Managing tenant default is a specialised skill which requires a balance of commercial interests and legal understanding. Recent case law suggests that a strict interpretation of lease provisions and clear, unequivocal notices are essential for a landlord to be able to rely on the contractual agreement and, if necessary, terminate the lease. Landlords should be cautious not to let commercial considerations or informal negotiations cloud their perception as to what is required to enforce their rights.
The recent NSW case of Dee-Tech Pty Ltd & Anor v Neddam Holdings Pty Limited [2010] NSWCA 374 is a timely reminder that the termination of a lease by notice is a serious matter and one that should be effected with “an unequivocal act or statement that the innocent party is treating the contract as at an end”.
In that case, the managing agent forwarded a letter to the tenant which:
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was titled “notice to vacate the premises”
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advised that the agent had been “instructed to terminate this current lease,”and
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although it requested that the tenant vacate the premises by a certain date, it did not demand immediate possession.
In the context of that factual situation of the case, the notice was not sufficient to terminate the lease.
The importance of the role of a property manager or managing agent cannot be undervalued in the context of the landlord and tenant relationship. Acting as a liaison between the two parties, the managing agent assumes a role which seeks to bring together the commercial interests of the landlord and tenant. However, when it comes to matters such as interpreting the terms of the lease, issuing notices and making demands, prudent landlords will protect themselves by giving due consideration to legal implications, rather than relying solely on commercially-based tenant management.
In Dee-Tech Pty Ltd, the landlord was undone by the fact that a purported notice of termination was not sufficiently clear and was not differentiated from regular communications between the managing agent and the tenant.
Another recent case (this time in Queensland) illustrates how decisions need to be considered carefully in the context of the situation. In Keswick Developments Pty Ltd & Anor v Kevroy Pty Ltd & Ors [2011] QSC 190, a failure to pay rent and a breach of the tenant’s obligations to maintain public liability insurance did not amount to a repudiation of the lease.
In that case, there was a complex factual scenario and a number of side issues playing out between the parties including put and call options for share purchases. It was also relevant that the lease was for a long term with a nominal rent. In seeking to improve its position the landlord claimed the lease was terminated by the tenant’s repudiation. The landlord was reminded by the Court of the following points flowing from the authorities:
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Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17: it is a rare situation when default that falls short of abandonment of the property by the tenant would be held to constitute a repudiation of the lease, and
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Shevill v Builders Licensing Board (1982) 149 CLR 620: repudiation of a contract is a serious matter and is not to be lightly found or inferred and one must look to all the circumstances of the case to see whether the conduct amounts to a renunciation, that is, an absolute refusal to perform the contract.
In the absence of a specific right to terminate contained in the lease, a landlord should not assume that the tenant’s failure to pay rent or comply with important lease obligations is necessarily sufficient to amount to a repudiation of the lease.
A weakened economic climate with an increasing number of tenants falling into arrears has meant that landlords have needed to work harder and be more flexible in seeking to protect their income stream. However the reality is that there will inevitably be instances where negotiations break-down or the situation becomes irretrievable. Before that point arrives, a landlord needs to be acutely aware of the precise terms of the lease and the steps to be followed to effectively exercise the landlord’s legal rights.
DibbsBarker is presenting a seminar on managing tenant default on 13 September 2011. As well as addressing the points noted above, the seminar will deal with the legal and commercial aspects of issuing default notices and taking termination action. To register for this event, please click here.
If you have any questions regarding this alert or leasing in general, please feel free to contact the DibbsBarker Leasing Team Leader:
Bill Burrough | Partner
T +61 2 8233 9711
F +61 2 8233 9555
