REG-04
March 2017

Tenant Building Works and Lease Protection for Building Owners

AUST  Hendry advises building owners and managers that they run a high risk strategy if a tenant’s lease does not adequately protect the building owner (and other tenants) when a tenant performs building works/alterations to their building without the necessary building permit/approval, especially if the Local Authority becomes involved and enforces the Building Regulations with a Building Notice, Building Order or Emergency Order.

/ COSTLY TENANTS

Building professionals who allow tenants to perform building work in their tenancy without any oversight can be exposed should a building notice or enforcement notice materialise, forcing the building to undergo a fire safety upgrade of the life safety systems installed in the building, if such a notice targets not only the work done but other aspects on the building.

Such problems arise due to the lack of expertise and knowledge of the potential implications of the Building Regulations offered by those commissioned to look after a stakeholder’s interest. Building professionals should also be aware that organisations contracted by a tenant will look after the tenant’s interests first and foremost and will only work to a brief provided by them.

/ BUILDING LEGISLATION

Australian States and Territories have differing Building Control legislation governing the construction of and alterations to buildings. Legislation is in the form of Acts and Regulations, while the technical provisions of the Building Regulations are mostly uniform through the adoption of the Building Code of Australia (BCA) and referenced Australian Standards.

The following examples can be used to gain an understanding of the enforcement document.

Victoria’s building regulatory framework requires a copy of the building permit and approved documents to be provided to the owner of a building, though it is noted that this is not always adhered to.
Upon receipt of a request to obtain a permit or a permit being provided, and where the works are driven by the tenant, it would be an advisable policy procedure for the landlord to conduct or cause an independent verification to be conducted. This could highlight any potential problems before they become too advanced.

/ ALTERATIONS TO BUILDINGS

Tenants of buildings occasionally will want to change their tenancies by performing building works such as altering a partitioning layout.  Depending on house rules (lease requirements pertinent to building permit control or planning control) tenants usually must obtain the building owner’s or manager’s permission before making an application for a permit as required by the applicable Regulations.

This is where the building owner or building manager’s troubles begin.  Building managers and their representatives tend to not pay sufficient attention to the house rules, even when they exist.  A lack of control and oversight basically means the occupier has a free hand to communicate with their own consultants, controlling authorities and contractors as they see fit, with no representation to the buildings owner’s professional.

Many tenants have the potential to cause significant financial grief for the building owner by not appreciating the statutory requirements applicable under the Building Regulations to the whole building when initiating an application for a building permit, or they commence building works or change the use or occupancy of a building.  Sometimes a tenant gains an economic advantage by ignoring regulatory requirements and not seeking advice from a building surveyor.

An area of major concern for the building owner is when proposed alterations exceed more than 50 percent by volume of the building or where the building has fire safety deficiencies. These issues can trigger a requirement for the whole building to comply with all the current building regulations.
For example, Victoria’s building regulations stipulate that alterations within a three year period for the 50 percent calculation whilst other states may have no time limits applicable.  It is feasible that building surveyors will include simple partition changes in the volume calculations, while others only calculate the volume associated with a refurbishment which includes significant modification to the building services.

If a tenant is authorised to apply for a development permit (building works) and the “combined” alterations (other tenant’s alterations are aggregated) exceed 50 percent by volume (in the last three years), then the building surveyor may require the whole building to comply with today’s building regulations.

Upgrading an existing building which has inadequate fire life safety measures can be very costly, especially when leases provide restraints and other tenants are involved.  The proposed building works may even have to be abandoned or done over several years by agreement. It may well be advisable to perform a fire safety audit prior to commencing any design to see how it affects the Certificate of Classification.

Generally, this can lead to two significant problems for the building owner.  Firstly, the tenant is obviously very unhappy (may be a new tenant trying to perform building works to move in) and secondly, the local authority could become aware of the situation if the application for a building permit is withdrawn.

In the case that an original application was made directly to the council, the authority will already be aware that the building lacks significant life safety measures. But if the application is made to a private building surveyor then legislation in NSW for example requires the building surveyor to refer “dangerous buildings” to the council for their adjudication or at least require the building surveyor to determine the adequacy of the building’s fire safety measures in assessing the application, where the building may now possibly be exposed to Council building notices.

/ CHANGE OF USE

Dangerous times are ahead for a building owner who is not adequately versed with a tenant’s intention of changing the use of part or the whole of the building under building regulations.
Consider the example where a tenant may have signed a lease with the owner’s/ manager’s agent for the same “occupational use” as the immediate past tenant.  The problem for the building owner and current tenant is that the previous tenant illegally changed the use of the building under the Building Regulations and that change has now become illegal.

A change of use in a building causes the controlling authority to determine whether the whole building is to comply with today’s building regulations.  This can cause a significant economic impact for most buildings, especially when the building has multiple tenants.

All state and territories Regulations require approvals to be obtained for a change of use (or occupancy) and building works and in most cases a new town planning permit (DA) is also required to be obtained before a building permit can be issued.  The proposed use under the planning scheme may be prohibited, a new permit is required, it may invoke further car-parking requirements or other conditions may be required to be complied with.  These further conditions may not be able to be accommodated by the building or the site.

In addition to the circumstances mentioned above, the following activities can also bring the building to the attention of a controlling authority:

  • Building owner/ tenants consultants making application for minor building works approvals.
  • Councils building/ town planning departments becoming aware of a change of use/occupancy.
  • Tenant advises/complains to the council (wants to opt out of the lease).
  • Fire Authority inspects the building and issues notices or advises the Council to issue a notice
  • Insurance company advises owner of illegal use after inspection.
  • A subdivision of the building is occurring.
  • There is an incident in the building, and controlling authorities become involved.

Building Control Regulations are very specific, so it must be noted that a change of use is not just a “change of classification” (change of occupancy), such as changing a floor area from an office to a factory or a warehouse to a factory.
A change of use may also include increasing the hazard within the building but not changing the occupancy.
For example, a dress shop may have been the immediate past use (shop is classified as a class 6 under the BCA), whereas a new tenant is wishing to complete their fit out as a restaurant (a restaurant is also classified as class 6 under the BCA).  The change of use within the classification – class 6 is a material increase in the hazard of the same classification, e.g. a much higher standard of fire protection is required in the kitchen area when a sprinkler system is already installed in the building.
Experienced building surveyors can advise building owners of the ramifications they can expect under the building legislation relative to existing conditions of a building.  The use and intended use, proposed and previous alterations to a building must all be assessed before advising a client to proceed with even a minor building permit application.
If the decision is not to proceed, then the building owner must ensure the work is not performed illegally, as this will only compound the building owner’s/ manager’s and tenant’s problems when caught out by a show cause or enforcement notice under the Building Legislation.

/ FIRE ORDERS

The local authority, when made aware that a building is unsafe to occupy can place a show cause (building notice) on the building owner to show cause why a building should not be issued with an enforcement notice to for the building to be brought up to standard as, by performing a set building works under the legislation.  Now that legal notices have begun, the reality is the building owner is well and truly caught in the web.  One hopes that building owners upgrade the fire safety installations in their buildings to meet today’s building regulations, but for all sorts of reasons this may not have been done.
Council’s compliance department building surveyors become aware of buildings being inadequately fire protected through various means. Council’s awareness is raised by complaints from tenants; disgruntled employees, unhappy guests, neighbours and potential purchasers.  Owners, Services Engineers, tenants and design consultants often have insufficient knowledge of the legislation when confronted with these situations.  WorkCover investigations, minor fire incidents, illegal building works investigations and an essential safety measures inspection performed by either Fire Service can also trigger authority actions.
Tenants require firm guidelines relative to altering a building and the building owner should have a very good quality control system to protect everybody’s interests before authorities are approached

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