Disputes commonly arise between landlords and tenants in relation to obligations imposed on the tenant to repaint and recarpet the premises.
A recent decision from the Victorian Civil and Administrative Tribunal (VCAT) sheds light on this issue, clarifying the relationship between lease obligations and the landlord's duty to maintain the premises under section 52 of the Retail Leases Act 2003 (the Act).
What was decided?
In Deng and Deng Pty Ltd v McPhee and Anor [2024] VCAT 1025, the Tribunal examined a tenant's responsibility to repaint and recarpet the premises at certain fixed intervals specified in the lease.
The lease required the tenant to repaint the premises internally every 3 years and externally every 5 years. The tenant was also required to recarpet the premises every 5 years.
The landlord argued the tenant's failure to comply with these obligations constituted a breach, justifying the landlord locking the tenant out of the premises and terminating the lease.
The tenant contested this, and applied to the Tribunal for an order preventing the landlord from locking it out. The tenant argued the obligations in the lease were inconsistent with section 52 of the Act, which places responsibility on landlords to maintain premises in the condition they were in when the lease began.
Under section 94 of the Act, where a provision of a lease is inconsistent with a provision of the Act, the provision in the lease is void.
The Tribunal's findings
- Repainting and recarpeting clauses are not necessarily
inconsistent with section 52
The Tribunal clarified that repainting and recarpeting obligations, as outlined in the lease, do not conflict with section 52. Why? Because these obligations were not tied to the condition of the premises when the lease started. Instead, they are standalone requirements that arise at specific intervals, irrespective of the premises' condition. - Capital nature of obligations
The Tribunal found that obligations to repaint or recarpet at regular fixed intervals are of a capital nature. They are not considered maintenance tasks aimed at keeping the premises consistent with their initial condition.These obligations fall within the exceptions for capital costs under section 41(2)(a) of the Act, meaning they are not subject to the same limitations as maintenance obligations.
Practical implications for Landlords and Tenants
- For landlords
The decision makes clear that landlords can include clauses requiring tenants to repaint and recarpet without contravening the Act. However, clarity in lease drafting is essential to avoid disputes and ensure that capital costs are passed on to the tenant, protecting the value of your asset.
In particular care should be taken to ensure that the relevant conditions apply at fixed intervals, irrespective of the condition of the premises.
- For tenants
Ensure you understand any repainting, recarpeting or other similar obligations in your lease, and whether the clauses imposing those obligations are properly drafted and enforceable. These obligations can require significant expenditure, and the Tribunal's decision confirms that properly drafted clauses of this kind are likely to be enforceable even if they appear to overlap with the landlord's duty to maintain the premises under the Act.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
