What you need to know about breaches of leasehold covenants

Tips for landlords – and tenants!

A tenant who is in breach of a commercial lease can be in a world of hurt. That’s particularly the case if their business relies heavily on its location to trade successfully (for instance, a service station, drive through fast food chain, or childcare centre).

If the tenant is in breach of a covenant under the lease, and that covenant is capable of remedy (let’s say they are in arrears of rent), then the landlord’s right to re-enter the premises is subject to the right of the tenant to be given a notice under section 124 of the Property Law Act (Qld).

That notice must contain particulars of the alleged breach (with reference to the covenants breached), the actions required by the tenant to remedy that breach, and the timeframe within which the breach must be remedied (which must be reasonable!).

Handling breaches not capable of remedy

If however, the breach by the tenant is a breach not capable of remedy (for instance, abandonment of the premises or non-permitted assignment), then this may constitute a repudiation of the lease which, if the landlord so chooses, may be accepted.

In those circumstances, a notice pursuant to section 124 is not required before the landlord re-enters the premises. 

Dealing with breaches capable of remedy

For breaches capable of remedy, once the section 124 notice has been given and the timeframe prescribed in that notice has passed, the landlord will be entitled to re-take possession of the premises at that time.

The lease may also give other rights to the landlord including the right to convert the balance of the term to a periodic (month to month) tenancy, etc. If the landlord wishes to re-enter the premises, they need not give a further notice to the tenant of that fact.

With that in mind, it might be prudent to give the tenant a notice of the landlord’s election to re-enter or re-lease or convert the tenancy to a periodic tenancy. It is also prudent to reserve any rights the landlord has to compensation for loss connected with the tenant’s breach at this time.

But BEWARE, a delinquent tenant may see further notice as an opportunity to take out any lurking frustrations on the landlord (or its property). If the tenant is already “in the hole” with respect to rental arrears, the bond held by the landlord might not be sufficient to cover arrears AND malicious damage to the premises.

For advice on breaches of leasehold covenant, talk to MDL

If you require advice or assistance with respect to issuing (or, heaven forbid, receiving) a notice of a breach of leasehold covenant, call the experienced Business Law team at McCarthy Durie Lawyers today on 3370 5100 or fill out the contact form here.