A landlord is required to serve a notice to remedy breach on a tenant before exercising a right to terminate a lease, which is mandated across Australia by State-based legislation.
Serving a notice to remedy has become a 'default step' assumed to be required before the landlord can bring the lease to an end.
This can be quite frustrating for a landlord where it is clear the tenant has no intention of complying with the lease and the landlord simply wants to bring the matter to an end and get on with re-leasing the premises.
However, as partner Kristy Dorney and associate Siobhan Luck explain, there are many circumstances where the landlord can do just that, without having to first serve a notice to remedy breach.
Where a landlord elects to terminate for a breach of the lease it is known as 'forfeiture' of the lease. The breach gives the landlord the right to elect to forfeit the lease. The statutory obligation to serve a notice to remedy before terminating only arises where the landlord elects to forfeit the lease for breach of a term of the lease. The same legislation allows for the tenant to apply for relief against this forfeiture in certain circumstances which may reverse the landlord's decision to forfeit and see the tenant back in the premises.
However, sometimes the tenant's conduct, whilst constituting a breach of the lease, will also reflect a complete departure of the terms of the lease suggesting the tenant is demonstrating it has no intention to be bound by the lease at all. If a tenant acts in this way it is said to have 'repudiated' the lease and its lease obligations. A landlord is entitled to accept the tenant's repudiation and terminate the lease.
Except in Victoria, where it is specifically caught by the notice to remedy breach legislation, the landlord does not have to issue a notice to remedy breach before terminating for repudiation and the tenant is not entitled to seek relief against forfeiture, as termination for repudiation is not a forfeiture.
Conduct which has been enough to establish a repudiation includes:
Importantly, for the conduct to be a repudiation, it must be completely inconsistent with conduct recognising a lease is still on foot. Asking to pay less rent due to a poor performing business is different to an express assertion by the tenant the rent will not be paid until the business starts trading better – the latter likely demonstrating a repudiation whilst the former still recognising an obligation to pay rent.
Before relying on repudiation as a basis for termination, the landlord should ensure it assesses the tenant's circumstances as a whole and considers getting legal advice about the best way to bring the lease to an end. This advice should include a discussion about what claims the landlord might have against the tenant for damages in connection with termination and how to manage make good and abandoned property if the termination goes ahead.
The courts will not lightly find conduct constitutes a repudiation and the onus is on the landlord to establish the case.
However, in many cases the conduct will be clear, particularly where the tenant is simply refusing to take up occupation of the premises or has abandoned the premises without indicating any legitimate basis under the lease. In those cases, the landlord can bring the lease to a swift end and move forward with both re-leasing the premises and pursuing the ex-tenant for damages in connection with its breach.
Our team can help with any queries you may have about repudiation and what steps you should take to terminate a lease.