RETAIL LEASES CASE LAW UPDATE – Repairs and Maintenance Obligations.

The matter of Bretair Pty Ltd v Cave (No 2) is an interesting case decided in the Victorian Civil and Administrative Tribunal which dealt with the following issues:

• Whether gravel pavement forms part of the structure of the leased premises;
• Whether the tenant or landlord has an obligation to repair pot holes in gravel pavement caused by fair wear and tear;
• What constitutes fair wear and tear;
• Construction of contractual terms and whether a common sense approach is to be taken to the interpretation of commercial documents;
• Section 52 of the Retail Leases Act 2003 (“the Act”) and whether the comparator for the condition of the premises is at the time of the renewal of lease or at the original commencement of occupation of the premises by the Tenant.

Bretair Pty Ltd was the wholly owned subsidiary of United Petroleum and the tenant of a service station in Shepparton. Cave was the landlord of the premises. A lease was entered into in 2000 and renewed in 2010 but no formal renewal document was entered into.

Whilst the original lease predated the Act and was not covered by the Retail Tenancies Act 1997 (due to the premises being larger than 1000 square metres), the renewed lease was subject to the Act.

The premises included a very large area of pavement where users of the service station (including large trucks) would use to navigate around the bowsers and to use as parking whilst visiting the road house. The pavement was an unsealed gravel surface. The tenant argued that the condition of the pavement had substantially degraded over time and significant pot holes appeared in various places. The Tenant had organised and paid for some remedial work to the pavement. The tenant issued proceedings and sought reimbursement of monies spent stating that the landlord was obliged to repair the pavement under the terms of the lease (a LIV Template lease) and Section 52 of the Act. The landlord argued that the landlord was not required to remedy the pavement.

One of the clauses relied upon by the tenant was the obligation of the landlord to keep the “premises in a sound structural and watertight condition”. “Premises” was a defined term to include all of the buildings and property.

The Tribunal found in favour of the landlord and dismissed the tenant’s application. The Tribunal determined as follows:

Whilst the pavement could be considered as a structural item, it could never be in a “watertight” condition as it was porous. Therefore there was no positive obligation under the lease for the landlord to maintain the pavement as it was clear the intention of the clause was to refer to the actual buildings and not the land surrounding it.

The condition of the pavement at the time of renewal was poor and therefore there was no obligation under Section 52 of the Act for the landlord to improve the condition of the pavement from the date of renewal.

Consequently, the Tribunal found that it is neither the Landlord nor the Tenant’s responsibility to undertake pavement repairs. As the pavement issues affect the Tenant and its customers, the Tenant will either have to endure a pavement which is in poor condition or spend considerable sums to keep the condition of the pavement in good order.

Lessons for Tenants:

It is clear that the Tribunal will interpret lease terms in a common sense approach and therefore it is important that if you require the Landlord to undertake certain repairs, you must ensure that these are clearly and unambiguously set out in the Lease and you should not simply rely on the terms of Section 52 of the Act. A catch all clause may not be sufficient to deal with all intended obligations. You should inform your solicitor of any issues at the premises (i.e. the requirement to maintain certain areas in order to continue using the premises to the same standard) which are of concern to you which may need to be incorporated specifically under the terms of the lease.

Obtain a condition report of the premises prior to the commencement of the lease and again at the time that the lease is due to be renewed. If there are issues with the premises prior to the lease being renewed and the landlord is responsible for the repair of such issues, make sure the landlord is requested to make the repairs so that the condition of the premises at the time of the renewal mirrors the original condition of the premises. If the landlord refuses to undertake the repairs then obtain legal advice as it may be appropriate to either lodge a dispute with the Small Business Commissioner or use the powers to undertake the repairs yourself in Section 52 of the Act.

Lessons for Landlords:

Your obligation to repair and maintain the premises under Section 52 of the Act (absence any contractual obligations in the lease and subject to the specific requirements in Section 52) requires the landlord to keep the premises in the same state of repair as at the commencement of the lease throughout the term but does not require landlords to improve the condition premises.

Landlords should also obtain a condition report of the premises at the commencement of the premises and at renewals so if an issue arises they have sufficient evidence to counter any argument of the failure to properly repair the premises.

Section 52 of the Act provides that the landlord is responsible for maintaining in a condition consistent with the condition of the premises when the lease was entered into (and in the case of renewal the condition at the commencement of the renewal) the structure of and fixtures in the premises and the plant and equipment at the premises and the appliances, fittings and fixtures provided under the lease by the landlord relating to the gas, electricity, water and drainage or other services. If the lease is subject to the Retail Leases Act 2003 then any provision which sets out a contrary position is held to be unenforceable as Section 52 prevails to the extent of any inconsistency. Most leases will include provisions that it is the Tenant’s responsibility to repair and maintain the premises subject to fair wear and tear. These clauses must be read in conjunction with the Retail Leases Act 2003.

Landlords should ensure that if the premises is subject to the Act and they want to pass on repair obligations in respect to the premises onto tenants, the lease should specifically impose such obligations. In order to avoid section 52 of the Act, the obligations referred to in that section can only be passed on to the tenant if the need arises out of the misuse by the tenant or if the tenant is entitled or required to remove the thing at the end of the lease.

It is important that Landlords take into consideration what fixtures, plant and equipment they will provide to tenants under the lease and factor in the costs of maintenance when determining the rental they will seek.

For expert advice on retail leasing matters contact Phillip Leaman or a member of our Property Law team.