Risks of landlords failing to provide retail leases estimates of outgoings
A recent VCAT decision will be of concern for landlords who fail to provide estimates of outgoings as required under the Retail Leases Act.
Section 46 of the Retail Leases Act requires landlords of retail premises leases to provide tenants with a written estimate of outgoings (“Outgoings Estimate”) before the lease is entered into and also annually during each year of the term at least one month prior to the start of each of the landlord’s accounting periods (usually the financial year).
In Phillips v Abel [2019] VCAT 1031 VCAT held that the late provision of an Outgoings Estimate under section 46 of the Retail Leases Act 2003 (“the Act”) would result in a landlord not being entitled to recover unpaid outgoings for the period prior to the date on which the Outgoings Estimate was provided.
Whilst the pre-existing case law establishes that a tenant is not entitled to recover outgoings already paid to a landlord in circumstances where an Outgoings Estimate has not been provided, this new case confirms that a landlord who has failed to provide the section 46 Outgoings Estimate cannot recover unpaid outgoings for the period prior to the date on which the Outgoings Estimate was given.
Agents, and landlords if they are managing their rental properties themselves, need to ensure they comply with section 46 of the Act in relation to retail premises.
The estimate of outgoings must be provided prior to the lease being signed (this is usually done by way of a disclosure statement) and also annually thereafter a month prior to each financial year in accordance with the Act. It must also be provided even if the tenant already knows the cost of some or all of the outgoings (for example if the outgoings invoices or notices are sent direct to the tenant for payment).
Those landlords who are unaware that the Act applies to their leased premises and who have never complied with the requirement to provide those estimates are at risk of being unable to recover unpaid outgoings from their tenants.
Landlords and agents should be aware of the very broad application of the Act to leases and, if in doubt, should obtain legal advice about whether their lease, or proposed lease is governed by the Retail Leases Act. VCAT has interpreted the definition of “retail premises” very broadly to include premises used for purposes which the lay person would ordinarily not assume to be “retail” in nature.
The relevant section of the Retail Leases Act 2003 (Vic) is set out below:
Section 46 – Estimate of outgoings
(1) A retail premises lease is taken to provide as set out in this section.
(2) The landlord must give the tenant a written estimate of the outgoings to which the tenant is liable to contribute under the lease that itemises those outgoings.
(3) The tenant must be given the estimate of outgoings—
(a) before the lease is entered into; and
(b) in respect of each of the landlord’s accounting periods during the term of the lease, at least one month before the start of that period.
(4) The tenant is not liable to contribute to any outgoings of which an estimate is required to be given to the tenant as set out in this section until the tenant is given that estimate.
Author: Cathy Drake
Published: 6 December 2019