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Barrier to recovery of outgoings

18 July 2019

#Dispute Resolution & Litigation

Chris Brodrick

Published by Chris Brodrick, Alana Giles

Barrier to recovery of outgoings

The decision handed down by VCAT last week in Phillips v Abel [2019] VCAT 1031 has significant implications for landlords and tenants of retail premises in Victoria with respect to the recovery of and liability for outgoings.

Facts

The parties in the case were a respondent landlord who leased a rural property to an applicant tenant. The tenant conducted a business from the premises which involved extracting and selling sand to its customers.  VCAT held that the premises were ‘retail premises’ within the meaning of the Retail Leases Act 2003 (Vic) (RLA), and therefore the RLA applied to the lease.

The landlord had failed to provide a statement of outgoings to the tenant and later sought to recover outgoings once a statement was given.

Parties’ submissions

The tenant contended that he was not liable to pay outgoings because the landlord had not given him a written and itemised estimate of the outgoings to which he was liable to contribute under the lease, as required by section 46(2) of the RLA. Relevantly, section 46(4) of the RLA provides that a tenant is not liable to contribute to any outgoings of which an estimate is required to be given to the tenant, until the tenant is given that estimate.

In addition, the tenant argued that belatedly serving a statement of outgoings would not revive or establish any entitlement to claim unpaid outgoings which accrued prior to service of the statement, but rather, would only crystallise the tenant’s obligation to pay outgoings from that time on.

The landlord conceded that because of the application of the RLA, the tenant was not required to pay outgoings until he was provided with the statement. However, he argued that once given, the obligation to pay outgoings incurred prior to the delivery of the statement was revived or established.

The Tribunal’s findings

It is an established principle that a tenant cannot use the lack of provision of a statement to claw back outgoings already paid to a landlord (see Richmond F.C. v Verraty Pty Ltd [2011] VCAT 2109 and Australian Asset Consultant Pty Ltd v Staples Super Pty Ltd [2016] VCAT 1726).

Deputy President E. Riegler considered these decisions and decided that this case was different, because the landlord was seeking to recover unpaid outgoings, rather than resisting a claim by a tenant for reimbursement of outgoings already paid.

VCAT relevantly held that:

[65] … I am of the opinion that the purpose of s46(4) would be rendered somewhat otiose if the Landlord’s interpretation of the provision was accepted. The corollary is that an interpretation which does not revive an entitlement to claim outgoings incurred prior to the giving of the statement of outgoings best accords with the main purpose of the RLA; namely, to enhance the certainty and fairness of leasing arrangements. In my view, this is best achieved by construing the provision against the Landlord, given that he ultimately has control over this situation. If outgoings are not paid because the Landlord has failed to give the Tenant a statement of outgoings, then that situation is easily remedied by the provision of a statement of outgoings. The landlord is only penalised to the extent that it continues to fail to comply with its obligations under the RLA.
[69] … I accept the Tenant’s submission as to the proper interpretation of s 46(4), which I consider best reflects the main purpose of the RLA. As indicated above, the provision is intended to self-regulate compliance with s46. To the extent that it imposes a burden on a landlord in not being able to recover outgoings, that burden is mitigated or extinguished once a landlord complies with its obligations under the RLA. In my view, that best reflects striking a balance between the interests of tenants and landlords and importantly, enhances the certainty and fairness of retail leasing arrangements between landlords and tenants.
[70] Accordingly… giving notice under s46(2) of the RLA does not revive or establish liability for outgoings previously incurred.

Analysis

The significance of this decision is likely to be far-reaching – in particular because of the extensive application of the RLA to leases in Victoria – including to leases which, at first glance, might not appear to be for retail premises.

This is a decision at first instance and the first time the matter has been argued before the Tribunal. We consider in future that the Tribunal might be invited to consider equitable principles of restitution which appear not to have been put before it in this case. In addition, we consider that the Tribunal’s analysis regarding the potential for a tenant to be in breach might be reconsidered in light of other cases concerning breach and “reasonable time” to remedy.

However, until those matters are considered further by the Tribunal, the decision in Phillips v Abel means that a landlord of a lease to which the RLA applies will be unable to recover outgoings from a tenant incurred prior to the issue of a statement.

Landlords should be vigilant in ensuring they comply with their obligations under section 46 of the RLA in order to take advantage of their ability to recover outgoings.

Authors: Chris Brodrick & Alana Giles

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Chris Brodrick

Published by Chris Brodrick, Alana Giles

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