Australia: What Do You Do When The Market Turns?

Default, notice and remedies

In the case of a breach of a lease by a tenant, it is important to consider:

(a) the type of breach;

(b) the remedies available to the landlord; and

(c) the procedures to follow.

Notice before right of re-entry

If a landlord wishes to re-enter and re-take possession of the premises (and thereby bring the lease to end) following a breach by the tenant, Section 129(1) of the Conveyancing Act 1919 generally requires notice to be given. Such notice must allow a reasonable time for the tenant to rectify the breach before the rights of the landlord for re-entry (and termination) may be exercised.

Failure to pay rent (exception to notice requirement)

No notice is required to be given in the following circumstances:

(a) non-payment of rent;

(b) where the lease is for one year or less.

In relation to the non-payment of rent, Section 85(1)(d) of the Conveyancing Act 1919 enables the landlord to re-enter the premises without any formal demand for payment of rent if the rent is in arrears for the period of 1 month or more. Most commercial leases exclude and override this 1 month period and contain specific default provisions, usually of 7 days or 14 days.

Form of notice

The form of notice must comply with the requirements of section 129 of the Conveyancing Act 1919 which includes:

(a) specifying the particular breach;

(b) requiring the tenant to remedy the breach;

(c) giving a reasonable time - regard must be had to the nature and severity of the breach and urgency of remedial action1;

(d) Section 129 note - the omission of this note renders the notice legally defective2.

The notice must tie signed by a person authorized to sign wider the lease.

You should seek legal advice when drafting the notice to ensure it complies.

Service of notice

The current tenant should be served.

If there is more than one tenant, all tenants should be served.

The lease may contain specific provisions in relation to the method of service of notices. These should be followed.

Proof of service should be retained by the landlord.

Practical matters on exercising re-entry

If after following the guidelines above, the landlord wishes to action its right to re-enter and take possession, the re-entry should be done carefully to avoid the tenant seeking damages for wrongful retention of goods or for loss of profit due to the business being closed down. Generally the following procedures should be followed:

(a) A representative of the landlord should be at the premises at the time the locksmith attends to change the locks.

(b) A notice should be placed in the windows of the premises advising that the business is temporarily closed and providing your details in the event that someone wishes make enquiries.

(c) A notice to the tenant should also be prepared and left in a prominent place.

(d) The notice should also specify that the tenant's goods are available for collection upon making arrangements with the landlord. This is to prevent any claim by the tenant that the bounds have been overstepped by the landlord exercising its rights.

(e) Immediately on termination carry out the steps required (e) to find a new tenant, including necessary make good to the premises, and the marketing normally undertaken by the landlord for vacant premises. Evidence of this process will be required if proceedings are brought against the tenant - this is the requirement to mitigate the landlord's loss.

Tenant's rights

Relief against forfeiture

The courts may prevent a landlord from exercising its legal right to possession of the premises on the grounds that a party having a legal right shall not be permitted to exercise it in circumstances where that would be unreasonable. The courts are said to be providing 'relief against forfeiture'.

Wrongful recovery of possession

A landlord should be aware that if it attempts to re-enter the premises in exercise of a purported right to terminate a lease for a breach of a condition or for repudiation, and such right is found not to exist, the landlord will be held guilty of trespass and the tenant whose right of possession has been interfered with will be entitled to recover possession.

Reasonable force

A landlord when exercising a right of re-entry can use no more force than is reasonably necessary. A tenant's legal right to possession under the lease has ceased after the lease has been terminated, and the tenant is strictly speaking a trespasser. Therefore the landlord can use the same reasonable self-help remedy as an owner of property against a trespasser on its land.

A landlord who uses force to eject a tenant on a self-help basis will not be liable to be charged with assault provided the landlord uses only reasonable force and does not cause bodily harm to the tenant.

Landlord's rights

The landlord may be entitled to damages due to the tenant's breach of a lease, regardless of whether the landlord terminates the lease for such breach.

The landlord may choose not to terminate the lease and instead recover from the tenant damages in respect of the tenant's breach of the lease.

If the lease is terminated due to the tenant's breach, the damages recoverable are dependent on the right relied on by the landlord in terminating the lease:

Once the tenant has been locked out of the premises, the landlord is likely to decide to commence legal proceedings against the tenant to recover damages from the tenant. Examples of proceedings are:

(a) Creditor's Statutory Demand; and

(b) Statement of Claim.


1 Horsey Estate Limited v Steiger (1899) QB 79

2 Harris v Thallon (1926) 26FR (NSW) 456

Swaab was recently named a 2009 Winner in the ALB Employer of Choice awards, and was winner 'Best Law Firm in Australia (Revenue < $20m)' and 'Attribute Award for Exceptional Service (Australia Wide)' in the 2008 BRW- Client Choice Awards.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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