Standard of repair under s 52 of the Retail Leases Act 2003 (Vic)

Section 52(2) of the RLA 2003 creates a ‘keep in repair’ covenant.  The landlord is required under s 52 to keep the premises in a condition consistent with the condition of the premises when the retail premises lease was entered into.

In Computer & Parts Land Pty Ltd v Aust-China Yan Tai Pty Ltd [2010] VCAT 2054, a decision of Senior Member Lothian, the tenant complained about deterioration to the roof and a failure of the air conditioning system.  Prior to the commencement of the lease, the landlord and the tenant agreed in a special condition in the lease that the landlord would complete certain work to bring the premises to a particular standard before commencement of the lease.  The landlord never completed that work and the tenant ultimately sued for specific performance of the landlord’s repair and maintenance obligations.

The decision is long and tackles a number of complicated issues.  The following sub-paragraphs summarise some of the interesting findings for practitioners in this area:

1. the tenant’s knowledge of any defects in the premises is not relevant to the operation of s 52 (para [78]);
2. the condition of the premises for the purposes of s 52 is determined by reference to what was in fact demised and from the intention of the parties (para [79]).  The tenant need not rely solely on the condition of the premises, but can rely on an agreement to put the premises into a particular state at the commencement of the lease (para [101]).  The condition of the premises for the purposes of s 52 is the condition that the parties agreed to put it into at the commencement of the lease (paras [104] to [108]).  The standard for s 52 is what was agreed, not what the condition of the premises in fact was when the lease was entered into (para [146]);
3. but for the special condition in the lease creating an obligation on the landlord to put the premises into a particular state, the landlord had no obligation to do more than ensure that the poor system did not deteriorate further (para [103]);
4. s 52 does not require the landlord to re-design or improve the premises (paras [90] to [97]);
5. the obligation to keep in repair could, in extreme circumstances, mean replacement if it is the only option open to the landlord (paragraph [84]). On balance, the only way to ensure that the roof in that case would survive the lease was to replace it (para [127]).  On the other hand, the Member said she intended to order repair of the roof because it was likely (rather than certain) that the roof will not survive (para [128]);  and
6. the submission was rejected that s 52 should give to the tenant the intended benefit of the premises (para [100]).

Similar issues were raised in Savers INC v Herosy Nominees Pty Ltd [2011] VCAT 1160.  The decision was delivered on 20 June 2011, also by Senior Member Lothian.

The landlord in that case argued that:

1. s 52 should not be read beneficially in favour of the tenant;  and
2. the landlord’s obligations to maintain the premises to a standard higher than that specified in s 52 should be read down.

The tenant argued that s 52 creates a ‘baseline’ obligation and that the parties are entitled to agree to a wider obligation.

The Tribunal:

1. accepted that s 52 should not be read to benefit the tenant;
2. acknowledged that, on one view, the tenant’s interpretation of s 52 favoured the tenant;  and
3. nevertheless found that the parties could agree to a wider obligation than that imposed by s 52.

It is not entirely clear how the intentions of the parties can be relevant to the operation of s 52 in light of s 94 of the RLA, which prohibits parties to a retail premises lease from contracting out of the operation of the RLA.

Nevertheless, we now have two Tribunal decisions (albeit from the same member) indicating that it is possible for the parties to a lease to enforce against the landlord an obligation higher than that imposed by s 52.