1.1 The listed expressions have the meaning set out opposite them:

Premises the land and buildings described in Item 4 and the landlord's installations

2.2 The tenant must not, and must not let anyone else:

2.2.12 bring onto the premises any object which by its nature or weight might cause damage to the premises, without the landlord's written consent

3.2 Except for fair wear and tear and subject to clause 3.4, the tenant must keep the premises in the same condition as at the start of the lease and properly cleaned, repaired and maintained. The tenant must also comply with all notices or orders affecting the premises which are issued during the term

3.3 In addition to its obligations under clause 3.2, the tenant must:

3.3.1 refinish all finished surfaces and renew all office carpets in a workmanlike manner with as good quality materials as previously at least once every 5 years during the term and any other term.

3.3.5 maintain in working order all plumbing, drainage, gas, electric, solar and sewerage installations and fire protection apparatus.

3.3.18 maintain the grounds and gardens of the premises in good condition, tidy, free from weeds and well watered.

3.4.2 to carry out structural repairs or make payments of a capital nature unless the need for them results from:

(a) negligence by the tenant or the tenant's employees, agents, contractors, customers and visitors; or

(b) failure by the tenant to perform its obligations under this lease; or

6.4 The landlord shall keep the premises in a sound structural and watertight condition subject to the tenant's obligations contained in clauses 2 and 3 hereof.[1]

1. It is common ground that the Pavement was in a poor condition prior to the Tenant undertaking remedial work. Mr Carlin-Smith, the consulting engineer engaged by the Tenant, gave evidence the Pavement was littered with many potholes, some of which were more than 100 mm deep. Mr Carlin-Smith summarised his observations and opinion as follows:

In my opinion, following both inspections, the pavement at the Kialla Service Station was quite inadequate and would not be structurally sound and watertight.

The result has been that the pavement has broken down and formed potholes. These fill with water during rain which sits in pools until dislodged by vehicles and by evaporation. Water softened pavement then breaks down further and more potholes are formed.

The survey in February 2013 located 44 potholes with a total land surface area of 258 square metres. The maximum potholed depth had increased to 630 mm. This pothole alone forms a very large hole in the pavement.

1. Further evidence was given by Alexander Micevski, the Tenant's National Operations Manager, that the condition of the Pavement materially and adversely affected the running of the Tenant's business. That evidence was also not challenged.
2. Mr Northrup, of counsel, appeared on behalf of the Tenant. He submitted that the Pavement was a structural element of the Premises and that Clause 6.4 of the Lease placed a positive obligation on the Landlord to maintain or repair the Pavement so that it remained in a sound structural and watertight condition.
3. Mr Northrop further contended that s 52 of the Retail Leases Act 2003 imposed an obligation on the Landlord to maintain the Pavement in at least the same condition as it was at the commencement of the Lease in April 2010.
4. By contrast, Mr Antill of counsel, who appeared on behalf of the Landlord, submitted that Clause 6.4 did not apply to the Pavement. In that regard, it was said that on a proper construction of the term, it only applied to the physical buildings within the Premises and not the Pavement and surrounding land also forming part of the demise. In that sense, it was argued that the term made no commercial sense when applied to the Pavement, given that it was an unsealed gravel surface without any of the structural elements usually associated with three dimensional buildings.
5. In addition, Mr Antill argued that the expenses incurred by the Tenant in repairing the Pavement were expenses fairly incurred pursuant to the Tenant's maintenance obligations under Clauses 3.2, 3.3.5 and 3.3.18 of the Lease. Mr Antill further submitted that to the extent that the Pavement required remedial work, such work resulted from a failure on the part of the Tenant to fulfil those maintenance obligations or alternatively, because of the Tenant's use of the Premises.
6. In answering the Tenant's claim based on s 52 of the Act, Mr Antill submitted that the Tenant can only rely upon s 52 of the Act in relation to those expenses incurred during the current term of the Lease, which commenced on 1 April 2010. In addition, he contended that any assessment of the condition of the Premises was to be by reference to the condition of the Premises at the time of the renewal, being 1 April 2010 and not at some earlier date, even though the Tenant had enjoyed continuous possession since 2000.
7. Mr Antill argued that the evidence clearly establishes that the condition of the Pavement as at the time of the commencement of the Lease was not perfect and was in need of remedial work. Therefore, he submitted that the Landlord was under no obligation to effectively improve the condition of the Pavement from the condition that it was in at the time of the renewal.
8. Mr Antill submitted that this equally applied to the operation of Clause 6.4. Therefore, he argued that Clause 6.4 did not require the Landlord to undertake work of 'improving' the condition of the Premises from what existed at the time of the lease renewal. At best, the clause merely imposed an obligation to maintain the Pavement in a structurally sound condition consistent with the condition at the time of renewal.
9. Mr Antill further contended that even if it was found that the condition of Pavement had deteriorated since the date of renewal that did not necessarily make the Pavement structurally unsound. He submitted that vehicles were still able to travel across the Pavement, albeit at a slower speed and with greater caution.

1. A number of issues arise for determination in this proceeding, which are summarised as follows:
   • (a) Is the Pavement a structural element of the Premises?
   • (b) Does the Lease, or the Retail Premises Act 2003, require the Landlord to maintain or repair the Pavement?
   • (c) If yes to question (b) above, is the Landlord's obligation to maintain the Pavement obviated by the Tenant's use of the Premises or a failure to maintain the Premises?
   • (d) What is a reasonable cost of remediation work?

Is the Pavement a structural element of the premises?

1. The Lease states that the permitted use of the Premises is retail fuel sales and roadhouse takeaway. As indicated above, fuel bowsers are located on and adjacent to the Pavement. Vehicles park on the Pavement in order to access the fuel bowsers. In addition, customer car parking is also permitted on the Pavement. In my view, the Pavement forms an integral part of the Premises. Although it is not a structural element in the sense usually associated with three-dimensional buildings, its function is not purely aesthetic. Without adequate driveway and parking facilities, the retail aspect of the Premises cannot operate or at least operate in a manner intended. This conclusion is consistent with the opinion of Brereton J in Hampson v Clyne,[2] where his Honour observed:

'Structure' of course is a word of which the meaning varies considerably according to the context, and the phrase 'structural character' or 'defect of a structural character' varies correspondingly. Literally 'structure' means something which has been constructed and 'defect of a structural character' means either a fault in putting the structure together or some subsequent failure on the part of the structure to remain satisfactorily put together. With particular reference to buildings in common parlance we refer to the bare building as the structure. We refer to fixtures and fittings attached to the structure although these may themselves as individual units be technically 'structures'. We refer also to installations, such as gas and water piping and electrical circuits. Each of these may, however, independently be in certain contexts regarded as a 'structure' in that it is something which has been constructed within another structure.

1. The extract from Hampson v Cyne was cited by Barratt J in Alamdo Holdings Pty Ltd v Australian Window Furnishings (NSW) Pty Ltd.[3] The facts in Alamdo are not dissimilar to the present case, as that case also concerned paved areas within the demised premises. Although the paved area in question concerned a sealed asphalt, the comments made by Barrett J are apposite:

[42] Returning to the particular case of the pavement, I am satisfied that they are properly to be regarded as 'structures'. They were put upon the land by a process of construction. Their character, as consisting of a skin or coating of asphalt placed upon a prepared land surface to which a basecourse of aggregate or blue metal had first been added, makes them similar to, although lesser in degree than, the "low attractive brick fence" considered in Durcin v Commonwealth Savings Bank of Australia (unreported, Full Court of the Supreme Court of South Australia, 30 November 1990) where a sense "in which the bricks are cemented to cement base into one another by mortar" was held to be at "permanent domestic improvement of a "structural nature". In the same way pavement constructed in the way I have described should be categorised as being improvements "of a structural nature". Furthermore, the replacement of the asphalt skin and any missing base course that, to adapt the words in the JF Hillam case, make them usable as pavement by providing the necessary hard surface and support, and, as stated in Hampson v Clyne, was necessary for them to "remain satisfactorily put together", must, in my judgment, amount to maintenance, replacement or repair that is "structural".

1. In the present case, evidence was given as to the process of constructing the unsealed Pavement. It included the laying of substrate base, under which drainage pipes were placed, followed by a fine aggregate topping which was compacted to form a solid surface.[4] Consequently, I find that the Pavement is a structural element of the Premises. In that regard, I note that the Landlord did not argue otherwise.

Does the lease require the Landlord to maintain the Pavement?

1. Clause 3.2 of the Lease requires the Tenant to keep the Premises in the same condition as at the start of the Lease unless its condition deteriorates as a result of fair wear and tear. Consequently, Mr Northrop submitted that Clause 3.2 specifically excluded from its scope damage caused by fair wear and tear.
2. Clause 3.2 also is subject to Clause 3.4. Clause 3.4 is expressed in the negative, in that it does not specifically direct the Tenant to do anything but rather, operates to exclude liability to make good the Premises, subject to the three exceptions set out in sub-clauses 3.4 (a), (b) and (c).
3. Therefore, Clauses 3.2 and 3.4, when read together, require the Tenant to repair the Premises so as to ensure that they are kept in the same condition as at the start of the Lease unless:
   • (a) the deterioration results from fair wear and tear; or
   • (b) the making good of the Premises would result in the Tenant carrying out structural repairs or making payments of a capital nature unless those structural repairs or capital payments arise because of:
     • (i) negligence by the Tenant;
     • (ii) failure by the Tenant to perform its obligations under the Lease; or
     • (iii) the Tenant's use of the premises.
4. Mr Antill submitted that the effect of Clause 3.4 is that if the damage is caused by the Tenant's use of the Premises, irrespective of fair wear and tear, the Tenant is nevertheless required to restore the Premises to a condition commensurate with the condition as at the commencement of the Lease. In that sense, he argued that Clause 3.4 limits the breadth of the fair wear and tear exception found in Clause 3.2.
5. I do not accept that submission. In my view, the phrase tenants use of the premises is to be read in context such that it means use other than use resulting from fair wear and tear. For example, where a tenant affixes installations to the demised premises, which then requires some form of structural work or repair. In that example, the repair cannot be said to have arisen due to negligence or a breach of the lease covenants on the part of the tenant, nor can it be said that the repair results from fair wear and tear. However, the repair clearly arises because of the tenant's use of the premises.[5]
6. Therefore, I accept Mr Northrop's submission that, in the present case, if the damage to the Pavement is due to fair wear and tear, the obligation under Clause 3.2 to restore the Pavement to its pre-lease condition does not apply. Two questions then arise for consideration:
   • (a) Is the deterioration of the pavement due to fair wear and tear?
   • (b) If the Tenant is under no obligation to repair, does that obligation fall to the Landlord?

Is deterioration of the Pavement due to fair wear and tear?

1. The distinction between deterioration caused by fair wear and tear and deterioration caused by a tenant's use of premises is sometimes difficult to discern. In Westpac General Insurance v Cooper,[6] Tamberlin J observed:

[14] According to the language of cl 64(b), the onus is on the lessor to establish the condition of the premises at the time the tenancy commenced and prove that the premises were not in a similar condition when the tenant left. The clause provides an exception for "fair wear and tear." The burden of demonstrating that the exception applies generally rests on the tenant: see Vines v Djordevitch [1955] HCA 19; (1955) 91 CLR 512 at 519-520. The phrase "fair wear and tear" has been interpreted as the reasonable use of the premises by the tenant and the ordinary operation of natural forces: see Regis Property Co Ltd v Dudley [1959] AC 370. The effect of the clause is that the tenant is bound to keep the house in good repair and condition, but is not liable for minor changes to the premises that constitute reasonable wear and tear. In this case, there is no issue in relation to "fair wear and tear" because it is common ground that the premises were not damaged by fire when the Tenancy Agreement commenced but have since been so damaged.

1. In Regis Property Co Ltd v Dudley (cited above) Lord Denning stated:

The next question is what is the effect of the exception of "fair wear and tear" in a repairing covenant. I find myself in full agreement with what Talbot J said on this subject in Haskell v Marlow. I think the Court of Appeal in Taylor v Web were wrong in overruling Haskell v Marlow. I have never understood that in an ordinary house a "fair wear and tear" exception reduced the burden of repairs to practically nothing at all. It exempts the tenant from liability for repairs that are decorative and for remedying parts that wear out or come adrift in the course of reasonable use, but it does not exempt him from anything else. (410)

1. In Australian Tenancy Practice and Precedents,[7] the learned authors state:

Reasonable fair wear and tear involves changes to the premises brought about by reasonable use by the tenant and the ordinary operation of natural forces. It includes such dilapidations as fretting of the mortar joints in external brick walls, the deterioration of external paintwork and the occurrence of dry rot. (Footnotes omitted) (2856)

1. In my view, the deterioration of the Pavement arises because of the reasonable use by the tenant coupled with the ordinary operation of natural forces. This finding is consistent with the evidence of Mr Ryan, the consulting engineer engaged by the Landlord.[8]
2. Therefore, I find that there is no obligation under clause 3.2 requiring the Tenant to restore the Pavement to its pre-lease condition. However, that does not mean that the Landlord is required to repair.

Is the Landlord obligated to repair the Pavement during the term of the demise?

1. As indicated above, clauses 3.2 and 3.4 only concern the obligations of the Tenant but say nothing as to the obligation of the Landlord.
2. In that regard, the Tenant relies upon Clause 6.4 of the Lease and s 52 of the Act. Clause 6.4 was inserted into the Lease, pursuant to special condition 23.11. It states:

The landlord shall keep the premises in a sound structural and watertight condition, subject to the tenant's obligations contained in clauses 2 and 3 hereof. [9]

(1) A retail premises lease is taken to provide as set out in this section.

(2) The landlord is responsible for maintaining in a condition consistent with the condition of the premises when the retail lease was entered into -

(a) the structure of, and fixtures in, the retail premises; and

1. Consequently, Mr Northrop submitted that the combined effect of Clause 6.4 and s 52 of the Act imposed a positive obligation on the Landlord to make good the Pavement.

1. Leaving aside, for the moment, the claim based on s 52 of the Act, I do not accept that Clause 6.4 has the meaning attributed to it by Mr Northrop.
2. In particular, although premises are defined in the Lease to include the land and buildings, it is difficult to reconcile that obligation with the Pavement. In particular, the Pavement was, at the commencement of the Lease, and remains, an unsealed pavement. It is porous and in my view, it is unlikely that the parties ever intended that this part of the Premises was to be made watertight.
3. As to the second limb of Clause 6.4, there is scarce evidence that the Pavement is not structurally sound. In fact, the only direct evidence going to that issue is a statement made by Mr Carlin-Smith in his report that:

... the pavement at the Kialla Service Station was quite inadequate and would not be structurally sound and watertight.

1. In my view, that statement makes no sense when one considers the type of Pavement in question. In particular, the Pavement will never be watertight, given that it is an unsealed, porous, gravel surface. Moreover, although it forms part of the 'structure' of the Premises, there is no suggestion of any risk that it will collapse or subside to a point where its structural purpose; namely to support the carriage of vehicles, is compromised to a point where that can no longer occur.
2. Therefore, I do not accept Mr Carlin-Smith's evidence that the Pavement is not structurally sound. In particular, I am of the view that even if the Pavement is 'littered' with potholes, those potholes do not make the Pavement structurally unsound, albeit, that customers may have to adjust their driving habits to accommodate the poor condition of the Pavement. In fact, given that the Pavement has no structural elements, in the sense that would ordinarily be associated with a three dimensional building, it is hard to imagine how the words sound structural condition really apply to the Pavement. The situation would certainly be different if the word structural was not included in the clause, so that the obligation was to keep the Pavement in a sound condition. In that case, the presence of potholes or other imperfections might trigger an obligation on the part of the Landlord to repair. However, the words of Clause 6.4 are confined to issues concerning the structural integrity and watertightness of the Premises and not its aesthetic or useable qualities outside of those two parameters.
3. In my view, there is merit in the argument advanced by Mr Antill that Clause 6.4 was never intended to apply to the Pavement and its purpose was only concerned with the condition of the physical buildings forming part of the Premises. This conclusion is reinforced by the fact that the clause, insofar as it purports to relate to the Pavement, is unworkable if it is to be construed to require the Pavement to be kept watertight. In particular, it was never watertight, nor could it ever have been intended to be watertight, given the material used in its construction.
4. This begs the question: How can you keep the Pavement watertight when it never was nor could have been, watertight? The definition of watertight implies keeping water out (or in) of something.[10] For example, a watertight structure or vessel. This seems to be consistent with the use of the word in the context of a building. On the other hand, the word waterproof is defined as not penetrable by water, which I consider to be a more appropriate word when used in the context of the Pavement.[11]
5. In Tillmans & Co v SS Knutsford Ltd,[12] Farwell LJ said:

In a mercantile document or a statute there is a presumption that businessmen do not intend to do anything absurd, which is some slight guide; but in all cases it is a matter of construction.[13]

1. Further, in construing contractual terms, there is a presumption against impossibility. In other words, it is presumed that the contract does not require performance of the impossible. In The Epaphus [1987] 2 Lloyd's Rep. 213, Donaldson MR said:

My starting point is that parties to the contract are free to agree upon any terms which they consider appropriate, including a term requiring one of the parties to do the impossible, although it would be highly unusual to parties knowingly so to agree. If they do so agree and if, as is inevitable, he fails to perform, he will be liable in damages. That said, any court will hesitate for a long time before holding that, as a matter of construction, the parties have contracted for the impossible, particularly in a commercial contract. Parties to such contracts can be expected to contemplate performance, not breach.[14]

1. Therefore, I am of the view that Clause 6.4 ought to be construed to mean that the word premises means the physical buildings forming part of the Premises but excluding the Pavement and the surrounding land comprising the demise. In that respect, I find that the parties did not intend that the word premises in Clause 6.4 was to have the same meaning as appears in Clause 1.1 of the Lease.[15] To hold otherwise would mean that not only the Pavement but also the surrounding land would need to be structurally sound and watertight, which clearly was never intended.
2. That being the case, I find that the express terms of the Lease do not impose an obligation on the Landlord to repair the Pavement during the currency of the Lease term.

1. That then leaves the claim based on s 52 of the Act. In order to determine this aspect of the Tenant's claim, one must consider what the condition of the Pavement was at the time when the parties entered into the Lease. In that respect, Mr Antill referred me to Ross-Hunt Pty Ltd v Cianjan Pty Ltd,[16] where Deputy President Macnamara (as he then was) confirmed that the comparator for the purposes of s 52, is the most recent renewal of the Lease and not the original lease. That proposition was not challenged. Accordingly, I will proceed on that basis.
2. The Lease was renewed on 1 April 2010. Mr Antill submitted that the clearest indication as to what was the condition of the Pavement as at that date is the evidence of Alexander Micesvski concerning his site visit in June 2010. In his witness statement dated 12 March 2013, he states:
   1. By about June 2010 the situation at the Premises had worsened and further potholes had developed in the Pavement (including the entry to the Premises).
   2. The situation concerning potholes in the Pavement was a serious enough issue for me to personally visit the Premises to inspect them for myself and otherwise observed their impact on the operation of the service station and roadhouse which I did on 7 June 2010. When I visited the Premises and observed the situation for myself I was sufficiently concerned to take some photographs and to immediately send e-mails advising of the seriousness of the problem. I also distinctly remember while I was on the site that day fielding verbal complaints from customers (car and truck drivers) of the service station about the poor condition of the Pavement and in particular the potholes. There were so many potholes that were impacting upon the operation of the service station and roadhouse that I took it upon myself to personally count them all and in total I counted 57. Emails dated 7 June 2010 that I had sent attaching some photographs of potholes is in the Bundle at pages 65-70. In particular, in my email sent at approximately 12:17pm I noted:

(a) a pothole measuring "about 1 m wide and 20 cm deep at its deepest point";

1. Mr Antill further referred to the expert report of Mr Ryan, the consulting engineer engaged by the Landlord. Mr Ryan states:

In consideration of the recent works we have reviewed the available aerial photography to understand the existing situation prior to these works. The available aerial photography was limited to the images published by Nearmaps on the website www.nearmap.com. Refer to appendices copies of the available aerial images for this site...

- some mottled patterns apparent in surface of the pavement, possibly moisture affected pavement from the light rain event and an indicative of potholes [sic]...

1. Mr Ryan elaborated on his report during his evidence in chief. He said that the mottling referred to in his report was the yellow and brown clay areas, which he said was sub-grade material being washed up into the crushed rock top-grade. He opined that the load of vehicular traffic was pumping this sub-grade material onto the surface of the Pavement and that its presence was indicative of potholes. He confirmed that, based on the aerial photograph, he considered there were potholes in the Pavement as at 1 February 2010, which generally matched the site survey plan prepared by Chris Smith & Associates Pty Ltd.[17]
2. Mr Northrop submitted that the observations of Mr Micesvski in June 2010 were more than two months after the Lease was renewed. Therefore, those observations were not an accurate reflection of the state of the Premises at the time the Lease commenced. Mr Northrop suggested that given the time of the year, it was possible that the Pavement had materially deteriorated in that two-month period.
3. There is some support for that submission in the expert opinion given by Mr Ryan. In his report, he states:

If the site receives appropriate, timely and regular maintenance on an ongoing basis, it is likely that the site can be readily maintained in a usable state of repair. From time to time it may be necessary to close off soft areas to heavy traffic to prevent or minimise any significant damage.

That regular maintenance would include continued grading and potholing every 6 to 8 weeks, also clearing of surface drains, pit and pipe cleaning every three months. Further interventions may be required to respond to periods of prolonged wet weather, heavy traffic etc.

1. Therefore, if the Pavement requires regular maintenance every six to eight weeks, the condition of the Premises may have deteriorated in the two month period prior to Mr Micesvski visiting the Premises in June 2010. However, that conclusion requires me to speculate because there is no direct evidence confirming that scenario.
2. Moreover, Mr Ryan's evidence concerning the aerial photograph taken on 1 February 2010 weighs against a finding that the Pavement materially deteriorated during the period 1 April 2010 to 7 June 2010. In particular, there is no evidence of any remedial work being undertaken during the period 1 February 2010 to 1 April 2010. In that regard, I note that the Tenant has had continual possession of the Premises since 2000. It was open for the Tenant to have adduced evidence as to the condition of the Pavement prior to the Lease being renewed. However, the evidence adduced by the Tenant contradicts such a conclusion. In particular, Mr Micesvski gave evidence that the Tenant undertook remedial work on 14 August 2008 and 16 December 2009. As I understand Mr Micesvski's evidence, those are the only occasions where remedial work was undertaken to the Pavement by either the Tenant or the Landlord prior to the renewal of the Lease.
3. Therefore, I find that the condition of the Pavement as at the commencement of the Lease on 1 April 2010 was, in all likelihood, commensurate with the condition observed by Mr Micesvski on 7 June 2010.
4. That being the case, s 52 of the Act imposes no obligation on the Landlord to do anything to improve the condition of the Pavement to something better than the condition it was in as at 1 April 2010. The Tenant's claim for remedial costs after the commencement of the Lease must therefore fail.

Claims for remedial costs prior to commencement of lease

1. The Tenant further claims reimbursement for remedial costs incurred prior to the commencement of the Lease of $10,300 plus GST. It is common ground; however, that s 52 of the Act did not apply to the lease agreement, prior to its renewal on 1 April 2010. No argument was advanced as to the grounds upon which the Landlord was to pay that amount, other than the contention that Clause 6.1 imposed that obligation. However, as I have already determined, I do not construe Clause 6.1 to go so far as to impose a positive obligation on the Landlord to undertake work on the Pavement. Therefore, that aspect of the Tenant's claim must also fail.
2. Consequently, the Tenant's claim will be dismissed, with liberty given to the parties to apply for any ancillary orders that flow from this finding.

[1] The words in italics were a handwritten amendment to the typed part of Clause 6.4.

[2] (1967) 86 WN (NSW) 321.

[3] [2004] NSWSC 487 at [39]

[4] Expert report of Harry Carlin-Smith dated March 2013 at pages 20-22.

[5] That interpretation is also consistent with the Tenant's obligations to make good the Premises upon vacating the Premises.

[6] [2006] ACTSC 91.

[7] Australian Tenancy Practice and Precedents MJ Redfern & DI Cassidy (Butterworths) 1987 at 2856.

[9] The italics was a handwritten amendment to the typed part of Clause 6.4.

[13] Cited in The Interpretation of Contracts, Kim Lewison (Sweet and Maxwell) 2004 at 234.

[14] Cited in The Interpretation of Contracts, Kim Lewison (Sweet and Maxwell) 2004 at 239.

[15] Clause 1.1 of the Lease defines premises to include the land and buildings under the demise and the Landlord's installations.

[16] [2009] VCAT 829.

[17] Chris Smith & Associates Pty Ltd were engaged by Mr Carlin-Smith, the consulting engineer engaged by the Tenant.