Recovery of outgoings and the November 2012 LIV Lease

Please note for members of the public or practitioners in the legal profession where English is your second language a translation key in all languages of the world is available on this blog to assist you. The plain English blog without translation facilities is located at http://roberthaypropertybarrister.wordpress.com

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.

Tenant cannot question the landlord's title

Please note for members of the public or practitioners in the legal profession where English is your second language a translation key in all languages of the world is available on this blog to assist you. The plain English blog without translation facilities is located at http://roberthaypropertybarrister.wordpress.com

In Create Invest Develop Pty Ltd v Cooma Clothing Pty Ltd [2012] VCAT 1907  VCAT had to decide the effect of a contract entered into by a tenant with a party that was not the registered proprietor of the leased land but who subsequently became the registered proprietor. The case is a good illustration of the principle that if two parties contract with each other as landlord and tenant, neither of them is entitled to deny the title of the other unless some other person by way of title paramount intervenes and disturbs the possession of landlord and tenant. In Create there was a lease in place the term of which was expiring on 31 January 2011 (“Original Lease”). 

In 2010 the land was offered for sale and the Applicant purchaser entered into a contract of sale with the landlord ("Landlord"). Before settlement, the Applicant purchaser offered the existing tenants a lease for a term of three years commencing 1 February 2011 which offer included a clause that permitted the landlord to terminate the lease to demolish or redevelop the premises and contemplated the execution of further documents including a lease that contained a demolition clause and guarantees. The tenants signed the offer (“the Lease Renewal”). Later, in 2010, the Landlord, the tenants and the Respondent signed a document styled “Transfer of Lease” which assigned the term of the Original Lease to the Respondent and contained a special condition in which the Respondents acknowledged being given a copy of the Lease Renewal and consent its terms and conditions. 

In late 2010 the transfer of the freehold reversion was registered. In March 2011 the Respondent vacated the property and was sued by the Applicant for damages that comprised mainly rent for the period from 1 February 2011 pursuant to the Lease Renewal. The basis of the damages claim was that the Respondent was obliged to perform the Renewed Lease. 

The Respondent contended that all that had occurred was that it had an option to renew or extend the Original Lease which option it had not taken up.  The Respondent argued that at the time the Lease Renewal was made the Applicant was not the legal owner of the reversion and not entitled to the rents and profits as a purchaser and therefore there was no privity of estate or contract between the Applicant and the Respondent. 

The Respondent also argued that what had taken place did not amount to a “renewal” of a lease within the meaning of s 9 of the Retail Leases Act 2003, the 2003 Act did not contemplate leases that were entirely prospective, and the Lease Renewal was not a concluded agreement. All the Respondent’s contentions were rejected by the Tribunal. The Tribunal held that the Respondent as tenant was estopped from questioning the Applicant landlord’s title and therefore it was irrelevant that the Applicant was not the registered proprietor of the land when the Lease Renewal was entered into. The Tribunal also held that while the Lease Renewal contemplated the execution of further documents there was a binding contract, the Lease Renewal was not a renewal but the entry by the parties into a new lease.       

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

Please note for members of the public or practitioners in the legal profession where English is your second language a translation key in all languages of the world is available on this blog to assist you. The plain English blog without translation facilities is located at http://roberthaypropertybarrister.wordpress.com

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.

The Mortgagee's Power of Sale available for purchase from Lexis Nexis

The latest edition of The Mortgagee's Power of Sale has been published.  Now in its third edition this book started life in 1980.

The book is primarily written for practitioners and the text is arranged, as far as possible, in the same chronological order as the steps a mortgagee may take in selling mortgaged property under the power of sale.

Clyde Croft (now Justice Croft of the Supreme Court of Victoria) was the sole author of the first edition and is a co-author of the third edition with Robert Hay.

The Chief Justice of the Supreme Court of Victoria, the Honourable Marilyn Warren AC has kindly written the foreword. 

A formal launch for the book was held in  January 2013.

Ecommerce - Purchase from Lexis Nexis Directly   http://www.lexisnexis.com/en-us/about-us/about-us.page

More on essential safety measures and cost recovery - Education Property Law Conference

Last week I was privileged to have presented a paper at the  Leo Cussen Centre For Law  Property Law Conference -

    Entitled:-  "Essential Services and the Recovery of Expenses". 

The paper can be located by clicking on this link:   Leo Cussen paper (October 2012)

Land area of no consequence in determining whether premises are "retailpremises"

Please note for members of the public or practitioners in the legal profession where English is your second language a translation key in all languages of the world is available on this blog to assist you. The plain English blog without translation facilities is located at http://roberthaypropertybarrister.wordpress.com

Occasionally I am asked whether premises are "retail premises" under s 4(1) of the Retail Leases Act 2003 where a retail business is conducted on a small piece of a substantial area of leased land. This issue arose in Bretair Pty Ltd v Cave [2012] VCAT 1039.  The premises were used as a service station and road house restaurant business. The landlord contended that the premises were not “retail premises” because the leased land comprised 7.5 acres only part of which was used by the businesses conducted there. The Tribunal rejected the landlord’s claim holding that “The RLA does not distinguish between retail and non-retail premises based on the size of the land demised”.  The Senior Member said:

 ….the fact that the buildings, canopies and driveways are surrounded by 7½ acres of land is of no consequence in deciding whether the RLA applies to the current lease agreement between the parties because there is no evidence that the surrounding land is used for any specific purpose other than it is simply being part of the leasehold interest.

 The Senior Member also held that even if he were wrong, VCAT had jurisdiction to hear and determine the matter as a “consumer and trader dispute” under the Fair Trading Act 1999 or the Australian Consumer and Fair Trading Act 2012.

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"

Please note for members of the public or practitioners in the legal profession where English is your second language a translation key in all languages of the world is available on this blog to assist you. The plain English blog without translation facilities is located at http://roberthaypropertybarrister.wordpress.com

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.