INSIGHTS

Assuming that you have a good Lease in place (like ours 😊), if a Tenant breaches a term of the Lease you first need to determine whether the breach was of an ‘Essential Term’ or a ‘Non-Essential Term’.

The difference being that a breach of an ‘Essential Term’ allows you to claim that the Tenant has ‘Repudiated’ the Lease which gives rise to a claim for damages for the entire Term of the Lease. Not just up the date of Termination. There are a few pitfalls in proving ‘Repudiation’ so it’s not something that you should do without legal advice.

Either way the next step is to issue the Tenant with a Notice of Breach in accordance with the clause of the Lease that covers this area. This notice must set out clearly the nature of the Breach, why you are giving notice (detail how much Rent is owed and whether you are just wanting payment or are intent on terminating the Lease), what the tenant has to do to avoid being thrown out and what you would accept as an adequate response and by when. A well worded notice will also demonstrate to the Court that you attempted to resolve the issue before you commenced legal proceedings. Generally, you will need to give the Tenant at least 14 days in which to remedy the breach. Hopefully they will do so, and life goes on.

If they don’t, you have several options. They are in no particular order: –

1)            Issue a notice of Termination.

This notice must be in proper written form, must clearly communicate the Breach and the remedy required and be dated and signed by you. Sometimes this notice forms part of the Notice of Breach.

You can claim ‘Repudiation’ if you are sure of your grounds or simply that they are in Breach.

If you choose Breach be aware that by terminating the Lease you lose the right to Distrain and to sue for damages such as future Rent, Outgoings etc

2)            Change the Locks and Re-enter.

Assuming the Notice of Breach set out that after 14 days the Landlord may re-enter and terminate the Lease for non-compliance, then after that period of time, you can gain entry to the Premises, issue a Notice of re-entry to the Tenant as well as posting it on the Premises and change the locks. This terminates the Lease and again you lose the right to Distrain and to sue for future damages although you can still pursue the Tenant for unpaid Rent up to the date of Termination.

3)            Apply to the Magistrates Court for an order for Possession.

This avenue leaves open the option to sue for damages and is a very safe way of ensuring that the Tenant doesn’t turn around and sue you for loss of their business which can happen if you terminate a Lease, Change the Locks and Re-enter and it is later found that you acted unlawfully. (for instance if the Breach Notice is defective).

4)            Don’t Terminate the Lease but lodge a ‘Minor Civil Claim” in the Magistrates Court.

The amount owing must be less than $12,000 and the process is relatively inexpensive, simple and quick. Generally Lawyers aren’t allowed and you can do a lot of the claim online. This is not a bad option as it brings the matter to a head without a great deal of expense. Also, the Rent and Outgoings keep accruing as the Lease is still in place.

5)            Distrain

This is Legal term for serving the Tenant with a ‘Warrant to Distrain’ (which means seize) the Tenants property that is located on the Premises. This is fairly straightforward and you end up being able to sell the goods and use the proceeds to offset any monies due, but there is a strict process to be followed and generally you should get a Lawyer involved to ensure that you don’t breach any Federal or State Acts such as The Personal Property Securities Act or The Retail and Commercial Leases Act. This can only be done while the Lease stays in place and has not been terminated. Carrying out a Distraint doesn’t stop the Landlord from suing for damages.

6)            Issue a Statutory Demand under the Corporations Act.

This is definitely the province of a Lawyer so the Breach would have to be substantial to go down this road.

7)            Issue a Notice of Demand under any Personal Guarantee.

This involves Court action and only applies where the Tenant is a Company and some individual has given their personal guarantee. (Generally, the Directors of the company). This is quite effective as most Directors are quite protective of their personal assets.

Just a few random notes.

If the Breach Notice is proven to be defective, and you have locked the Tenant out, you are leaving yourself open to being sued.

If you act before the Notice period has expired, the Tenant will have a claim for damages.

If you Distrain and no Rent was actually due, the Tenant can claim against you for twice the value of the goods sold.

Repudiation is a Common Law right to Terminate a Lease, but you must be able to prove that the Tenants actions amounted to ‘Repudiation’.

Essentially there are two ways of regaining the Premises.

                Physical Re-entry such as when you change the locks

                By service of Legal proceeding claiming possession.

You may prejudice your rights if you or anyone ‘negotiates’ with the Tenant during a notice period.

If a Re-entry was unlawful and you exclude a Tenant from the Premises, that may amount to a ‘Repudiation’ by the Landlord in which case the Tenant can sue for damages.

If a Landlord takes back possession of the Premises, they must attempt to mitigate any loss by the Tenant. The Court will look closely at what attempts were made in this regard when awarding damages.