By Graham Hall

Property inevitability requires repair, maintenance and replacement from time to time during the term of a lease.

It is quite common for disputes to arise between landlords and tenants when repairs need to be undertaken in relation to a premises.

What are structural and capital repairs?

A repair is generally defined as ‘an act necessary to rectify something that has been damaged, whether accidentally or as a result of continued use.’

It is often important to distinguish between the different types of repair obligations; structural repairs and capital repairs.

Structural Repairs are repairs that are required to be made to the structural integrity of the premises. These repairs may include, but are not limited to:

• building support systems and foundations,
• flooring and ceiling structures;
• column support; 
• major supporting walls of the premises; and
• the roof.

Capital Repairs are repairs that are required to be made to certain services or major parts of the premises (often owned by the landlord) that have reached the end of their life cycle, are beyond repair and require replacement (with a new equivalent). These repairs may include, but are not limited to:

• air – conditioning;
• cool rooms;
• hot water systems; and
• electrical work.

Who is responsible for undertaking the repair?

It is always necessary to consider the terms of the lease. Where the lease contains express terms allocating responsibility between the parties, the question of whether the landlord or tenant is required to undertake structural or capital repairs will be determined in accordance with the terms of the lease (subject to the caveats below).

If the obligations for structural or capital repair have not been expressly outlined in the lease, it will usually be determined on a case-by-case basis according to the individual facts of the matter. Some factors which may be relevant in determining the responsible party may include:

• Whether the premise is a multi-tenanted or a single stand-alone building
• Whether the object that requires repair forms a part of the premises or not
• Whether the lease expressly excludes certain types of repairs relevant to the matter
• Whether the parties have agreed on who is responsible for repair works in correspondence, that is extraneous to or via addendums to the lease
• Whether the need for the repair (or the landlord’s failure to repair) is in breach of the tenant’s grant of quiet enjoyment
• Whether the need for repair is causing difficulty for the tenant conducting their business from the premises
• Whether the landlord has a correlative obligation under the lease. This arises most often in a lease when a tenant is obligated to contribute to an outgoing for a certain purpose, but the lease does not expressly contain an obligation upon the landlord to engage in any activity to fulfil that purpose.

With this in mind, parties should consider allocating responsibility for repairs between the parties in the lease to minimise the risk of legal disputes in the future, as they can be costly and time-consuming.

What Legislation Provides Statutory Obligations for Landlords?

Landlords must be aware of the statutory requirements in connection with owning and leasing premises because they may be liable for structural and capital repairs to a premises despite the terms of the lease.

Planning, Development and Infrastructure Act 2016 (SA)

For example: a landlord must ensure that the premises complies with relevant building fire safety requirements as set out in the Essential Safety Provisions (ESP) under the Planning, Development and Infrastructure Act 2016 (SA) which includes the installation, repair and maintenance of items which prevent the spread of fire and allow for effective evacuation in the event of an emergency, such as fire extinguishers, non-flammable linings, and exit doors.

It is common in lease agreements for the landlord and the tenant to set out who is responsible for undertaking the installation or maintenance of the fire safety equipment within the premises, but the landlord will always be held responsible for these requirements at law. If an enforcement action is issued by the relevant authority (such an expiation notice), it will be against the property owner not the tenant.

Retail and Commercial Leases Act 1995 (SA)

The Retail and Commercial Leases Act 1995 (SA) (RCLA) affects the rights and obligations of landlords and tenants (to which the RCLA applies) in respect of repairs of a structural or capital nature as follows:

• Pursuant to section 18 of the RCLA, a lease is taken to include a warranty that the premises will, for the duration of the lease, be structurally suitable for the purpose. However, this warranty can be excluded, and in most instances, by the landlord providing notice to the tenant of the exclusion of the warranty in the manner and form required by regulation before the execution of the lease by the lessee;

• Pursuant to section 13 of the RCLA, a landlord is unable to seek reimbursement for capital expenditure (i.e. capital works) in connection with the premises unless it is considered to be a ‘permissible obligation’. An example of a permissible obligation is where a tenant may be required to fit or refit the shop or to provide fixtures, plant or equipment if the disclosure statement discloses the obligation and contains sufficient details to enable the tenant to obtain an estimate of the likely cost of complying with the obligation.

Avoiding Structural and Capital Repair Disputes

To reduce the risk of a dispute arising during the lease term, we recommend that both parties take steps upfront and prior to entering into the lease (to the extent appropriate according to individual circumstances) to clarify the allocation of responsibility for repairs.

• Expressly allocate responsibility for the repairs of both a capital and structural nature in the terms of the lease
• Define what repair works are considered structural versus capital
• Allocate responsibility for repair, maintenance and replacement of capital items and structural works

If you have any questions about structural and capital repair obligations or require assistance in resolving a leasing dispute, please get in touch with our specialist leasing team for expert guidance and support.