How to deal with Non-Payment of Rent in a Retail Lease
If your tenant in a retail premises fails to meet their rental payments in a timely manner, this is a breach of the lease agreement. When this occurs the landlord has two options:
- Terminate the lease; or
- Continue the lease and issue a notice of breach to recover amounts owed.
Notice to Terminate or Notice of Breach?
A landlord can have the right to terminate, but it may not be in your best interests to terminate the lease agreement. Consider the impact of:
- Finding a new tenant;
- Cost of maintaining a vacant premises whilst locating new tenant (you cannot sue for future rental amounts once you terminate lease);
- Whether maintaining the relationship with an otherwise good tenant is a better option.
If you decide to continue the lease, there are specific procedures that must be followed to demand overdue monies, which differ between states (See State by State comparison table below).
Whilst South Australia and Queensland require a formal notice of default / breach to be delivered to a retail tenant, other States such as New South Wales utilise a termination notice.
Landlords may seek payment of rent from tenants by providing a non-payment termination notice.
In NSW, a landlord can deliver a notice of termination if rental amounts remain unpaid for 14 days, provided it is in proper written form, clearly communicates the breach and remedy, is dated and signed by the landlord. The tenant is required to vacate the premises if all rent owing is not paid (or a repayment plan agreed to) within 14 days.
What if I don’t want to terminate the lease?
There are mechanisms for dispute resolution, but it may be in your best interests to try to remedy the breach first by sending a ‘breach notice’.
If your lease outlines a procedure for delivering ‘notice of default’, you must comply with delivery dates, prescribed form (e.g. written) and give the tenant a reasonable amount of time to comply. In giving notice, be very clear about:
- The nature of the breach (how many weeks overdue?)
- Why you are giving notice (how much rent is owed? Are you ultimately just seeking payment or do you wish to terminate the lease?)
- What your tenant has to do to avoid forfeiture of the premises?
- What is an adequate response from the tenant and by when?
If communications with your tenant break down at a later stage, delivering a breach notice can also demonstrate to the Court an attempt to resolve the dispute.
State by State Comparison – Prescribed forms for communicating unpaid rent breach.
|State or Territory||Which legislation applies?||Is there a Prescribed form for communicating unpaid rent breach||Time Frame for remedy||Comments|
|NSW||Retail Leases Act 1994||
Notice not required for non-payment of rent alone.
Landlord can provide notice of termination as soon as rent in arrears for >14 days.
|N/A||Formal notification is required in accordance with s129 (8) of the Conveyancing Act for breaches of other terms of the lease, but NOT for non-payment of rent. It is common for leases to still require formal notification to remedy breach (including non-payment of rent).|
|VIC||Retail Leases Act 2003||
Notice not required for non-payment of rent.
|N/A||Consult Lease agreement – often Lessor required to serve a notice of default requiring remedy of the breach. Breach of Lease entitles Landlord to re-claim premises in accordance with s146(12) of the Property Law Act 1958 (Vic).|
|QLD||Retail Shop Leases Act 1994||
Form 7 - Notice to Remedy Breach (Property Law Act s 124)
|“Reasonable timeframe” (generally leases under default are 14 days)||Non-compliance gives Lessor right to re-enter or forfeit lease if fail to comply within reasonable time. Section 107 of the Property Law Act enables Landlord to take possession if rent in arrears by 1 month.|
|TAS||Fair Trading (Code of Practice for Retail Tenancies) Regulations 1998||NO||N/A||Consult Lease agreement – often Lessor required to serve a notice of default requiring remedy of the breach.|
|SA||Retail & Commercial Leases Act 1995||
Form 2- Breach Notice (s 80)
|N/A||Unpaid rent claimed by formal notice. Tenant has 7 days from notice to clear unpaid rental amount. If remains unpaid, tenancy automatically terminated.|
|WA||Commercial Tenancy (Retail Shops) Agreements Act 1985 incorporating the Commercial Tenancy (Retail Shops) Agreements Amendment Act 1998 and the Commercial Tenancy (Retail Shops) Agreements Amendments Act 2011||
No obligation to serve notice for non-payment rent.
|N/A||No obligation to serve a notice of default before re-entering the premises if rent remains unpaid (Property Law Act). Most leases contain default clause requiring written notice of any default and 14 days to remedy.|
|ACT||Leases (Commercial and Retail) Act 2001||
Landlord can deliver termination notice. Tenant has 14 days to agree or contest.
|N/A||Consult Lease agreement – often Lessor required to serve a notice of default requiring remedy of the breach.|
|NT||Business Tenancies (Fair Dealings) Act 2003||
NOCan deliver notice to quit lease.
Consult the terms of your lease.
NB: Notice to quit lease (terminate) must be in writing (s 125, s 135)
What if my State doesn’t have a prescribed form for a breach notice?
The terms or your lease will provide guidance for dealing with non-payment of rent and for communicating with your tenant. Generally, the contents of a breach notice should include:
- Clear Title e.g. “NOTICE TO REMEDY BREACH OF LEASE FOR NON-PAYMENT RENT”
- Notification Date
- Landlord details
- Tenant details
- Commencement date of Lease
- Address of premises
- Particulars of Breach – e.g. “non-payment of rent”
- Amount overdue
- Featuring specific words – e.g. “Take notice that you are in breach of your lease by failing to pay your rent in a timely manner as specified by section (x) of your lease agreement.
- “Take further notice that the landlord intends to terminate the lease as per the lease terms, unless the breach is remedied within (x) days (commonly 14 days) of the serving of this notice upon you.”
- Any other provision as required by law or the terms of your lease.