A Clearer Position on Essential Safety Measures for Landlords and Tenants
To develop legislation that defines the interests of Landlords and Tenants – and, importantly, is also legally sound – the Victorian Government has consulted with businesses, industry associations and other organisations to develop a Retail Leases Amendment Bill which, together with a raft of changes finally provides a clear position about who pays for the costs relating to the installation, repair and maintenance of Essential Safety Measures.
On 30 October 2019 the Bill was introduced into Parliament and includes changes that will allow Landlords to pass on the costs of Essential Safety Measures to Tenants under a lease.
Essential Safety Measures are important to ensure that safety systems within a building remain at the required operational level, and include items listed on the Occupancy Permit such as extinguishers, smoke detectors, fire hoses, fire indicator panels, and more.
Longstanding industry practice in Victoria has been for Landlords to recover expenses associated with meeting Essential Safety Measures by charging Tenants as outgoings. Leases commonly provide for this arrangement and the majority of leases Burgess Rawson work with provide for the recovery of Essential Safety Measures.
This practice was thrown into some doubt when in 2015 the retail industry was presented with a VCAT Advisory Opinion that placed the cost of these items on the Landlord and limited their recovery.
The Retail Leases Amendment Bill, currently waiting Royal assent, includes amendments to the Retail Leases Act 2003 and the Building Act 1993 and seeks to clarify this issue. Guided by the principle that while the obligation for building safety remains that of the building owner, Landlords and Tenants should be able to negotiate to pass on the costs as part of overall lease negotiations. The Bill inserts exceptions enabling the lease to require a tenant to pay for the cost, or part of the cost, of the installation of an Essential Safety Measure relating to fit out of the retail premises, or carrying out repairs or maintenance work in respect of an Essential Safety Measure.
This maintains the status quo in retail leasing industry practices existing prior to the uncertainty generated by the VCAT Advisory Opinion, and will bring greater clarity and certainty to Victorian businesses.
The Bill will come into operation the day after receiving Royal Assent, likely to happen in early this year.
To prepare for the coming changes, Landlords should review their leases to define outgoings and how Essential Safety Measure costs are handled.
The amendment also includes a raft of changes, such as:
- Requirements to provide a Disclosure Statement for prospective tenants earlier than under the current legislation.
- Providing updated Disclosure statement at renewal of the lease;
- Additional information for tenants before an option to renew;
- Tenants will be able to seek a market rent review prior to the exercise of an option to renew;
- Tenants will have 14 day cooling-off periods after exercising an option to renew; and
- Landlords must return security deposits within 30 days.
The Burgess Rawson asset management team are able to provide deeply knowledgeable and effective solutions for landlords, retailers and tenants. If you need assistance with managing your commercial asset, please do not hesitate to contact me.