What to consider when your tenant has to go!
The decision to terminate a commercial lease because of a tenant’s breach is one not taken lightly by most landlords. Do you risk the vagaries of the rental market and the challenge of finding a suitable replacement tenant or just put up with your current situation?
The tenant may be in re-occurring breach, in that the tenant is late with rental payments but does eventually pay, or pays the rent but not the outgoings, which may tempt a landlord to endure the imperfect situation rather than an uncertain outcome.
At the point the landlord decides to act though, it is important to consider the legal process for breaching a tenant and terminating a lease.
Breaches of a lease are contractual in nature, and typically there are mechanisms in the lease to govern this. However, operating concurrently with (and overriding in the event of inconsistency) the lease terms are parts of the Property Law Act.
Strict compliance with the Act is required to validly terminate a lease.
Section 124 of the Act requires the service of a prescribed notice on the tenant, clearly setting out the breach/es of the lease and prescribing the remedy required, and a reasonable time for remedy. The prescribed form is the ‘PLA Form 7’ (Notice), available on the Queensland courts’ website.
The courts permit no real deviation from the prescribed form of the notice, and landlords should be extremely careful not to make any unnecessary deletions or amendments to it. The Supreme Court of Queensland has even held that the deletion of the notes from a Notice mean that the notice was invalid.
As to what is a reasonable time for remedy, this can be hugely variable depending on the nature of the breach. A breach requiring the tenant to obtain a development approval would have to sensibly allow time for the usual processes and processing times of local government to be reasonable, while a breach resulting from non-payment of money requires less time.
Certain breaches may not be capable of remedy, such as the insolvency of a tenant who is a company.
Quite often, the tenant will engage in semantics as a delaying tactic, for example painstakingly querying amounts of outgoings. If the tenant’s contractual obligation to pay outgoings is separate from the tenant’s contractual obligation to pay rent, it may be prudent to serve multiple Notices, each notifying a different breach of the lease so that an attack on the accuracy of one amount does not delay the overall right to terminate if any of the breaches are not remedied.
It is also important that service of the notice is served in accordance with the Act.
The tenant does have the option of making an application for relief against forfeiture, which is an equitable remedy. Again, whether the court will feel justified to intervene will depend on the nature of the breaches and the tenant’s history of compliance with the terms of the lease.
If the tenant does not remedy the breach of the lease after service of a valid Notice, then the landlord may re-enter and take control of the premises.
The termination of a lease due to a breach by the tenant is a highly technical but achievable process. Failure of the landlord to comply with the strict legislative requirements may defeat the purpose and, in the worst instances, make the landlord liable to the tenant for damages.
If you are a landlord considering acting against a tenant for default of a lease, then you should contact the Commercial + Property team at Clifford Gouldson Lawyers.