A dispute between a retail or commercial landlord and its tenant can arise from many circumstances. Experienced business litigation lawyers are vital to expertly assess and prepare the arguments on behalf of a lessor or a lessee to determine if leasing disputes is required.
The eight most common forms of complaints in commercial or retail leases arise from rent or market rent reviews; interruption to access; changes to tenancy mix; refusing consent to an assignment; options; make good; structural and capital repairs; and liability under directors guarantees;
Market rent disputes
Leases usually provide for rent escalation by way of a fixed percentage increase; by reference to CPI increase or by “review to market”. The rent escalation clause should be carefully examined to determine whether or not the method used is lawful and correct.
In retail leases market reviews must be conducted by “Specialist retail valuer’s” and can be challenged. Ratchet rent escalation provisions i.e. “CPI or 3% whichever is higher” are not permitted.
Notwithstanding the rules are reasonably clear, disputes occur. See here for an example of how the court has dealt with this type of dispute.
If the premises are “Retail”, the landlord must provide tenants with a notice of between 2 months and 6 months of a pending option exercise date. The tenant must then serve a notice of intention to exercise the option open brackets if it wishes to do so) within the time period specified in the lease. If the lease doesn’t contain any option, the tenant is entitled to remain in occupation for a period of six months following the date that the landlord gives notice of whether or not it intends to offer a further lease term.
It is invariably a prerequisite for the exercise of an option that the lessee not have been in substantial breach of a term of the lease. Click here to see how this can play out we are a less or wishes to refuse the tenant’s entitlement to an option.
If the premises are NOT “Retail”, the tenant must serve a notice of intention to exercise the option open brackets if it wishes to do so) within the time period specified in the lease.
Interruption to access
Compensation is payable under retail leases (and often under other leases) if the landlord’s extension, refurbishment or demolition of the building causes the tenant to vacate.
If there is no relocation clause in the lease, a tenant can refuse to be relocated.
If there is a relocation clause, the terms of same must be observed by the landlord and in the case of a retail lease various further stipulations apply as to the type of compensation that is payable to the tenant.See this example in a demolition situation in a retail lease.
The landlord must pay compensation under retail leases (and often also under other leases) if it substantially restricts the tenant’s access to the premises, demolishes premises or alters customer flow or access. See this unusual example.
Changes to the tenancy mix
Even though tenants expect that the tenancy mix of the centre all in which they are located will not substantially change during the term of the lease, landlords generally have the right to decide on who else will occupy adjacent locations to that of the tenant.
For leases entered into on or after 12/11/2016, Australian Consumer Law (ACL) “unfair terms” laws can be used by a “small business” to strike out the one-sided provisions in the lease like that. Other arguments such as that of “unconscionable conduct” contrary to ACL s 22 are also potentially available.
To determine whether or not a landlords action was unconscionable, the court has regard to:-
- the relative bargaining power of the landlord vs tenant;
- whether – in relation to the terms of the lease – they were reasonably necessary to protect the legitimate interests of the landlord;
- the extent to which the tenant obtained legal advice when entering into the lease;
- whether any undue influence or pressure was exerted on the tenant.
Refusing consent to an assignment
The landlord is generally obliged to accept an assignment in favour of a reputable, experienced and financially sound operator. A landlord must not use a request for approval of an assignment as an opportunity to vary the terms of the lease. See here for an example of how the court has dealt with this type of dispute.
Make good provisions i.e. clauses in leases that require tenants to restore premises to their pre-lease condition must be reasonable.
Structural and capital repairs
Generally, these costs are the responsibility of the landlord but disputes frequently arise for example in relation to aging landlord equipment eg air-conditioning plant. For an example as to how an air-conditioning repair cost dispute was resolved, see here.
Liability of guarantors in the event of tenant default
The general rule is that if a tenant defaults, the party who has guaranteed the tenant’s performance is liable under any personal or company guarantees they have provided to the landlord. There are however many technical rules relating to guarantees that guarantor can use to attempt to escape liability, as can be seen in this case. This may also occur if the guarantee is not clearly documented, for example in this case.
It is also a rule in property law that a lessee remains liable to the landlord if the party to whom it has assigned the lease (i.e. sold its business) defaults by for example not paying rent. It is therefore very important in lease assignments for the assignor (original lessee) to negotiate a release from future liability in the event of a lease default by the assignee. If this is not negotiated, guarantor litigation may be required as occurred in this case.
Our business litigation lawyers will carefully examine your position and the documents that relate to the transaction. Our decades of experience in litigation and assisting many types of businesses with legal advice – retail, real estate, professional services, engineering, consulting services, automotive, agriculture and hospitality – provides a major value add for parties in business disputes.
We provide complete support in lease dispute proceedings and in each stage of dispute resolution. If an urgent court or QCAT action is required, we will act quickly and decisively.
Please contact our business litigation lawyers if you require Leasing Disputes advice about an existing or potential lease dispute.
Lease Disputes: Commercial Tenant + Landlord
Looking to get an assessment of your prospects of success in a lease dispute? Try our interactive case assessment tool for an indication of in whose favour the dispute is likely to resolve.
It is important to seek expert legal advice when you have a lease-related problem. Our litigation lawyers are lease-related experts and can assist you with commercial leasing disputes at various levels.
Commercial Leasing Disputes rights in Queensland
In Queensland, before a lessor is permitted to re-enter leased premises or terminate a lease, the landlord must first give a Notice to Remedy Breach of Covenant to the tenant.
The notice must comply with specific requirements and include a prominent notice drawing attention to everything specified in Property Law Act section 24 including a reference to the section itself and a “reasonable time” nominated by the landlord within which the tenant is required to remedy the default. Click here to see what occurs if the notice does not comply.