1. A recent VCAT case (Versus (Aus) Pty
Ltd v A.N.H. Nominees Pty Ltd (Remitted) (Retail Tenancies) [2017] VCAT
859) raised a number of matters, including whether the express terms of
lease required the landlord to make the premises fit for occupation; the impact
of s 52 and 54 of the Retail Leases Act 2003; whether representations made
after lease was renewed gave rise to an equitable compensation obligation; and
whether the premises were to be totally free of mould.
2. The
retail premises were located in Church Street, Brighton, Victoria from which
the Tenant operated an exclusive lingerie business. In essence, the dispute
concerned damage caused to the retail premises as a result of water or moisture
ingress. This state of affairs resulted in the leased premises experiencing
elevated levels of mould ecology, which ultimately caused the Tenant to vacate
the Premises in May 2011. The Tenant did not re-occupy the Premises after that
date.
3. The
Tenant contended that the Landlord failed to remediate the Premises to a
condition where it was safe to re-occupy the Premises. It ultimately purported
to determine the lease agreement by correspondence dated 27 March 2013 on the
ground that the Landlord had repudiated its obligations under the lease. In response,
the Landlord, by correspondence dated 9 April 2013, denied that it had
repudiated its obligations under the lease but, nevertheless, accepted that the
lease had come to an end.
4. The
Tenant claimed compensation for loss and damage caused to its lingerie
business, which included loss of profit, loss of goodwill to the business
value, and damage to various goods, fixtures and fittings.
5. The
case had been before the Tribunal several times. In 2014, Senior Member Riegler
made orders. The Tribunal ordered that the Landlord pay the Tenant a large
amount of compensation (over $300,000 in total over 2 separate proceedings).
6. The
Tenant successfully appealed the 2014 decision about the limit of the
compensation ordered, and the claim came back to VCAT for further assessment
7. One
of the hotly contested issues at the rehearing was whether the landlord had
repudiated its obligations under the lease because it had failed to remediate
issues of moisture ingress and excessive levels of mould ecology, which
adversely affected occupation of the Premises. The Landlord contended that
there was no contractual or statutory obligation requiring the Landlord to
‘make good’ damage in or to the Premises.
8. The
Landlord submitted that its obligations only required it to maintain the
Premises in a condition commensurate with its condition as at the commencement
of the lease. It also argued that even if there was an obligation requiring the
Landlord to make good damage in or to the Premises, the Landlord did not
repudiate those obligations.
9. Section
52 of the RLA, states, in part:
(1) A retail premises
lease is taken to provide as set out in this section.
(2) The landlord is
responsible for maintaining in a condition consistent with the condition of the
premises when the retail premises lease was entered into –
(a) the structure of, and
fixtures in, the retail premises; and
(b) plant and equipment
at the premises; and
...
(3) However, the landlord
is not responsible for maintaining those things if –
(a) the need for the
repair arises out of misuse by the tenant; or
(b) the tenant is
entitled or required to remove the thing at the end of the lease...
10. The landlord
submitted that there was no evidence demonstrating that the condition of the
Premises, when the lease was first entered into, was any different to its
condition when the Tenant purported to terminate the lease. S 52 of the RLA,
which imported the Landlord’s repair obligations, only operated in
circumstances where it can be shown that the damage or defect crystallised
after the lease was entered into. In other words, the Landlord’s obligation was
to maintain, rather than to make good.
11. The Tribunal
accepted that the Tenant bears the evidentiary burden to prove that the
Premises were in a worse condition than at the commencement of the lease.
12. Ultimately, the
Tribunal concluded (at paragraph 50) that:
Having regard to all of the matters raised above, I am not
persuaded that the condition of the Premises as at [the date of termination of
the lease] was any worse compared to the condition of the Premises at the
commencement of the lease … Indeed, I find that, on the balance of
probabilities, problems relating to moisture ingress and the presence of
surface and airborne mould affecting the Premises had, in all likelihood,
substantially improved as at that date, when compared to the state of the
Premises [at the commencement].
13. At paragraph 70,
the Senior Member noted:
In my view, absent any contravention of s 52 of the RLA or
covenant in the lease, the failure to eradicate the Premises of mould or
excessive moisture, in circumstances where that condition was likely to have
been present at the time when the lease was entered into, does not amount to a
breach of the covenant of quiet enjoyment. As the authorities referred to above
make clear, the covenant does not provide a remedy where the state of affairs
existed at the date of grant of the lease.
14. The Tenant also
contended that s 54 of the RLA may provide a further ground upon which it can
be said that the Landlord repudiated its obligations under the lease. Section
54 of the RLA states, in part:
54. Tenant to be
compensated for interference
(1) A retail premises
lease is taken to provide as set out in this section.
(2) The landlord is
liable to pay to the tenant reasonable compensation for loss or damage (other
than nominal damage) suffered by the tenant because a landlord or a person
acting on the landlord’s behalf –
(a) substantially
inhibits the tenant’s access to the retail premises; or
(b) unreasonably takes
action that substantially alters the flow of customers to the retail premises;
or
(c) unreasonably
takes action that causes significant disruption to the tenant’s trading at the
retail premises; or
(d) failed to take
reasonable steps to prevent or stop significant disruption within the
landlord’s control to the tenant’s trading at the retail premises; or
(e) fails to rectify soon
as practicable –
(i) any breakdown
of plant or equipment that is not under the tenants care or maintenance; or
(ii) any defect in the
retail premises or in the building or retail shopping centre in which the
retail premises are located, other than a defect due to a condition that would
have been reasonably apparent to the tenant when entering into or renewing the
lease or when the tenant accepted assignment of the lease; or
15. At paragraphs 75
and 79 respectively, the Senior Member found:
Therefore, I do not accept that s 54(2) is to be construed to mean
that a landlord will have repudiated its obligations under the lease if it
refuses to rectify (under s 54(2)(e)(ii)), a latent defect as soon as
practicable. If that were the case, the provision would be expressed
differently, so that it imposed a positive obligation on a landlord to rectify
any latent defect in the retail premises. It does not, and in my view, giving
the provision that meaning would be importing words into the section which do
not exist.
Consequently, I find that s 54(2) of the RLA, of itself, does not
entitle a party to terminate a lease, even in circumstances where a landlord’s
conduct amounts to a gross failure to act or not act within the matters
referred to in subsections (a) to (f) of s 54(2).
16. In analysing s 54,
the Senior Member reached the following conclusions (at paragraph 90):
Therefore, compensation under s 54(2) is not available if it is
found that the defect related to a condition of the premises that would have
been reasonably apparent to the tenant when entering into or renewing the
lease.
Conclusion
17. The circumstances
of this case are enlightening for all leasing lawyers, and retail landlords and
tenants. The Tribunal’s findings make it clear that a landlord’s obligations to
repair are limited to situations where the leased premises fall into disrepair
during the tenancy. It is therefore critical that potential tenants and their
advisors undertake a thorough assessment of the state of premises before any
paperwork is signed, and have the potential landlord sign off on that state of
the premises. It is also critical that the parties understand exactly who is
responsible for any works required to bring the premises up to a reasonable
standard, before the lease commences. These discussions should form an integral
part of the negotiations between the landlord and the tenant prior to the
commencement of the lease.
18. In this particular case, an
inspection by a suitably qualified building inspector may also have alleviated
some of the difficulties faced by the tenant. If the mould problem existed at
the commencement, it would have been identified, and steps taken to remedy it.
If the problem did not exist at the outset, there would be independent evidence
to support the tenant’s contention that the state of the premises was
significantly worse than when the lease commenced.
WG Stark
Hayden Starke Chambers
