notice if the lessee entered into liquidation or was wound up. His Honour held that the right of re-entry under the lease was a "right of re-entry or forfeiture under any proviso or stipulation in a lease, for a breach of any....condition in the lease", within the meaning of s.129 of the Conveyancing Act 1919 (being the NSW equivalent of s.146) and which could not be enforced unless and until the lessor gave notice under s.129 and in respect of which the tenant could apply for relief against forfeiture.

His Honour held that a provision in a lease that provided for re-entry on the happening of an event, regardless of whether or not there was any obligation on the lessee to prevent that even happening, was a "condition" within the meaning of s.129 and that the word "breach" in s.129 was equivalent to non-fulfilment". His Honour held that this interpretation was supported "by the evident policy of the provision [ie s.129 in NSW or s.146 in Victoria] which would otherwise be manifestly inadequate for the protection of lessees which it obviously is intended to confer".

If Reid is the law in Victoria s.146 will need to be amended.

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.

Monday, 5 March 2012

Collateral contract not a disposition of an interest in land

Earlier today I referred to two recent cases in which tenants successfully claimed that they had entered into collateral contracts with the operator of the Melbourne Casino and Entertainment Complex that entitled them to a further 5 year term following the 5 year term provided for in the lease. See: Cosmopolitan Hotel (Vic) Pty Ltd v Crown Melbourne Limited and Fish and Company (Vic) Pty Ltd v Crown Melbourne Limited (VCAT, unreported, 24 February 2012).

I have been asked whether the collateral contracts were in writing and signed by Crown and, if not, why they were not caught by the Statute of Frauds.

The collateral contracts alleged were oral. Crown alleged that the tenants could not succeed because there was nothing in writing signed by Crown as required by the Statute of Frauds (ie s.126 of the Instruments Act 1958). VCAT held that the oral contracts did not relate to a disposition of an interest in land because all they required Crown to do was send a notice that it would renew the lease.

The collateral contracts were effectively an option exercisable by the tenant: that is an offer to grant a further term which Crown was contractually precluded from withdrawing while the option remained exercisable; there was no disposition of an interest in land until the tenant exercised the option; if the tenant did not exercise the option there was no disposition of an interest in land. See: BS Stillwell & Co v Budget Rent a Car System [1990] VR 589 at 594.

The cases contain an interesting discussion about the circumstances in which a collateral contract can be effective.

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.

Tenants win claim for new 5 year term

Despite no mention being made of additional terms in their leases, the operators of two restaurants in the Melbourne Casino and Entertainment Complex have succeeded in claims that they were entitled to additional 5 year terms.

In Cosmopolitan Hotel (Vic) Pty Ltd v Crown Melbourne Limited and Fish and Company (Vic) Pty Ltd v Crown Melbourne Limited (VCAT, unreported, 24 February 2012) the tenants, who operated the restaurants "Waterfront" and "Cafe Greco" successfully contended 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 principal of both tenants, Nicholas Zampelis, claimed that the tenants were induced to spend millions of dollars on fit-outs because of a promise that there existing leases would be renewed for a further term of 5 years. At the end of the initial 5 year term Crown refused to renew the leases and the areas occupied by "Waterfront" and "Cafe Greco" were leased to new tenants.

Crown denied the existence of any collateral contract. Damages are to be assessed. In an article published in the Sunday Age on 4 March 2012 a representative of Crown is reported to have said that Crown will appeal.

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.

Michael Redfern - Barrister Deceased.

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 but his legacy lives on and he shall never be forgotten.

Michael's funeral will be held on Friday 9 March, 2:30pm at Le Pine, 1048 Whitehorse Rd Box Hill.

Michael, may you Rest in Peace.