When the rent stops: cancellation of a lease

Author:Miss Nadine Prutton
Profession:Duncan Cotterill

The market over the past 12 months has seen a lot of new and exciting businesses being created and taking spaces in the city as well as some well-established businesses unexpectedly fail. The failure of any business has wide reaching implications including affecting leases.

At the start of a lease the tenant and landlord are focused on taking or filling a space and the potential that creates for their business, often not giving a thought to the possibility of a business failure or a breach of the lease by either party.

Well-timed and considered action can avoid learning hard and costly lessons should an imperfect outcome eventuate.

Landlord cancellation

The Property Law Act 2007 creates a general code for the cancellation of a lease by a landlord.

A landlord cannot simply cancel a lease at their whim. To cancel a lease, a landlord must carefully follow the steps outlined in the Property Law Act. If these steps are not followed a landlord runs the risk of not validly cancelling lease.

Under the Property Law Act, if the rent has been unpaid by a tenant for a period of not less than 10 workings days a landlord can issue a notice to the tenant of their intention to cancel the lease. At the expiry of the period specified in the notice, if the breach has not been remedied (i.e. rent paid up to date) a landlord may exercise their right to cancel the lease.1

If the tenant has breached other covenants in the lease then the landlord must serve on the tenant a notice of the intention to cancel the lease and if at the expiry of a period that is reasonable in the circumstances the breach has not been remedied then the landlord can look to exercise their right to cancel the lease.

It is essential that the notice issued by the landlord contains the information prescribed in the Property Law Act.

Under the Property Law Act a notice must contain the following details:

The nature and extent of the breach; What the tenant must do, or stop doing, in order to remedy the breach or the amount that must be paid to compensate the landlord for the breach (this must be reasonable); The timeframe within which the breach must be remedied (this must be reasonable); The consequence if the breach is not remedied within the timeframe specified in the notice that the landlord may seek to cancel the lease; and The tenant's right to apply to a court for relief against the cancellation of the lease, and the advisability of seeking legal advice on the exercise of that...

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