Often the owner of a commercial property (“landlord”) is left chasing unpaid rent, outgoings and other expenses from a tenant.
Before taking steps to end the commercial lease and re-enter possession of the property, a landlord should be aware of its rights under the lease agreement.
Some of the issues the landlord must consider are:
- What amount is outstanding and when was it due?
- Has there been any demand for payment?
- Is there any dispute in relation to the outstanding debt?
- What does the lease say about failing to pay rent, outgoings and other expenses?
- Is the tenant in breach of the lease?
- Is notice of the breach required, and, if so, how much notice is required?
- What is the process to evict the tenant?
- What are the consequences of re-entry by the landlord?
- Is timing an issue?
- What property would remain in the premises if the Landlord re-entered and took possession of the premises by changing the locks?
- What happens next?
Generally, a landlord will be required to provide some form of notice to the tenant of its failure to pay any unpaid monies. The type of notice required, and the length of the notice period will depend on the terms of the lease, the type of debt that is outstanding and the applicable legislative provisions.
Section 146 of the Property Law Act 1958 (VIC) (“the Act”) makes it clear that a landlord does not have a right of re-entry until the landlord serves notice on the tenant. The notice must be in a specific form and must:
- provide details of the breach,
- explain how the breach can be remedied,
- state what compensation is required because of the breach, and
- allow the tenant 14 days to remedy the breach detailed in the notice.
The requirements of section 146 of the Act do not apply to failure to pay rent.
A landlord will still be required to provide notice to the tenant demanding the unpaid rent.
Generally, the notice can be in a form of a letter demanding payment of the outstanding rent and advising that if payment isn’t made the landlord has the right to re-enter the premises, change the locks and terminate the lease without any further notice.
The requirements of section 146 of the Act still apply to a failure to pay outgoings. A tenant can dispute a claim for unpaid outgoings. Generally, such disputes are dealt with by the Victorian Civil and Administrative Tribunal.
If a tenant is in arrears with both rent and outgoings, and the landlord wants to remove the tenant from the premises, the landlord may wish to issue a simple demand for the unpaid rent, rather than serve a section 146 notice for both amounts.
The fact that a landlord does not serve a section 146 notice does not prevent the landlord from separately recovering the outgoings.
Once the landlord has re-entered and taken possession, it can still choose to embark on litigation to recover all outstanding monies. This is an entirely separate process.
If a landlord does take possession of the premises, there are rules about dealing with the tenant’s property that was on the premises when the landlord took possession.
The rules relating to commercial leases are complex. A landlord should seek legal advice before terminating a lease and attempting to re-enter and take possession of its premises.
If you have any questions regarding a commercial leasing matter, please contact Konnie Lontos.