A colleague recently sent me this excellent article by Bill Burrough from DibbsBarker titled ‘Service station lease: Ensuring the lease is manageable and saleable’.
The article talks about:
- leasing issues for investors considering a service station – an investment considered by some to be ‘recession proof’; and
- the obligation to maintain the service station infrastructure and the impact of retail leasing and environmental legislation in Queensland and NSW.
The article also says:
It is common for the landlord to install and retain ownership of the infrastructure, while the tenant is obliged to carry out repairs and maintenance throughout the term. Replacement of certain items which reach the end of their useful life is normally considered to be a capital expense and would usually be the landlord’s responsibility.
This is good advice. However, there may be a hidden trap for Victorian practitioners in the Retail Leases Act 2003 (Vic).
Section 52(2) of that Act says:
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 retail premises; and
c) the appliances, fittings and fixtures provided under the lease by the landlord relating to the gas, electricity, water, drainage or other services.
There is also an exception in s 52(3), which states that:
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.
Importantly, under s 94 of the RLA, the parties cannot contract out of the covenants implied by the Act, including s 52.
Consequently, if the service station is a retail premises leases and the exception in s 52(3) does not apply, the landlord is probably responsible for maintaining the service station infrastructure. This could be costly.
It is, of course, important to check whether the lease is governed by the RLA. For example, a lease to a major petrol retailer is likely to be excluded by the public company exclusion (see s 4(2)(c) and (d) of the RLA). However, a lease or a sub-lease to a franchisee will probably fall under the Act.
Readers advising their clients in this area should also be aware that:
- there are a number of unresolved issues associated with attempting to recover the costs of maintenance from a tenant as an outgoing under s 52 of the RLA (see an earlier post here);
- the recovery of capital costs is prohibited under s 41 of the RLA; and
- there is an ongoing issue over whether the costs compliance with essential safety measures can be recovered from the tenant (see earlier posts here and here).
Sam Hopper and Kate Brideoake