Landlords and Essential Safety Measures

We often receive enquiries from landlords and tenants concerning essential safety measures obligations and whether it is the landlord or the tenant who must comply with those obligations.

Essential safety measures (ESM) are defined in Part 12 of the Building and Regulations 2006 (Vic) and are essentially a broad range of obligations ranging from sprinkler and air-conditioning systems, fire extinguishers, exit signs and compliance inspection, reporting and maintenance.

Until May 2015 there was much confusion in the property industry over whether a landlord could require a tenant to comply with the ESM provisions.  Many existing lease documents attempted to make it the tenant’s responsibility for complying with and bearing the cost of compliance with the ESM provisions. However, even if existing lease documents do allocate responsibility for compliance, the position has since been clarified by the VCAT Advisory Opinion (Building and Property [2015] VCAT 478) opinion handed down on 1 May 2015 (Opinion).

Summary of the Opinion

The Opinion was sought to clarify, amongst other issues, who (landlord or tenant) is responsible for the cost of complying with Section 251 of the Building Act 1993 (Vic).

Section 251 of the Building Act provides:

• if the owner of a building or land is required under the Building Act 1993 (Vic) to carry out any work or do any other thing and the owner does not carry out the work or do the thing, the tenant of that building or land or any mortgagee may carry out the work or do the thing; and

• a tenant may recover any expenses incurred by it from the owner as a debt due to the tenant and deduct those expenses from or set them off against any rent due to the owner. 

The main points in the Opinion are:

1. if a landowner is required to undertake work or do a thing under Sction 251 of the Building Act 1993 (Vic) and related provisions in the Building Regulations 2006 (Vic) (Building Act) including ESMs, the cost of undertaking that work or doing that thing must be borne by the landowner.  This applies to leases regulated by the Retail Leases Act 2003 (Vic)(RLA) and leases outside the scope of the RLA , such as commercial leases; and
   
2. for some obligations the landlord may agree with the tenant for the tenant to meet the requirements, but at the landlord’s expense.

Status of the Opinion

While the Opinion is not binding on courts or tribunals, it will clearly influence VCAT Members and Judges of the Magistrates’ Court, County Court and the Supreme Court.

On that basis:

1. landlord’s should consider the Opinion as being a statement of the law which will be applied by VCAT and the Courts;
   
2. landlords should not charge ESM outgoings to tenants;
   
3. and landlords should reserve their right to charge ESM outgoings to tenants at a later date, should the Opinion not become law.

Recovery of ESM Outgoings by Tenants 

There is commentary that some tenants are considering whether they have claims against landlords for ESM outgoings that have been incorrectly paid by tenants.  It is suggested that only tenants who have substantial claims which justify taking action may consider seeking reimbursements of those amounts from landlords.

However, landlords should not automatically repay such amounts without considering:

1. the effect of Statute of Limitations which limits claims back to six (6) years;
2. whether in fact, it is commercially viable for the tenant to make a claim, especially in a jurisdiction such as VCAT which does not provide orders as to costs;
3. the extent of any benefit received by the tenant for the payments;
4. the possibility of future amendments to the Building Act;
5. the possibility that the Opinion will not be adopted by a subsequent court or tribunal, especially on appeal; and
6. a consideration of the relevant provisions of the Building Act.

Please contact Andrew Bini if you would like assistance with your leasing matters.