24/06/2019

A recent instance of a landlord who had not obtained a fire safety statement highlighted the importance of understanding this issue before and during a commercial lease.

Ned Flanders doesn’t believe in insurance. He considers it a form of gambling.

Recently, a client admitted to us that they had not checked for a valid Annual Fire Safety Statement (AFSS) for the commercial property at which they’d recently commenced a lease. Without the AFSS, the client’s construction works stalled. When the issue was raised with the landlord, the landlord admitted that they’d never heard of such a thing in the 35 years that they’d owned the building.

In the words of Ned Flanders: “Jeepers H Crackers!”

Financing preventative measures against the sorts of events we hope never happen, can at times, feel unnecessary. Presumably, many Australians simply wouldn’t bother were it not a legal requirement in certain circumstances. You can’t drive a car without third party insurance; you can’t get a mortgage without insuring the property and you can’t lease or occupy a commercial building without a valid Annual Fire Safety Statement.

An AFSS documents the assessment and inspection of each existing essential fire safety measure and the exit systems of the building. It also certifies that each of the measures is capable of performing to an appropriate standard.  Wander into any commercial building in NSW and, inside the entrance, you should find this document prominently displayed.

A Fire Safety Schedule is different. The Schedule specifies each of the essential fire safety measures that apply to the building premises. It also specifies the minimum standard of performance for each of the measures.

Fundamentally, the Schedule outlines what systems are present, while the Statement certifies that the systems are performing to an appropriate standard.

The chance of a reprimand for an invalid AFSS (or none at all) is modest. Unless the building’s owner draws Council’s attention to the issue – by submitting a Development Application, by changing the building’s permitted use, by hosting illegal underground dance parties etc – it is unlikely that an authority will request to see a building’s valid AFSS. Private operators such as tradesmen may refuse to commence work on a building without a valid AFSS, but they’re unlikely to report a building that lacks a valid Statement. Indeed, it’s entirely possible that DA approval may be contingent on an AFSS being issued in the future.

However, should a consent authority’s attention be drawn to the building by a third party, things can escalate quickly. Fire and Rescue NSW (FRNSW) has a section of their website allowing anyone, free of charge, to comment on occupied buildings they suspect may be problematic.

Failure to give an AFSS to local Council within 12 months of the previous Statement constitutes a separate offence for each week beyond the expiry.  Penalties vary by council; under City of Sydney Council, for example, the penalty notices are separate and continuing, charged per week. That’s:
•    1 week = $1,000
•    2 weeks = $3,000 ($2,000 + $1,000)
•    3 weeks = $6,000 ($3,000 + $2,000 + $1,000)
and so on. Failure to submit an AFSS can also lead to legal proceedings in the Land and Environment Court, where the maximum penalty for a breach is $110,000.

When it was explained to the landlord what the local Council’s penalties would be when the situation was explained to Council, the landlord acquiesced. In drawing up the Fire Safety Schedule, it became clear that substantial works needed to be done to the property to make its fire system compliant. Shockingly, the water supply to the property’s fire system had been shut off, meaning Council needed to be engaged anyway to dig up the street to re-supply the sprinkler system with water.

It took over four months for the issue to be resolved. Council, in an uncharacteristic act of benevolence, chose to waive the $91,000 fine on the grounds that they had contributed to the delay. Had they charged the fine for the entire 35 years, the landlord would have been on the hook for $1,656,200,000… or approximately 1/528th of Australia’s total government debt.

Regardless, the total cost of making the property’s fire safety system compliant was estimated to be in the tens, possibly hundreds of thousands of dollars range. Our client had terminated the lease by then, unable to absorb the cost of the delay suffered to their business.

We recommend that landlords check their buildings’ AFSS regularly and extensively. We also recommend that prospective landlords disclose their building’s situation completely in the Lessor’s Disclosure Statement that must be issued before a retail lease is signed. Not to mention that valid fire insurance – a pre-requisite for signing a tenant – will require such documentation.

Likewise, we recommend that tenants educate themselves about their building’s Fire Safety Statement. Prospective tenants should absolutely not enter into agreements without the necessary commitments from the lessor exonerating tenants from having to contribute to any costs relating to the fire system.

Maintaining robust Annual Fire Safety Statements helps smooth the cost of upgrades by spreading them over a greater time period, negates potential penalties from Council, validates fire insurance and mitigates the risk of damage to the property and its surroundings.

As Ned would say “it’d be a gam-diddly-amble” not to have one.

For further information, please contact Townsends Business & Corporate Lawyers on (02) 8296 6222 or email info@townsendslaw.com.au to see how we can assist.