From tenants failing to make their rental payments to landlords failing to maintain the upkeep of the premises, there are many reasons why someone fails to comply with a commercial lease.
If you feel stuck in this situation, it is difficult to know what your options are and if you should take the leap of terminating the lease. In this article, we break down the avenues you can take to seek performance of the lease or to terminate it altogether.
What is the first step to take?
If a party has breached your commercial lease, the first step you can typically take is issuing a default notice (if it does not relate to non-payment of rent).
What is a default notice?
A default notice essentially aims to get the other side to resolve a breach in the lease and is a precursor to terminate the lease.
The default notice should explain the following:
- The legal obligation under the lease and how it has been breached;
- What the other side must do to rectify the breach; and
- Explain the penalties or consequences of non-compliance (which can potentially be the termination of the lease).
It is important to check the terms of the lease for how this default notice is to be served on the other side. Often it will be via registered post or to the real-estate agent. In Victoria, you are required to give the defaulting party no less than 14 days to remedy the breach.
How to ensure that your default notice is valid
For a default notice to be effective, it is important that it is prepared correctly and in line with the terms of the lease. If you terminate a lease and rely on an invalid default notice, you can face significant damages. For a tenant, this could include having to pay rent until a new tenant is found and covering any shortfall between the rent that was paid and the rent that will be paid by the new tenant.
Examples of an invalid default notice include:
- The breach is set out too broadly. It is important that each occasion of a breach is set out in detail, including the date of each breach and what happened on each of those dates;
- There is no information provided to the other side about what they should do to rectify the breach;
- The breaches do not provide a right to terminate the lease; or
- The notice was served incorrectly.
If there are multiple breaches and it is found that one or more of the breaches are not verified correctly, it doesn’t mean that the whole notice is valid. If at least one provides a right to terminate, the default notice can still be deemed valid.
What happens once a valid default notice has been served?
The party who served the default notice must ensure that they are also compliant with their obligations. For example, a landlord may not be able to rely on a default notice if:
- They are acting in a way that is inconsistent with their obligations under the lease or evidences a willingness to no longer be bound by the lease;
- They behave in a way that waives their rights under the lease;
- Too much time has passed between serving the default notice and relying on it; or
- A subsequent arrangement has been entered into which varies the existing lease and the default notice.
If any of the above events happen, the safest course of action could be to issue a new default notice.
Relief against forfeiture
Relief against forfeiture can potentially be accessible to a tenant whose lease has been validly terminated and they wish to regain ownership of the property. Relief against forfeiture can possibly be provided if:
- The breach was not severe;
- The tenant has taken steps to remedy the breach; and
- Significant harm has not been incurred by the landlord due to the breach.
In considering whether to grant relief against forfeiture, the Courts will also consider whether there has been unconscionable conduct, whether the tenant is likely to honour the terms of the lease and if the tenant has previously obtained relief against forfeiture.
Relief against forfeiture can be a very strong tool for tenants and invaluable if they have an existing client base who may not follow them to a new location, with a new lease.
Contact Us
If you are currently in a dispute relating to a commercial lease, we urge you to contact our highly experienced commercial lawyers on (03) 9481 2000 or info@tauruslawyers.com.au for your lease to be reviewed and to receive advice of your rights and options moving forward.