(Chen v Panmure Hotel Pty Ltd [2007] VCAT 2464)

The Issue

This article will be of particular interest to managing agents and landlords of commercial properties. Many Managing Agents are now having to deal with Tenants who are refusing to pay Essential Safety Measures' outgoings by contending that they are no longer obligated to pay in light of an article titled 'Tenants beware: Don't get hit by safety maintenance costs', which appeared in the April 2012 edition of the Law Institute Journal.

What happened?

The article focused on the case of Chen v Panmure Hotel Pty Ltd ('Chen's Case'), which involved a dispute between a Landlord and a Tenant on the payment of Essential Safety Measures' costs associated with required works which the Landlord had not completed. The Article particularly looked at the effect of s.251 of the Building Act 1993, which enables Tenants to complete works required by the Building Act (including Essential Safety Measures works) and then claim the cost of such works from the Landlord.

What can you say about this as a Tenant?

The article is a useful tool to argue that reimbursement of 'Essential Safety Measures' costs are no longer a Tenant's responsibility. This is because the Landlord is solely obliged to ensure that the Premises are compliant with the Building Act. It is important, however, to note that the limits of Chen's case have not yet been fully litigated in VCAT. Accordingly, essential safety measures costs should not be a deal breaker, but rather be a point to be strongly negotiated.

What can you say about this as a Landlord?

It is important to be clear that the article is not a statement of the law. Rather it is a view of the effect of 'Chen's case' if its interpretation of s.251 of the Building Act were to be extrapolated and applied generally. Note that Chen's Case was decided in 2007 and some later cases have contradicted it.

Also, note that Chen's Case did not involve the Landlord's rights to claim the cost of the annual Essential Safety Measures reports (being the most usual outgoing claimed). Rather, it focused on Essential Safety Measures works which were required to be completed but which were outstanding by the Landlord. We note that s.251 of the Building Act is arguably solely an enforcement provision to enable Tenants to claim compliance costs from Landlords who fail to complete such required works, rather than being a section intended to divide usual outgoings. In particular, we note sub-section (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."

In this, you can see that the right for a Tenant to complete Essential Safety Measures works and claim costs from a Landlord is limited to circumstances where the Landlord has failed to complete such works. In other circumstances, a Landlord would remain able to claim such costs from a Tenant, subject only to the Lease and, if relevant, the disclosure obligations in the Retail Leases Act 2003.

Practical Tip

The reality is that there are VCAT decisions supporting either side. In practical terms, a Tenant may well purport to withhold rent pending a resolution of this issue but be aware that they have no entitlement to do so or to set off past essential safety measures costs paid against their present rent obligations. As a Landlord, it is essential to ensure that your rights to claim essential Safety Measures Costs are clearly included in your Lease and that you comply with your essential Safety Measures Obligations as they arise so that you do not trigger the terms of the Building Act.

If you require assistance, please give us a call on 1300 205 506 or send an email to sp@sharrockpitman.com.au.

The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.

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