Having a tenant in your commercial property is vital to ensure are turn on your investment. The whole point of buying an investment property is to secure a stable, long-term income stream together with a capital gain. Having a good tenant in place will generally increase the value of your investment property. It also helps cover the costs and outlays associated with owning a commercial property. It is therefore in your best interest to make sure the tenant is not in breach of its lease.
So, what do you do if the tenant is in breach of their lease? The answer to this question will vary depending on the type of property you own.
The following information provides some preliminary advice and ideas to consider. In the event the breach is not rectified, or breaches are becoming persistent, we recommend you reach out to us to discuss your issues further.
There are a number of things that could be a breach of lease. It could be a failure to pay rent, a failure to maintain something, a failure to open for trade or perhaps the tenant is carrying out noisy and disruptive activities from the premises.
Where your property is located will determine the action you take.You will see from our other educational piece “Does the Retail Leases Act apply to my lease and how does it protect me?” if the relevant jurisdiction’s retail leases legislation applies, there are some protections offered to tenants of retail premises. This includes certain rights in relation to a lease dispute, meaning any dispute is usually escalated to the state/territory civil and administrative tribunal rather than a court.
Step 1 – Read the Lease People can become emotional or desire an instant resolution, but it is important to read the lease and check:
We can help with this process.
Step 2 – Speak to the tenant Or ask your property manager to speak with the tenant. It may simply be that the tenant has overlooked or is unaware of the breach and can quickly remedy it if they are told about it.
Step 3 – Notice to Remedy If you have spoken to the tenant and there is no resolution, consider issuing a notice to remedy breach. While there are some exceptions, this is normally a preliminary step before any lease can be terminated. Again, check your lease and make sure you follow the process set out in that lease. There are statutory forms required to be used depending on the state or territory where the premises are located. You may be able to recover your legal fees for preparing and issuing this notice to remedy breach.The notice to remedy breach must be very carefully served to ensure it is valid. We can help with this process.
Step 4 – Lockout If the breach remains unremedied after the time period specified in your notice, you can take steps to terminate the lease and lockout the tenant. This needs to be done very carefully as there are a multitude of things that could go wrong. Get us involved in this. Our recommendation would be to provide further notice advising of your intention to take these steps. If proceeding with the termination and lockout, invite the tenant to meet you and remove any perishables or sensitive materials from the premises.We suggest a security guard attend the premises at this time. The locks can then be changed to restrict the tenant’s access to the premises. Note that once the lease is terminated, that termination cannot be reversed. A new lease will be required if you agree the tenant can re-lease the premises at a later date
What are self help remedies? Self help remedies are helpful incentives for the tenant to comply with the lease. These include, charging interest on late payments,asking for the repayment of an incentive or undertaking maintenance obligations and recovering your costs of doing so. These remedies are only available to you if your lease specifically includes them. Check your lease carefully on this point to ensure these remedies are available.
Alternative remedies? There are other remedies available under the general law,such as obtaining an injunction to stop a type of behaviour, obtaining an order for specific performance, or seeking some other form of compensation or damages.You can contact us if any such remedy is required.
Distinguishing residential leasing – This FAQ focuses on commercial, retail or industrial leasing to a long-term tenant rather than a residential lease. These will be different for breaches of a residential lease, and as such, we recommend you contact your property manager. You may also want to consider the relevant residential tenancy legislation in the state or territory where the property is located.
Lindsay McGregor is a lawyer and the Head of Property in our Avant Law team. He has been working in property related matters for almost 20 years. He was previously a partner at a highly regarded national firm and has considerable experience in leasing across Australia. He has acted for some of the Country’s biggest landlords and knows how they think. This experience will help ensure you get the best outcome you can.
Disclaimer: The information in this article is general in nature and is current to 15 July. It does not take into account individual circumstances and is not professional legal, financial or taxation advice. Avant Law provides legal services. It does not provide taxation or financial advisory services.
Liability limited by a scheme approved under Professional Standards Legislation. Legal practitioners employed by Avant Law Pty Limited are members of the scheme.
