Valuer and retail leases update – non-recovery of outgoings if estimate not given

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Article advises property managers regarding providing statements of anticipated outgoings in accordance with s46 of the RL Act.

Australia Real Estate and Construction

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A recent VCAT decision has determined that landlords cannot recover outgoings from a tenant if an estimate of outgoings is not provided in accordance with section 46 of the Retail Leases Act 2003 (Vic).

In brief

In the decision of Phillips v Abel (Building and Property) [2019] VCAT 1031 mentioned in last month's Valuer and Retail Leases Update, VCAT also determined that landlords cannot recover outgoings from a tenant, if an estimate of outgoings is not provided in accordance with section 46 of the Retail Leases Act 2003 (Vic).

What you need to know

Property managers need to ensure that strict compliance is made with section 46 of the Act. This means that an estimate of outgoings should be provided before the lease is entered into and before the start of each year.

Background

Section 46 of the Act relevantly states as follows:

"(2) The landlord must give the tenant a written estimate of the outgoings to which the tenant is liable to contribute under the lease that itemises those outgoings.

(3) The tenant must be given the estimate of outgoings –

(a) before the lease is entered into; and

(b) in respect of each of the landlord's accounting periods during the term of the lease, at least one month before the start of that period."

It is not sufficient for the landlord to provide the statement after the time period stated above, as a tenant will not be liable to contribute to the back payment of outgoings.

VCAT determined that the effect of section 46 of the Act was to self regulate compliance and failure by the landlord to provide this statement relieves the tenant of the obligation to back pay outgoings. If outgoings have been paid by the tenant, it may be difficult for the tenant to seek recovery from the landlord, even where an estimate has not been provided.

Conclusion

Given the breadth of the Act, it would make sense for property managers to provide a statement of the anticipated outgoings annually. If a lease is governed by the Act, the decision means that landlords will not be able to recover outgoings in the past where a statement has not been provided in accordance with section 46 of the Act.

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