In the context of retail and commercial premises, a question often arises as to who is responsible for repairs and maintenance under the lease. This can be quite a contentious question, and it is not always clear as to who is responsible for what. In this two part series, we will look at some of the key issues in the context of repairs and maintenance, including implied covenants under the Retail Leases Act 2003 (Vic), arguments of fair wear and tear, capital and structural repairs, urgent repairs, and condition reports.
What to look for at the start of a lease?
The condition the premises are in at the commencement date of the lease will form the benchmark for the state and condition of the premises for the duration of the lease. It is prudent to consider whether there is anything about the nature, age or location of the premises and/or the permitted use that necessitate any special conditions around repair and maintenance requirements. Our firm can assist you to draft your lease to address such issues.
Is my lease retail or non-retail?
This is an important preliminary consideration. If your lease is retail, the Retail Leases Act 2003 (Vic) (the “Act”) will apply and prevail over your lease, and the Act will imply certain repair and maintenance obligations into a retail lease. Under a retail lease, capital works are generally the responsibility of the landlord except if repair is required as a result of the tenant’s use or misuse, whereas a retail tenant is generally responsible for general repair and maintenance save for any structural works or costs.
If you require advice on whether your lease is retail or non-retail, please do not hesitate to contact us for further advice.
Can the landlord pass on capital costs?
Section 41(1) of the Act specifies that a provision in a retail premises lease is void to the extent that it requires the tenant to pay an amount in respect of the capital costs of:
- the building or shopping centre in which the premises are located;
- any area used in association with that building or shopping centre; and
- any plant contained in such building or shopping centre.
However, it is also worth noting that section 41(2)(a) of the Act specifies that section 41(1) does not render void a provision in a retail lease which requires the tenant to undertake the capital works at its own cost.
Is a retail tenant responsible for the cost of Essential Safety Measures?
Essential safety measures (“ESM”) include traditional building services such as sprinklers, fire extinguishers, exit signs and annual safety inspections.
Retail landlords are permitted to recover some ESM costs from a tenant if the tenant has agreed to bear those costs in the lease. Recoverable ESM expenses include the cost or part of the cost of repairs or maintenance work in respect of ESM, or an installation relating to fit-out of the retail premises for which the tenant has agreed to pay.
Can structural repairs be passed on to a retail tenant?
Under section 52, certain repairs and maintenance are a retail landlord’s responsibility. Even if a lease includes provisions for repair or maintenance, the Act will always prevail in the event of an inconsistency.
Section 52 makes a retail landlord responsible for maintaining the structure of the premises, its fixtures, plant and equipment, appliances, fittings, and fixtures in a condition consistent with the condition the premises were in at the start of the lease.
Under section 52(3), a retail landlord is not responsible for maintaining structural items if the need for the repair arises out of misuse by the tenant, or if the tenant is entitled or required to remove the item or thing at the end of the lease.
Part 2 of the Leasing Intensive Series, titled “Maintenance and Repairs, and Capital Works in Retail and Commercial Leases,” will soon be released. This section will address the following questions:
- What if urgent repairs are needed?
- What happens when there has been loss or damage to the Premises?
- What if it is not practical to carry out the repairs?
- Can a tenant claim compensation?
- Should I get a condition report?
If you have any questions regarding repair or maintenance issues, or if you need assistance with your retail or commercial lease or any disputes related to repairs and maintenance, please feel free to contact Angela Kordos, Jonathan Leung, or a member of our commercial and property team.
