The Retail Leases Act 2003 has been amended permitting the landlord from the 23 September 2020 to pass on the costs of repairing and maintaining Essential Safety Measures (ESM) to the tenant, and the costs of installing ESM as part of a fit-out, as outgoings where the lease and disclosure statement or annual estimate of outgoings enables the landlord to do so.
What is an ESM obligation?
ESM obligations are the building owner’s responsibilities for the upkeep, management and maintenance of important safety systems within the building – for example, emergency lighting and warning systems, fire prevention and fire warning mechanisms, sprinkler systems, heating ventilation and cooling systems and air handling systems used for smoke hazard management. The definition and full list of essential safety measures can be found in Part 15 and Schedule 8 of the Building Regulations 2018 (Vic).
What are the changes with respect to ESM?
The Retail Leases Amendment Act 2020 amends the Retail Leases Act 2003 to expand the definition of outgoings to include:
“…the cost, or part of the cost, or repairs or maintenance work in respect of an essential safety measure or an installation referred to in section 41(2)(b)(ii)….”.
How do the amendments affect me?
The amendments apply to new and existing leases, however landlords are not able to recover for ESM costs that have already been paid for.
For landlords, it is important that you keep a record of all ESMs attributable to your lease. Your lease and disclosure statement and/or your annual estimate of outgoings to the tenant, need to clearly outline that the ESM costs are outgoings which will be payable by, or recoverable from, the tenant. Failure to provide this disclosure may not enable you to recover these costs as an outgoing.
For tenants, this means that the landlord may pass on the costs of the repair and maintenance of an ESM as an outgoing to be borne by you. You should consider how this will affect you and your running costs to operate your business. You should also review any disclosure statements provided to you by the landlord with respect to outgoings payable. Any absence of disclosure by the landlord to you in relation to the recovery or payment of ESM costs may prevent the landlord from recovering these costs.
What should I do?
Whether you are a landlord or tenant, if you are unsure of your position with respect to the ESM costs, we suggest you contact one of our property lawyers to review your lease and disclosure statement to clarify your ESM responsibilities under the lease.