If you own a commercial property, and your tenant is not paying rent, you may be able to exercise certain rights under your lease.
However, we would recommend that you obtain legal advice before taking any action as commercial leases are a highly technical area of the law.
The wrong legal action taken may well end up costing you more than if you had taken no action at all.
There are at least 8 critical legal issues when it comes to commercial leases in South Australia.
1. Is there in fact a lease?
You would be surprised how many landlords come to us for advice and they have no written lease in place.
A lease is just like any contract: it is possible for the terms of lease to be oral or implied by conduct, but it is infinitely preferable for the terms to be clearly set out in writing.
Without a written lease it is much harder to determine what its terms are and whether your tenant has in fact breached the lease.
2. What are the terms of the lease?
If there is a written lease, or agreement to lease, it is important that the terms of the lease are clear and unambiguous so that both landlord and tenant understand exactly what is expected of them.
3. Is there in fact a breach of the lease?
Having determined exactly what are the terms of lease, the next question is to ask whether the tenant has breached the lease and, further, whether that breach is a fundamental breach (eg non-payment of rent) entitling to the landlord to possibly terminate the lease.
4. What is the appropriate remedial action?
Depending on the nature of the breach, for example non-payment of rent, it may be sufficient to give written notice to the tenant exactly stating how much they are in arrears of rent, that non-payment of rent is a fundamental breach of the lease, and if the payment of the arrears by a certain date (usually by reference to the lease, otherwise 14 days) is not made the landlord will deem that the tenant has repudiated the lease.
This will entitle the landlord to terminate the lease and repossess the property.
5. Should you give the tenant Notice of Default only or Notice of Termination?
This is a matter for you, but it is important to understand the different consequences that follow from either course.
If you give the tenant Notice of Default it entitles you to be paid any arrears of rent and further may allow you to seize some of the assets of the tenant to satisfy the arrears that are owed to you (called “Distress” or “Distrain” for rent).
If on the other hand you serve a Notice of Termination, you are giving notice to the tenant that after the expiration of the notice period, say 14 days, the lease will be terminated, that is, ended, and as a consequence you will not be entitled to claim damages against the tenant for the loss of rent or pursue other remedies such as distain for rent.
6. What if your Notice of Default is found to be invalid?
You would fully expect this would not happen if we advise you that your Notice of Default is validly given.
Because if it is not, it may be possible for your tenant to bring pre-emptive Court proceedings, eg an injunction, to uphold its right to maintain the lease and remain in the premises.
This is known as an application for relief against forfeiture of a lease. Just about the worst possible outcome for you as a landlord!
8. Commercial eviction – how is it done?
Once you have given your landlord’s Notice of Termination, and assuming there has been no attempt to remedy the default or an application for relief against forfeiture of the lease, this usually means that, after giving the tenant due Notice of Re-Entry, you can go ahead and re-enter the premises, change the locks and resume exclusive possession of your premises with a view to ultimately re-leasing the same to a new tenant.
Again, this is a highly technical and problematic procedure so care should be exercised and legal advice should be received, particularly where the tenant is still physically in occupation of the business premises or has goods and equipment that have been left there.
Bringing to an end a troubled lease can be a very stressful and messy problem for even the most experienced and savvy commercial landlord.
Usually such problems are more easily predictable at the commencement of or early in the lease so choose your tenant wisely and have the terms of lease expertly drafted.
Problems can crop up during the life of the lease and must be managed pro-actively by the landlord in accordance with the strict terms of the lease.
But when you have decided that it is time to terminate the lease, think and act carefully with the benefit of legal advice and expert representation, because a false step along the way may be more costly for you in the end than if you had otherwise stayed with the lease and maintained a bad or unreliable tenant.
If you found this information helpful, and you are a commercial landlord in need of advice, please do not hesitate to contact us on 8276 7955 or email us at email@example.com.