TERMINATING A LEASE - How Easy Is It?

The answer is; surprisingly easy. The relative ease with which a landlord may lawfully terminate a lease also makes the risk of termination the most powerful weapon in a landlord’s arsenal for obtaining a tenant’s compliance with the lease.

The procedure for termination is not complicated, but every step must strictly comply with legal requirements. Where the term of a lease is greater than 12 months, a landlord must serve a notice on the tenant advising it of the breaches of the lease and giving it a reasonable time to remedy them. If the tenant fails to do so, it will be lawful for the landlord to terminate the lease. The most effective method of termination is to enter the premises, change the locks and refuse the tenant possession of the premises.

To ensure that the termination is carried out lawfully, there are several golden rules:
1. The notice must be in the approved form, without changes;
2. The notice must properly specify the breach of the lease that is complained of. For example, it may not be sufficient to refer broadly to an obligation to pay rent and outgoings.
3. The notice must specify how the breach is to be remedied.
4. The notice must require the remedy within a reasonable time.
5. The notice must be served on the tenant in accordance with the provisions of the Property Law Act.

Any discussions with the tenant after service of the notice should be handled carefully. Agreements that allow the tenant to remedy the breach progressively may supersede the notice and prevent the landlord from terminating the lease if the tenant does not do as it has promised. If the landlord has terminated the lease, the tenant may apply to the Court for relief. Broadly, the tenant will need to explain why the breaches were not remedied and when and how it will now do so. The Court may then exercise its discretion and ‘reinstate’ the lease.
There are numerous legal arguments why a court should do so, but the most compelling are:
1. Unlike most other contractual relationships a lease creates an interest in the title to the premises being leased which is harder to extinguish; and
2. The termination of a lease results in the loss of business premises. This may cause the business to fail which has significant consequences for the owners, employees, creditors and the community.

Despite these arguments frequently persuading a court to grant a tenant relief, the termination of the lease by the landlord is nevertheless very effective in procuring a tenant to strictly comply with lease obligations in the future. The unexpected lockout of the tenant from its premises and the costs and time involved in making an application to a court for assistance is a considerable penalty of itself. Furthermore, provided the landlord has acted lawfully the court will often order the tenant to pay the landlord’s legal costs of the court application. Frequently, those costs are substantial.

The inconvenience and considerable cost a tenant is put to upon a landlord’s lawful termination of the lease are significant. They make the landlord’s termination of the lease the most effective remedy available notwithstanding that a court might ultimately come to the tenant’s aid.

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