Computer & Parts Land Pty Ltd v Aust-China Yan Tai Pty Ltd & Ors

Victorian Civil and Administrative Tribunal|2010-12-23|Before: Mr P

For the reasons given above I do not accept this submission. I find that the Previous Landlord breached Special Provision 1 with respect to the water leaks, gutters and ceiling tiles and that it is a continuing breach.

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

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

(c) the appliances, fittings and fixtures provided under the lease by the landlord relating to the gas, electricity, water, drainage or other services. [Emphasis added]

A retail lease is taken to provide as set out in this section.

As Mr Best submitted, the Landlords' repair covenant under s52 is incorporated into the Lease.

Mr Best submitted that the date is defined in section 7 of the RL Act and the relevant trigger, being the first to occur of three possible triggers, was the date upon which both the Tenant and the Previous Landlord had signed the lease. He said that this is likely to have been between 28 January 2004 and 3 February 2004 as there is a file note on the bottom of each page of the lease giving the date of 27 January 2004, "the disclosure statement was (last) signed by the lessee on the 28th January 2004" and there is a letter from the Previous Landlord's solicitors to the Tenant's solicitors dated 3 February 2004 which encloses a counterpart of the lease signed by both parties.
Although the Tenant pleads that the Lease was dated 29 March 2004 and the first term of lease was to commence on 11 March 2004, somewhat inconsistently, Special Provision 1[31] of the Lease obliged the Previous Landlord to complete the works no later than 1 March 2004.
Mr Heath submitted[32] that the relevant date was 11 March 2004; the date upon which the Tenant entered into possession with the Previous Landlord's permission. He argued that the maintenance obligation does not require the Landlords to upgrade the premises from their state on that date. Whatever the date was in early 2004, it is clear that the roof still leaked and the air-conditioning functioned poorly, if at all.

Mr Best submitted that s52 is a "benevolent provision for tenants" and the words of s52, and of the lease in general:

... must be given a commonsensical, commercially sensible construction and not a literal construction;

First, if s52 is "benevolent for tenants" it is substantially less benevolent since the passing of the Retail Leases (Amendment) Act 2005 discussed further, below.[33] Second, "Common sense" is a potentially difficult concept, tending to rely on the underlying assumptions of the person who asserts it - assumptions that run so deep that we might not even be aware that we are making them. Nevertheless, assistance comes from the judgement of Lord Steyn in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd[34], quoted with approval by Gillard AJA in MLW Technology Pty Ltd v May[35] where his Lordship said:

the law therefore generally favours a commercially sensible construction. ... Words are therefore interpreted in the way in which a reasonable commercial person would construe them. And the standard of the reasonable commercial person is hostile to technical interpretations and undue emphasis on niceties of language. [Emphasis added by Gillard AJA]

I accept Mr Best's submission[36] that

... it is implied in every contract (as a matter of law) an obligation to do all such things as are necessary on the part of each party to enable the other party to have the benefit of the contract and this requires each party to take all reasonable steps.

I note Mr Best's statement that before the enactment of s52 there was no equivalent in the Retail Tenancies Act nor the Retail Tenancies (Reform) Act and the LIV standard form commercial lease did not contain a covenant requiring a landlord to carry out any repairs. Rather, the obligation for repairs (limited to non-structural repairs to return premises to their state at the commencement of the lease) was on the tenant. Further, the common law did not impose an implied covenant or warranty that the landlord put the premises into repair at the commencement of the lease[37], nor that the premises are fit for habitation or for a particular use or purpose.
Mr Best submitted at paragraph 17 of the Tenant's written submissions:

The state of the law prior to the enactment of section 52 clearly indicates that the purpose or object of section 52 is:

(a) to redress an inequality (generally arising from the lack of bargaining power of the lessee), that is the general lack of a lessor's repair covenant in commercial leases;

(b) to reform the law by imposing a new, irrevocable, mandatory obligation upon the lessor in favour of the lessee to repair retail premises as prescribed by section 52(2).

Mr Best made submissions about the elements of s52(2) and I adopt his headings:

Mr Best submitted[38] that the Landlord is under "a continuous obligation to do carry out maintenance and repairs". He drew on the inclusion of the word "repairs" in s52(3)(a), 52(4) and 52(5) in support of his submission - the word does not appear in s52(2). He submitted further that a landlord must be proactive in maintaining premises "whether or not the [tenant] has expressly notified the [landlord] of any default in repair". I remark that a tenant who failed to notify a landlord of matters within the tenant's knowledge would seem to be failing in the manner criticised by Mr Best - failing to take reasonable steps to assist the other party to the contract to avoid inadvertent breach.
Mr Best also submitted that the Landlord is under a continuing obligation to repair, and that each day in breach constitutes a new breach.

"in a condition consistent with the condition of the premises"

Mr Best submitted that this expression, introduced in the 2005 amendment:

... is clearly intended to delimit, in part, the extent of the obligation to repair the subject matter of the obligation.

He went on to say that an extreme interpretation of the expression, for example, replacing an old, failed bolt with another old bolt - yet to fail - would lead to a "nonsensical and uncommercial interpretation". He submitted that the section should not be given such a narrow construction and that repairs should be done in accordance with applicable laws at the time of each repair, rather than to the standard required at the time the lease was entered into.
In applying this phrase to the proceeding, Mr Best said that literal interpretation would mean that if the air conditioning were not working on the day the lease commenced, the landlord would not be obliged to make it work.
Mr Best pointed out that "consistent with" is not the same as "exact", "identical" or "same" and concluded:

The use of the word "consistent" (meaning "compatible") clearly indicates that the lessor's obligation to repair is not limited to maintaining the premises in the exact and detailed state of disrepair at the date of entering the lease. [Emphasis added]

I accept his submission that the "state of disrepair" need not be identical, and that the Landlord must provide "the same benefit to the lessee as was agreed to be provided by the demise". However, the state of repair need not be any better than that at the commencement of the lease.

"condition of the premises when the retail premises lease was entered into"

Mr Best submitted that "condition of the premises":

... circumscribes, in part, what is the subject of the repair obligation (that is the plant and equipment, fixtures etc which are in the premises at the time of entry into the lease)

does not dictate that it is the exact, actual degree of repair (or disrepair) in the premises [etc] at the date of entering into the lease.

Mr Best's submission could perhaps be described as the "laundry list interpretation". He appears to be saying that an item cannot be added to the list, if it is not in place at the date of entering the lease. However, once on the list, the item can be required to be put into a state of repair by the Landlord so that it operates "reliably to its design specification"[39], at the date of entering the lease and throughout its term. He submitted that to interpret the phrase otherwise unnecessarily limits the benefit of the repair covenant to the Tenant, will not achieve the purpose of the provision and disrepair is "usually only discovered after the lessee has entered into the lease". [Mr Best's emphasis]
As to a tenant's discovery of the state of repair, it would be poor policy to encourage prospective tenants to enter leases without adequate inspection of the premises in the hope that the prospective landlord would then be obliged to rectify alleged defects. I also consider that the laundry list interpretation is unlikely to increase certainty between parties about the standard at which premises should be maintained. Both prospective landlords and prospective tenants should be obliged to act prudently to protect their future interests when contemplating entering leases.
I accept Mr Best's submission that the "condition of the premises" is determined (at least in part):

... from what was demised under the lease and the intention of the parties in respect to the property demised. [Emphasis added]

Mr Best gave two examples of circumstances that indicate intention. The first is an obligation on the Tenant to pay for, or reimburse the Landlord for servicing air-conditioning. I accept his submission that this example indicates:

...not only a clear intention that the lessee have the benefit of functioning air-conditioning at the time of entering into the lease but that the air-conditioning system continue to function throughout the term.

Mr Best's second example concerned a hypothetical lease that does not refer to air-conditioning but the premises are commercial, with sealed windows and air-conditioning installed. As the Lease does refer to servicing the air-conditioning, it is unnecessary for me to consider the validity of this example.
Of the qualitative benchmark, Mr Best submitted that a 20 year old system which is not functioning or only working intermittently should be repaired, or possibly replaced:

... in order to give the benefit of the lease to the lessee but [the Landlord] is not required to put in a system which delivers a greater benefit than was agreed.

Mr Heath referred to the amendment to s52(2) which was retrospectively effective from 1 May 2003. The words struck through were deleted and those underlined were added:

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

Mr Heath relied on the words of Dr Croft[40] who said the effect of the amendment is to change the interpretation of s52(2) from a landlord's obligation to:

'put in and keep in repair' to an obligation to 'keep in repair' as at the date the retail premises lease was entered into.

I accept Mr Heath's interpretation. "Keep in repair" could mean, in extreme circumstances, that the only course open to a landlord is to replace some aspect of rented premises, but only to the degree that it is necessary to give the tenant the same conditions as at the commencement of the tenancy.

The nub of Mr Best's written submissions regarding s52 are found at paragraph 39:

As it is a question of the repair delivering a compatible condition to the benefit granted under the lease and not maintaining the premises in exactly the same condition as at the date of entering into the lease:

(a) if parts fail they must be replaced with new parts;

(b) if equipment is beyond repair or such repair which may be undertaken will not deliver the benefit required then it must be replaced;

(d) even if parts of a system have not literally failed (for example, ductwork) but the retention of that part hinders the ability of the system to deliver the agreed benefit then that part must be replaced;

(e) if there is a design defect which prohibits the lessee receiving the benefit of the demise then that defect must be remedied.

Items (a) and (b) have been discussed above - if parts fail they must be replaced with replacement parts which, in the absence of adequate second hand parts, might need to be new.

A landlord undertaking work might not be able to do the work other than in accordance with current legal requirements for such work, but it occurs to me that this is a matter of regulation rather than a right of the Tenant. The detailed question of what the current Landlord (or anyone else undertaking work on the Premises) may or may not be entitled to do under building or related regulations has not been the subject of evidence before me, despite the lengthy hearing.
I accept Mr Heath's submission[41] that s52:

...does not mandate compliance with any other legislative standard, regulatory standard or Australian Standard.

Mr Best submitted at paragraphs 66 to 68 of his written submissions that the Landlords are not licensed plumbers and are therefore not entitled to personally undertake the roofing or air-conditioning works. I agree with his submission, to the extent that nothing in the Lease entitles either or both the Landlords to contravene a building or related law or regulation. Further, if there were an aspect of the building that was legal at the date of its construction but is no longer legal, repair of that aspect of the building would not be a betterment for the Tenant. For example, if it were necessary to repair structural steelwork in the building and that steelwork was fire-protected using limpet asbestos, use of a different product for fire protection would be no more than a repair, as the use of limpet asbestos would be illegal.
I note that Mr Best made a similar submission before Deputy President Macnamara in My Club Pty Ltd v Somalex Nominees[42] who said:

There is no covenant in the lease nor no covenant implied by the Retail Leases Act or otherwise ... which would oblige the lessor to comply with a particular Australian standard. Mr Best submitted that the contractors involved in any work that might now be carried out would necessarily have to comply with the relevant standards ... It may well be that Mr Best is correct. What I am concerned with however is compliance with the lease and any statutory implied terms. If compliance with the lease entails incidentally some measure of upgrade because those involved in carrying out works must comply with the Australian standard, so be it.

I do not consider that I can determine the detail of what may or may not be done, particularly as I have heard no expert evidence on this issue.

With respect to design, I accept Mr Heath's submission[43] that Special Provision 1 did not require the Previous Landlord to re-design the air-conditioning system to remove any design flaws or anomalies. A system which never worked very well, because of initial poor design, is still the system which provides the benchmark for the condition of that particular part of the premises at the commencement of the lease. A tenant seeking work under 39(d) or (e) would have to demonstrate that the "agreed benefit" was greater than the benefit to be derived at the commencement of the lease.
This is not the same factual matrix as Deputy President Macnamara's decision in My Club where he found s52 was breached by the installation of new air-conditioning units that, unlike the original units, did not circulate fresh air. Rather, DP Macnamara found at paragraph 42 that although the permitted use of the premises was "health and fitness gymnasium", to which they were converted by the tenant after the commencement of the lease, the state at commencement was office space. He accepted the landlord's submission that it was under no obligation to carry out an "upgrade" to bring the air-conditioning to the more exacting standards required of premises used as gyms.
Mr Best submitted that an "improvement" is if the Landlord were required to:

... give something new, new that is in the sense that it is not in the same category as was originally demised.

In support of this submission he referred to the decision of Denning LJ in Morcom v Campbell-Jones[44] where the landlords spent £10,000 - a significant sum at the time - on an old system of drainage, replacing it with differently designed modern one. The question arose because the landlords sought to increase the rent because of "expenditure on the improvement ... of the dwelling house" in accordance with the Increase of Rent and Mortgage Interest (Restrictions) Act 1920. His Honour found in this context that the provision required something new, which was beneficial, judged objectively from the view of a reasonable tenant.
The test in Morcom quoted by Mr Best is:

... if the work which is done is the provision of something new for the benefit of the occupier, that is, properly speaking, an improvement; but if it is only the replacement of something already there, which has become dilapidated or worn out then, albeit that is a replacement by its modern equivalent, it comes within the category of repairs and not improvements.

Mr Best also quoted Forbes J in Ravenseft v Davstone Ltd[45]:

... the true test is, as the cases show, that it is always a question of degree whether that which the tenant is being asked to do can properly be described as repair, or whether on the contrary it would involve giving back to the landlord a wholly different thing from that which he demised.

I am not satisfied that the Morcom test is appropriate if a tenant were to require a landlord to replace an air-conditioning system with one that operates better than the one which was originally in place.
Having regard to the Ravenseft test, not all air-conditioners are equal, just as both a Rolls Royce and a Volkswagon Beetle are both cars, but most would regard them as "wholly different" things.

Mr Best provided a number of examples of extensive works that have been classified as "repairs". I quote three from paragraphs 43 and 44 of his written submissions:

In New Zealand Insurance Company Ltd v Keesing [1953] N.Z.L.R. 7, O'Leary J. stated that the replacement of a roof was a repair.

[In] My Club Ltd v Somalex Nominees [2008] VCAT 171 at [60] Macnamara DP:

If compliance with the lease entails incidentally some measure of upgrade because those involved in carrying out works must comply with the Australian standard so be it. If the roof of premises deteriorated and in accordance with the Section 52 implied covenant must be replaced, it would be no answer for a lessor to say that the sort of roof which originally existed on the premises was no longer manufactured and only a superior form of roof was available which would necessarily entail an upgrade.

A repair may also be the remediation of a design defect if the remedy does not amount to a change in the character of the thing demised.

For example in [Ravenseft] a multi-story building was clad in stone but the design did not allow for expansion joints and the cladding became a danger. The lessor required the lessee to pay for the cost of the recladding on the building pursuant to the repairing covenant. Forbes J at 21 held that it was a question of degree whether work that so changed the character of the building as to involve giving back to the lessor a wholly different building to that demised. His Honour held that, in rendering the building safe, the inclusion of expansion joints was such a trivial part of the whole building that their insertion could not amount to an improvement which changed the nature of the building so as to take all the work of reparation out of the ambit of the covenant to repair. Consequently, the tenant was liable for the repair. [Emphasis added]

I remark that while in some circumstances replacement of a roof might be a necessary repair, the Tenant in this proceeding must still demonstrate that the repairs contemplated by both Mr Gairns and Mr Quick in their "joint report" are insufficient. More is said of this below. Further, while remediation of a design defect might be a necessary part of a repair, it is not the same as requiring the party upon whom the obligation for repair is cast to improve a design which is desirable but not necessary in order to achieve the state of the premises at the commencement of the lease.

Conclusion regarding the interpretation of s52 in this proceeding

At paragraph 45 of his written submissions Mr Best said:

A purposive, commonsensical, commercial construction of the expression "in a condition consistent with the condition of the premises when the retail premises lease was entered into" is that the lessor is required to carry out any necessary repairs (including replacements) ... on and after the date of entry into the lease in order to give the lessee the intended benefit of the premises and its plant, equipment, fittings and fixtures.

I do not accept Mr Best's interpretation as a general rule. If Parliament had intended s52 to have this meaning, it could have used those words or something very close to them.

Nevertheless, the question is whether, in the factual matrix of this proceeding, such an interpretation should be adopted. The Tenant need not rely just upon the existence of an air-conditioning system, but can also rely upon the agreement between itself and the Previous Landlord, that the air-conditioning system be put into repair at the commencement of the tenancy. I accept the submission by Mr Best[46] that in accordance with Special Provision 1, there was a clear intention between the parties that, regardless of the actual state of repair, the roof leaks would be repaired, the air-conditioning system would work and that a damaged and stained ceiling tiles would have been replaced with new tiles.
Further, I accept Mr Best's submission that "repair roof leaks" means to make the roof water-tight, but qualify this to mean watertight to standards of reasonable workmanship. If there were, say, a one in one-hundred year rain event, leaking on that occasion might not indicate a breach of the lease. As the Landlords have given no evidence that there was such an event, I need not take this possible exception into consideration.
But for Special Provision 1, I would find that the Landlords had no obligation to do more than ensure that poor systems did not deteriorate further[47]. I note that in an extreme case this can lead to the result under s57(1)(a) of the RL Act that the lease would still be on foot[48] but the rent and outgoings would be reduced to nil.

Mr Best's submitted[49] with respect to the roof that:

For the purposes of section 52, "the condition of the premises" was the deemed condition that the premises were water-tight.

Similar submissions were made with respect to the state of the air-conditioning.

Mr Heath submitted that s52 does not refer "to the 'deemed' or fictional condition of the premises at the commencement of the lease". I prefer Mr Best's submission to Mr Heath's. I do not accept that the Landlords can rely upon the Previous Landlord's breach of Special Provision 1 to gain a benefit for the whole of the lease - the obligation to repair only to a lower standard. Had the Previous Landlord done what it was obliged to do, there would be no argument. The condition of the premises to be provided by the Previous Tenant was not fictional; it was agreed.
I note, and do not accept, Mr Heath's submission[50] regarding the air-conditioning that:

... if the Tribunal accepts Mr Wang's evidence that the system was a complete failure as at 25 March 2004, that is the "benchmark" for the purpose of assessing the discharge of the maintenance obligation in section 52 of the RLA.

Further or alternatively, I find that clause 8.3 of the Lease also deems the condition of the Premises at the commencement of the Lease to be the agreed condition. Clause 8.3 provides:

The landlord must keep the structure of the premises in reasonable repair having regard to its age, but subject to the [RL] Act, if it applies, is not responsible for any repairs which are the responsibility of the tenant under this lease. If the Act applies, the landlord must carry out any repairs required by section 52 of the Act.

I find that "reasonable repair" must mean, to the standard agreed by the parties. It cannot have been the intention of the parties that the Previous Landlord could benefit from its own breach.

The obligation in Special Provision 1 to ensure that the air-conditioning was "in working order" could mean that the Previous Landlord had no greater obligation than to ensure that, in accordance with the evidence of Mr Anderson and Mr O'Connor, the system would deliver 6,500 litres of air per second at a temperature of 14 degrees Celsius at the compressor.
Another interpretation is that it could have obliged the Previous Landlord to provide a system that kept the premises at a reasonable temperature - an interpretation that could require the Previous Landlord to undertake insulation works to either the underside of the metal deck roof and/or to install insulated return air ducts and/or to insulate uninsulated air-conditioning ducts, as sought in paragraphs 18, 19 and 20 of Schedule 2 to the Tenant's proposed orders. There is further discussion of these items under "the Insulation Items" below.[51]
Mr Anderson and Mr O'Connor agreed that the system at the commencement of the tenancy provided for four temperature control zones with ancillary thermostats and that there was heating to the entire premises. I say "provided for" because it is beyond doubt that the air-conditioning system did not function effectively at the commencement of the tenancy.
Both experts agreed that there was a first floor central or internal zone. The zones identified by Mr O'Connor as first floor west, first floor south and ground floor south were identified respectively by Mr Anderson as first floor south west, first floor south east and ground floor south east (showroom). I am satisfied that despite the differences in nomenclature, both experts were referring to the same areas.
Mr Heath submitted[52] that the air-conditioning aspect of the Tenant's open offer of 6 April 2010 "did not address the "zoning" problems with the current system. I do not agree that this conclusion can be drawn from the offer. Although proposed Special Provision 9.1 included in Schedule 2 to the offer does not specifically mention zoning, there is no evidence before me to suggest that the works contemplated could not include zoning.
I find that the Tenant is entitled to four-zoned air-conditioning and that the failure of both Landlords to provide it, regardless of the presence or absence of any other failure in the current air-conditioning system, is a breach of the lease which is almost identical, in effect, to the breach by the landlord in My Club.

The Landlords admit they have breached s52 with respect to the roof. The appropriate remedy arising out of this breach is discussed below.

The Previous Landlord undertook, in Special Provision 1 to replace stained and damaged ceiling tiles. Some ceiling tiles have been replaced, but as Ms Fiona Wang, agreed in cross-examination, even at the commencement of the lease not all stained ceiling tiles were replaced. Further, it is beyond doubt that more have been damaged by the Landlords' continuing failure to address the problem of water entry through the roof and associated drainage. As seen at the site visit of 22 March 2010 many of the ceiling tiles on the first floor were totally destroyed and even more were stained and unsightly.

Mr Best submitted that the Previous Landlord is liable for breaches of the lease prior to the date upon which the Landlord was registered as proprietor of the Premises - 18 August 2009 - and the Landlord is liable from that date.
Mr Best submitted in accordance with the judgement in Duncliffe v Caerfelin Properties Ltd[53] as approved by the Welsh Court of Appeal in Smith v Muscat[54] that s142 of the Property Law Act 1958 ("PL Act") does not transmit liability for past breaches to the new owner, although future burdens of the lease do flow with the reversion. He also referred to the decision of Deputy President Macnamara in Cafe Dansk Pty Ltd v Shiel[55], who confirmed that:

... once persons become entitled to the reversion under a lease ... they become liable upon the covenants of the lease.

DP Macnamara said that he was not referred to any authorities on the question of whether liability extends to pre-existing defaults. He concluded that as s141 of the PL Act vests a right for repair and reinstatement in an assignee of a lease, rather than leaving it with the assignor, and as the assignee inherits the burden of paying arrears of rent with the lease[56]:

There seems no reason why a different rule should apply to the question of whether the assignment of the burden of a covenant extends to breaches taking place prior to assignment.

I accept Mr Best's submissions that covenants to repair and for quiet enjoyment run with the land and the reversion. I note his submission that liability for causes of action not based on covenants in the lease are not assigned by statute or law, and therefore the Previous Landlord remains solely liable for them.
Mr Heath said[57] that in respect of compensation and abatement under s57 of the RL Act, s83 extends the definition of "landlord" to include former landlords. He also said:

The [Landlords] do not wish to advance submissions in respect of sections 141 and 142 of [the Property Law Act 1958][58]. This should not be surprising given that [they] have used the same lawyers at the hearing.

He added that with respect to the cross-claim, the Landlord does rely on s142.

As sought by Mr Best and unless otherwise agreed by the parties, I intend to order that the Previous Landlord is liable for the loss and damage incurred by the Tenant from commencement of the Tenancy to 18 August 2009 and the Landlord is liable from that date. It follows that the Landlord will be liable to undertake the works that will be ordered.

At the hearing of final submissions, the Tenant and Landlords agreed that where I find repairs are necessary and the responsibility of either or both the Landlords, an order for work by the Landlords is appropriate.

There is no doubt that there has been substantial flooding, particularly on the first floor. Photographs taken on various occasions show that there has been a large volume of water through the ceiling of the first floor, saturating the floor in many areas and causing many of the ceiling tiles to collapse. I accept the evidence of the Tenant that there was very serious flooding on or about 3 March this year.

Regardless of the offers made, it is noted that the Tenant's preferred option is to have the roof replaced rather than repaired. DP Macnamara's comments in My Club quoted above[59] are apposite - if the roof must be replaced, the Landlords cannot answer this by saying that it is an upgrade. But must the roof be replaced?
The lease does not expire until September 2015 - about five and a half years from the date upon which Mr Gairns and Mr Quick gave concurrent evidence about the roof. I note the evidence of Mr Gairns that the roof is "very close to, or at its use by date" and I reiterate that item 1 of the joint report was "Past its use by date/ but it is leaking from workmanship". However, the Tenant's offer of 6 April 2010, which was based on the Landlords' open offer of 1 April 2010[60] is for repair rather than replacement. I accept Mr Heath's submission[61] that the fact of this open offer is something I can take into account in coming to this decision.
I also note the evidence of Mr Quick that although the roof sheets are "mainly sound", the fixings need replacing, "there is quite a lot of rusty flashing", the sarking below the roof "needs looking at because of its age" and "you would probably only get another five or six years out of that roof and then it will start to corrode."
I find, on balance, that the only satisfactory means of ensuring that the roof will survive for the remainder of the period of the tenancy is to replace it. Having made this finding, there are two orders I could make. One would be to order repairs consistent with the joint report, in the likelihood that the parties will be in dispute again over the state of the roof before the end of the tenancy. The other is to order replacement of the roof on the basis that, although it might not yet be at a stage where replacement is the only option, it is doomed to fail within the life of the tenancy - the certainty of its future failure would justify its replacement now.
As the state of the roof makes it likely rather than certain that it will need to be replaced, I adopt the former analysis and, subject to other agreement by the parties, intend to order that the Landlord repair the roof in accordance with the considerations detailed below, rather than replace it.

Mr Heath submitted that: "the Tribunal is entitled to use the 'joint' report of the experts in framing the scope and terms of this order". I rely both on the joint report of the roofing experts and the open offers made by the parties.

I am assisted by the open offers made by the parties and, subject to any changes in orders sought by consent, will make orders in accordance with the agreed items, which appear above under "Open Offers", being items 4, 7, 8, 9, 10, 11, 12, 13, 14, 15 and 16.

The items where the parties are not in complete accord are as follows, with the agreed portions in plain type and the Tenant's additional requirements in italics:

Item 1 - Back flowing storm water drains at ground level

Engage an independent licensed roof plumber and building consultant (not being an expert in the proceeding) experienced in Drainage design to investigate and report on the following:

Possible blockage of underground storm water drains serving roof downpipes and capacity of underground storm water drains to handle roof rainwater loading. Use a camera to check for possible underground storm water drain blockages.
Capacity of roof level gutters and downpipes to comply with AS 3500.3.2 Stormwater Drainage at time of installation.
Make recommendations in relation to 1 & 2 above and carry out recommendations.
The Landlords submitted, correctly, that this is not a pleaded issue and that they did not conduct the hearing by reference to this issue. Nevertheless, it is obviously an important investigation and one that was first raised by them in their open offer of 1 April 2010. Therefore, should both parties so agree, I am willing to order that the investigation be undertaken.
A failing of both versions of Item 1 is that it does not provide for who will bear the cost of the investigation, nor for any necessary rectification once the investigation has occurred. To assist in negotiations regarding this, or any other item, I order now that if the parties make a joint written request, the proceeding is to return to compulsory conference before Senior Member Levine as a matter of urgency. This order will only be made on the understanding that both the Tenant and Landlords undertake to have representatives present at the compulsory conference with unlimited authority to settle.
I remark that I consider it reasonable that an independent building consultant with expertise in roof plumbing undertake any such investigation rather than Mr Quick, as offered by the Landlords. This is emphatically not a criticism of Mr Quick, but is to avoid putting him in this position which could potentially cause him embarrassment.

Provide overflows to all roof level sumps to comply with building standards at time of installation. /current building standards. Deepen sumps as required.

As discussed above, the Tenant is only entitled to the state of the Premises (including the deemed state) at early March 2004. However, the work must not be done illegally. The work must be done to the building standards current at the commencement of the Lease, unless complying with those standards would now be illegal.

Lift roof at full perimeter to access sarking, supply and fix adequately sized flashing to fit under sarking so sarking drains over flashing into box gutter (this is to address lack of turndown of sarking 25mm into box gutter in some locations.)

The roofing experts appear to agree that the roof should be lifted at full perimeter which, unless otherwise agreed, I intend to order. Again, the work must be done to the building standards current at the commencement of the Lease, unless complying with those standards would now be illegal.

Replace box gutter to north east (heavily dished) with new and provide complying grade to north east rainhead.

I am satisfied that the solution sought by the Tenant is necessary to be reasonably sure that the roof will be reasonably water-tight, and unless otherwise agreed, I intend to order replacement of the north-east gutter as well as regrading of other gutters when replaced.

Repair roof hatch as necessary. Replace roof hatch with new. Adequately flash new roof hatch.

I note Mr Heath's submission that this item was not part of the pleaded case. I also note that my attention was not drawn to any deficiency of the hatch that is so severe that it must be replaced. Unless otherwise agreed, I intend to order that the roof hatch be repaired as necessary and adequately flashed.

Mr Best says at paragraph 110 (a) of his written submissions:

Waterproof western and southern windows. There is more than enough evidence as to the leaking of windows and numerous complaints about leakage. The windows continue to leak.

However as Mr Heath submitted[62], leaking windows were not part of the Tenant's pleaded case and neither Mr Quick nor Mr Gairns included leaking windows in their reports. Unless otherwise agreed by the Tenant and Landlords I do not intend to make any order concerning possible window leaks.

Remove all damaged or stained ceiling tiles on the first floor of the premises and replace with new ceiling tiles and make good any light fittings thereto.

I am satisfied that the damaged and stained ceiling tiles are in that condition because of the failure of the Landlords to maintain the reasonable water-tightness of the roof, but there was no evidence regarding damaged light fittings. Mr Heath submitted[63] that light fittings are the responsibility of the Tenant under the Lease. I note that this would not excuse the Landlords of causing damage to them.
Subject to other agreement by the Tenant and Landlords, I will order that the Landlords remove all damaged or stained ceiling tiles on the first floor of the premises and replace with new ceiling tiles.

Remove and replace all damaged or leaking downpipes.

As Mr Heath submitted[64], the eastern downpipes were not part of the Tenant's pleaded claim, although representatives of the Tenant indicated on site that a down-pipe within the Premises toward the southern end of the east wall had produced a high pressure leak during severe rain. Unless otherwise agreed by the parties, I will make no order under this item.

Investigate and repair all leaking sub-floor pipes near the sales counter and in the cashiers room on the ground floor of the building.

As Mr Heath submitted[65], there is no pleaded claim in respect of the sub-floor flooding. This item was pointed out to me at the site inspection of 22 March 2010 and it was suggested that it might have indicated a failure of the sewer. I have not taken it into account, but if it is a broken sewer, it would be foolish indeed for the Landlord and Tenant to ignore it.

As stated above, I have not taken these items into account. Should any of them be the subject of a future claim, they are not subject to res judicata.

State of air-conditioning at the beginning of the lease

The air-conditioning should have been in working order in accordance with the Previous Landlord's obligation under Special Provision 1. For the purpose of gauging the state of the air-conditioning to enable it to be maintained to that standard, I deem the air-conditioning at the commencement of the tenancy to have been as designed and built at that date, but working within the constraints of its design.

State of air-conditioning zones in late 2005, early 2006

It is common ground that in late December 2005 to February 2006 Mr McMillan was engaged by the Previous Landlord to work on the air-conditioning system, that he reduced the four zones to one by removing the boiler and that he removed or disabled the ancillary equipment. I accept Mr Best's submission that from the date of Mr McMillan's work, there was no heating for the ground floor.

The parties agree that Mr Grining installed a new unit in the warehouse in 2007 which enabled it to be heated, but in Mr Best's words "still left the premises with only one effective zone".[66]

Orders sought by the Tenant for air-conditioning work

As stated above, Mr O'Connor agreed with Mr Anderson's short report of 29 March 2010, filed and served on the day, as to the work necessary to reinstate the zoning. As Mr Best submits, the first 17 items in Schedule 2 to the orders and declarations sought by the Tenant are copied from Mr Anderson's report.
Mr Heath submitted[67] that the new system, which did not provide zoning, "was capable of operating in respect of the open plan according to which the first floor was configured". I do not consider that this is an accurate summary of the evidence given concurrently by Mr O'Connor and Mr Anderson. Rather, Mr Anderson said[68] that there is greater heat gain and heat loss within about 4 meters of the facade of the building, than in the central zone which is influenced predominantly by lights, people, equipment and to a lesser degree, by the building heat load. Mr Anderson made no mention of partitioning and when asked to comment, Mr O'Connor said: "Sounds right to me, yes"[69].
Subject to other agreement by the parties. I intend to order that the Landlord undertake those first 17 items to restore the zoning to the system provided for at the commencement of the tenancy. Mr Heath wisely said[70]:

If the Tribunal determines that a "works order" is appropriate (one based on the evidence of Messrs Anderson and O'Connor) it should establish a mechanism to achieve finality in respect of any such works. The [Landlords] want to avoid, as far as that is possible, further disputes regarding the operation of any new system ...

Proposed order 17 does provide an objective measure by which the Tenant and Landlord may gauge whether the works undertaken fulfil the orders, but should the parties consider there is another mechanism for achieving finality, it is recommended that they discuss this with a view to reaching agreement before seeking orders based on these reasons.

I note that in accordance with the evidence of both experts, reinstating the zoning would not necessarily provide adequate air-conditioning in accordance with the Tenant's plan for reconfiguration of the first floor. Unless otherwise agreed by the parties I will not order that the zoning be upgraded in this manner.

Items 18, 19 and 20 of Schedule 2 could be described respectively as roof insulation, installation of insulated return air ducts and insulation of uninsulated supply air ducts in the first floor ceiling space, and installation of cushion heads. Although these items were first claimed in Schedule 2, the possible need for these items was the subject of concurrent evidence on 29 March 2010. Evidence about them was given in response to my questions.
The Tenant is entitled to an air conditioning system that is in "working order", but as Mr Heath submitted[71], is not entitled to a "Rolls Royce" system.
In accordance with Mr O'Connor's evidence[72] with which Mr Anderson agreed[73] at the commencement of the Lease the duct work had not deteriorated from when it was installed because it has been protected from the weather.
I accept Mr O'Connor's evidence[74] that the capacity of the original air-conditioning system would have been adequate - the capacity was about 120 kilowatts whereas the cooling load of the four zones was about 102 kilowatts. Mr O'Connor qualified his answer by saying:

I think there is probably a bit more air leakage from the building than I am giving it credit for.

He said there are areas in the roof where insulation has been dislodged and other areas, such as around the box gutters, where air flows freely from the roof space into the outside air.

Both expert agreed that the method of collecting return air - unducted through the ceiling space - is a rather poor means of doing so beneath a metal roof, and would have been poor even in 1972 when the Premises were probably constructed. The air returned for cooling picks up heat from beneath the roof, and also donates heat to the air being supplied as cooled air.
Mr Anderson said[75] that providing insulated return air ducts:

... would reduce the load on the plant and provide more capacity to be delivered to the rooms rather than using some of that capacity just to get rid of the heat that's going from the roof space.

Part of the refrigeration capacity is being used to get rid of heat that has been collected from the roof space on that return air part.

I haven't picked this up in the supplementary report because I didn't consider it as an item which would bring the building up to the standard that it was at in 2004 or when the tenant took on this. This is one of the criticisms of the building that I raised in my overall report but not something that I've raised as having to be reinstated, because it was never there.

I compliment Mr Anderson on his fairness and attention to detail in this respect. On balance, I consider that the Tenant is not entitled to have the Landlord undertake the insulation works. I am not satisfied that the absence of return air ducts and the inadequacy of insulation make the air-conditioning unworkable, as distinct from inefficient.

At my request during their concurrent evidence, Mr O'Connor and Mr Anderson agreed on a test for whether the roof mounted air-conditioning system is working as a competent air-conditioning system. That test has been expressed by the Tenant as item 21 of Schedule 2 - after rectification the system must deliver 6,500 litres of air per second at a temperature of 14 degrees from the coil. The measurement is made beside the compressor. Mr Anderson said that the hypothetical outside air temperature would be 35 degrees Celsius. In answer to my question, Mr O'Connor said that regardless of the exterior temperature, the delivered air temperature should always be approximately 14 degrees, although "it will tend to vary a little bit with the weather..."[76].

These proposed orders appear at paragraph 11 above.

In accordance with orders 5 and 9 sought by the Tenant I intend to order that the Landlord repair the roof and air-conditioning in accordance with the above considerations, by a definite date approximately 60 days after the next hearing.

In accordance with orders 6 and 10 sought by the Tenant, I intend to order that the Landlord engage and pay experts (subject to paragraphs 167 and 168 below) in roof plumbing and air-conditioning nominated by the president of the Australian Society of Building Consultants to undertake the tasks of :

(a) inspecting the Schedule 1/2 works (by which I mean the works I have indicated above that I am prepared to order) when the Landlord notifies the expert that the works are complete and carrying out such further inspections as the expert deems necessary;

(b) making recommendations to the Landlord as to what further works (if any) are required to complete the Schedule 1/2 works;

(c) (once the expert is satisfied that the Schedule 1/2 works are complete) certifying in writing to the Landlord and the Tenant that the Schedule 1/2 works are complete.

In accordance with orders 7 and 11 sought by the Tenant, I intend to order that the Landlord promptly carry out any recommendation sought by relevant the expert.

In accordance with orders 8 and 12 sought by the Tenant, I intend to order that the works, as between the parties, shall be conclusively deemed completed upon certification by the expert that they have been completed.

This dispute appears to have been conducted by the Tenant and Landlords in a manner that is not necessarily consistent with sensible commercial assessments of their interests. It is possible that, should there be further opportunity for dispute, one or more of them will take it. It is also possible that the dispute could be continued by proxy through a person who is appointed as an "expert".
In order to maximise the chance that prudent experts will be willing to accept the role of roofing or air-conditioning expert under the orders sought by the Tenant, I propose to appoint them under either s94 or 95 of the VCAT Act. I do so to give such experts the protection the VCAT Act affords. I invite the Tenant and Landlords to make submissions regarding this proposal at the next hearing.

In the Fourth Further Amended Points of Claim, the Tenant claimed interruption of its quiet enjoyment of the Premises at paragraph 9B, breach of s54 of the RL Act at paragraph 9C, and claim for refund or an abatement of rent under s57 at paragraph 16 and following. As Mr Best only addressed me on the s57 claim, I do not take the first two into account.

The Tenant seeks a reimbursement and continuing abatement of 50% of the rent and outgoings under s57(1)(b) of the RL Act, until one month after the roof is repaired, to allow the lessee to fit out the premises. Section 57 provides in part:

A retail premises lease is taken to provide the following if the retail premises, or the building in which the premises are located, is damaged-

(b) except where the tenant caused the damage, if the premises can be used under the lease but that use is reduced to some extent by the damage, the tenant's liability for rent, and any amount in respect of outgoings or other charges, that is attributable to any period during which the use is reduced is decreased to the same extent.

I accept Mr Best's submission that "damage" includes physical damage to the property arising from water entry.

The Tribunal may, in a proceeding under this Part, make one of more orders-

(b) requiring a party to pay money, by way of restitution or compensation or otherwise, to a specified person;

In his summary on behalf of the Landlords, Mr Heath stated at paragraph 2(h) of his written submissions:

The damages claim relates to each and every remaining breach claim. It rests on a "discount" rate of 50%; it is too generous to the [Tenant]; it overlooks key matters such as the considerable parking area as well as the acknowledged role that space plays in the [Tenant's] business.

I note Mr Heath's continuing submissions that Special Provision 1 does not establish deemed conditions for the roof water-tightness which, for the reasons given above, I do not accept.
I accept Mr Heath's submission[77] that the compensation principle governs any amount to which the Tenant would be entitled - in his words, one must ask "what sum will, so far as money can, place the tenant in the position he would have been in if the obligation to repair had been duly performed". A response is found in Mr Best's submissions[78]:

[The Tenant] has clearly not received all that it bargained for that is the full and unrestricted use of the first floor of the premises.

I note the Tenant's claim for loss of use in the submissions is based on water intrusion rather than failure of the air-conditioning. For this reason I consider the degree to which the Tenant has established that water intrusion limited its use of the Premises.

I accept the evidence of all witnesses, and of my own observation on site, that there were leaks that ranged between annoying and catastrophic.
I accept the evidence of Ms Mabel Li and Mr Jin Wang that there have been more than 22 separate points of water entry; mainly on the first floor, but also on the ground floor. I accept the evidence of various witnesses for the Tenant that there were numerous leaks throughout 2004, 2005 and 2006, few if any in 2007 and 2008, then a substantial leak on 3 March 2009 and again in March and later in 2010. I accept the evidence of Mr Wang that the Tenant intended to fit out the first floor as a retail shop and display area, but the risk (and occasional reality) of further water entry has prevented it from doing so, thereby reducing its use of the premises.
Mr Heath submitted that the Landlords dispute the claim that the state of the roof has prevented the use of the first floor of the Premises. There is some merit in what he says.
I note that the Tenant has used the first floor for some purposes. Mr Wang, as executive director, has an office in the south or Dudley Street side and there is an administrative area, a room that houses the computer server and a room used for entertaining adjacent to his office. As Mr Heath submitted[79], the server cost approximately $70,000 to install and there is no evidence of water leaks affecting it. It has the appearance of technology that would be vulnerable to water leaks. I am satisfied that the toilets and tea room on the north west side of the first floor has been used on some occasions. Nevertheless, even these uses, with the possible exception of the server, have been interrupted and made less valuable by leaking.

Mr Best submitted that it is not a common sense construction of s52 to reduce the apportionment for areas outside "the primary area of the premises used for retail". He gave the example of damage to a small shop, of 70m2, reduced by half, but on 1000 m2 of land. While I accept that his example has merit, it has limited application to the facts of this proceeding. from having its own substantial car park.
I have some concerns about Mr Heath's calculation[80] from exhibit R3 that the building footprint is approximately 68% of the site area. The exhibit is two plans and a sheet of elevations for a development proposed in 1999. The ground floor area is significantly greater than the current building, because there is a large warehouse addition to the west. The present car park area is smaller than the foot-print of the building, but not much smaller, as can be seen from the unhatched parts of exhibit R3 which can be confirmed by reference to Google Earth.
I note Mr Jin Wang's evidence that there are approximately 22 car parking spaces, plus a loading bay. I accept Mr Heath's submission that the availability of car parking is important to the Tenant as Mr Wang said, in answer to a question about the location of the Premises:

Well, location and area, all the parking, that all are important fact to business.[81][sic]

I do not value the car park at the same rate as the building, but I do not attribute a nil value to it either.

(1) A retail premises lease is taken to provide the following if the retail premises, or the building in which the premises are located, is damaged -

I am satisfied that the Tenant is entitled to abatement of rent and outgoings, from now until the roof is reasonably water-tight.

The notional reduction in rent is a permissible approach to the assessment of damages. This accords with the broad terms of section 91(1)(b) as well as the rental abatement claim in this case.

...that the appropriate discount rate range is far less than 50% (say 20% to 25%).

Mr Heath submitted[84] that the considerations regarding repayment of outgoings or running costs are not the same as for rent. He referred to Calabar Properties Ltd v Sticher[85] and the commentary on that case in Bradbrook, Croft & Hay, Commercial Tenancy Law (3rd Ed) to support his submission that the Tenant's claim for outgoings should be rejected where it has not terminated the lease. As Mr Heath said, not only had the Tenant not terminated the lease, it exercised its option to renew in the six months prior to March 2008.
I am not satisfied that Calabar prevents the Tenant from recovering outgoings. The facts were that the tenant took a 99 year lease of a flat for rent and certain outgoings. The flat was damaged and suffered dampness through the landlord's failure to repair. The tenant recovered rent and outgoings for temporary accommodation, and the cost of rectification, but not outgoings on the property leased to her by the landlord, because to do so would have compensated her beyond the amount necessary to restore her to the position she would have occupied if the landlord had not breached the lease.
I am not persuaded that there is a general principle which prevents the Tenant from recovering outgoings in this proceeding.

The Tenant's accounting expert, Mr Fitzgerald said at page 8 of his report that the Tenant has "wasted half" the council rates of $51,680.74. Mr Heath submitted[86] that the "alleged loss" does not arise from an inability to use the first floor and asserted without supporting authority, that:

... if someone wants to occupy a property (even if parts of that property are incapable of being used) he or she must pay local government rates in full (absent some special arrangement).

I find it is appropriate that the Tenant recover council rates in the proportion discussed below.

Mr Fitzgerald said at page 8 of his report that the Tenant has "wasted half" the water rates of $15,105.18. As Mr Heath submitted[87], I cannot be sure what the water rates were charged for. I note that with the exception of the last three figures, which appear to be pre-estimates of future charges, every sum is different, which indicates that at least some must have been attributable to water useage. I decline to take water rates into account.

The Tenant claims a proportion of insurance premiums from 11 March 2004 through to 12 September 2009, the total charge for which was $25,868.02. Mr Fitzgerald said at page 8 of his report that the insurance claimed is "property insurance". As Mr Heath submitted, there is no evidence before me of what risks the insurance covered. For example, although the Tenant might not have had adequate use of a substantial part of the first floor, while it remains in possession of the Premises it must still insure the whole property (including the car park) against public risk.
Without further evidence I cannot be satisfied that the Tenant wasted any part of the insurance premiums and I will not make an allowance to the Tenant under this heading.

The Tenant claims a proportion of gas charges incurred between July 2004 and October 2006, although Mr Fitzgerald said at page 9 of his report:

The [Tenant] has instructed me that a gas-fired boiler had been installed at The Premises for the sole purpose of operating the air-conditioning system. I am instructed that the [Previous Landlord] removed the boiler in January 2006 and that all gas service charges incurred by the [Tenant] were wasted due to the inability to use the air-conditioning system.

The total charge is $4,434.94. Mr Heath submitted that the Tenant's behaviour in continuing to pay gas bills to the gas supplier is inconsistent with the evidence of its witnesses that it got no benefit from the gas boiler. Mr Wang confirmed under cross-examination that the gas was only attached to the boiler for the air-conditioner and acknowledged that the gas bill for the months of July and August 2004 was significantly higher than for the previous two months. The next highest gas bill was for the same period in 2005. This tends to discredit his evidence that the heating was not working at all.[88]
I am not satisfied that the Tenant derived no value at all from the use of gas. If it did, it was within its power to mitigate its loss by turning off the gas, or to take urgent steps to ensure that the gas was not being wasted. I will not make any allowance for the gas used.

There is no formula that assists me to determine the amount to be abated or repaid. I consider 50% too much because it values the first floor at the same rate as the ground floor and takes no consideration of the car park or the administrative offices, tea room, server room and entertaining room on the first floor. I consider that a fair abatement in rent and of outgoings for council rates is 35%. I also find that it is fair that the Landlords repay the Tenant the same proportions.

Although I accept that the Tenant intended to fit out the first floor, I am not satisfied that it is reasonable to allow it an extra reduction in time for rent beyond the day upon which the roof is repaired. No professional drawings or specifications were presented to me to show that, at any time, the Tenant had more than a general intention of fitting out the first floor. Nor was there evidence of a deal between the Tenant and either of the Landlords that would have given the Tenant a reduction in rent during such a fit out.

As quoted in the introduction, the Landlord pleads:
1. Upon the proper construction of clause 4.2(d) of the Lease the ... tenant is required to contribute to the cost of repairs in respect of the air-conditioning system, up to a maximum of $3,300 per annum (inclusive of GST).
2. The [Previous Landlord] effected repairs to the air-conditioning system in the [four annual period between March 2004 and March 2008] of amounts in excess of $3,300 per annum ...
3. Despite demand by the [Previous Landlord] the ... tenant has failed to pay [a total of $13,200]
The Tenant pleads:
1. As to paragraph 28 ...:

(a) clause 4.2(d) of the lease contravenes section 52 of the Retail Leases Act;

(b) Further or alternatively, clause 4.2(d) of the lease, in effect, requires the [Tenant] to indemnify the landlord or makes the [Tenant] liable for or subject to a liability claim or demand in respect of an act, matter or thing done or omitted to be done by the landlord or any other person if the [Tenant] would not otherwise be liable for or subject to that action, liability, penalty, claim or demand;

(c) in the premises aforesaid, clause 4.2(d) of the lease is void as a consequence of section 94 and/or section 93 of the Retail Leases Act 2003;

(d) it says further that clause 4.2(d) of the lease, upon proper construction of the lease, does not vary, amend or read down special provision 1 of the lease;

(a) it admits that the [Previous Landlord] arranged for works to be carried out on and in respect to the air-conditioning system;

(b) it denies that the [Previous Landlord] has effected any repairs to the air-conditioning system;

The Tenant admitted that it has not paid the Previous Landlord $13,200, but pleaded that it was not obliged to do so.

repair or replace, as appropriate, all broken glass or damaged or inoperative fittings and lighting equipment whenever necessary.

It is amended by Special Provision 8.4. The part of 8.4 which is in typeface appears below in plain type. The part which was crossed out by hand is struck through and the part in hand writing is in italics:

Clause 4.2(d) add the words "In respect of the air conditioning system, the tenant is required to repair the system where required by this clause but not if the system is not operational and has reached the end of its operational life' the cost of repair of the system exceeds $3300 in any one year including GST. In order to avoid doubt, the tenant is required to contribute to repairs to no more than the $3300.

These obligations are not subject to the exceptions set out in clause 4.1 except to the extent that the [RL] Act ... requires otherwise.

Clause 4.1 obliges the Tenant to carry out maintenance and repairs except where covered by the Landlord's insurance or the works are structural or of a capital nature. There are further exceptions to these exceptions, which are not relevant in this proceeding.

Mr Heath submitted[89] that the outgoing is permissible under the RL Act, and referred to sections 39 and 41. I have regard to the learned authors Croft and Hay[90] who in discussing the amendments to s52 say:

... the lease may impose a "put in repair" obligation on a tenant which obliges it not to pick up the landlord's obligation under s52 but, rather, to place the premises, plant and equipment and fixtures and fittings in a higher standard of repair than they were in "when the retail premises lease was entered into". In other words a repair covenant which requires the tenant to make up the "gap" between the fruits of a landlord's "keep in repair" covenant and a "put in repair" covenant. As long as the lease provisions clearly established a capital works obligation on a tenant at its expense ... there would seem to be no reason why the landlord could not enforce this obligation and, if necessary, recover the cost of the tenant's repair obligation as an "outgoing" ...

I characterise Special Provision 8.4 as a "put into repair" obligation, where the Previous Landlord and Tenant agreed that the Previous Landlord would arrange for the work and the Tenant would contribute to the cost of doing so. Although I have found that the Landlords have failed to achieve what they were obliged to achieve, I find that they have spent more than $3,300 a year on their attempts and that it is reasonable that the Tenant reimburse the Landlord for the sum claimed.
I note that the jointly undertaken "put in repair" obligation is a continuing one. This also militates against an interpretation that the Landlords' obligation was once and for all, to be fulfilled in early 2004.

As I remarked during the hearing, the Tribunal Book left much to be desired. The most remarkable aspect of the Tribunal Book was that although the pages were numbered, they were not necessarily ordered sequentially, and time was wasted during the hearing locating relevant documents. It has also added to the time it has taken me to prepare these reasons. I accept the Tenant's explanation of how this occurred - the proceeding had been ready for hearing earlier and a tribunal book prepared, then when the hearing was adjourned the Tribunal Book was revised. Nevertheless, failure to rectify the Tribunal Book was false economy.

[1] The second and third respondents were struck out from the proceeding on 23 March 2010. The fourth respondent was dismissed from the proceeding on the same day.

[2] Paragraph 28 of the Landlord's Points of Defence in Response to the Third Further Amended Points of Claim and Cross Claim.

[3] The Tenant's pleading states "ensure all roof leaks are repaired..." As pointed out by Mr Heath in closing submissions, the word "all" is not in this sub-paragraph, although the significance of "all" is unclear. Presumably the Landlords do not argue that its omission would have permitted some leaks to remain.

[4] Items shown as "..." are as they appear in the orders sought by the Tenant, however it is noted that the Tenant has consistently claimed that the appropriate abatement or refund of rent and outgoings is 50%.

[5] The works described in Schedule 1 are the same as those sought by the Tenant in its open offer to the Landlords of 1 April 2010 which is reproduced below at paragraph 14 except:

At a glance

Court

Decision date

Before

Source

Judgment (261 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (2)

Computer & Parts Land Pty Ltd v Aust-China Yan Tai Pty Ltd & Ors (Retail Tenancies) [2010] VCAT 2054 (23 December 2010)