Is your retail tenant continuously in breach of your retail lease but still wants to renew the lease for another term?
A tenant can be in breach of a lease in a multitude of ways depending on each lease, be it late rent and outgoings payments, refusing to comply with repair and maintenance requirements, compliance with car parking requirements, or any other requirement specified in a lease.
So, what can landlords do about defaulting tenants when it comes time for a renewal of the lease?
The relevant law is contained in section 27 of the Retail Leases Act 2003, which states that a tenant is unable to exercise an option to renew a retail lease if that tenant is in one (or both) of the following circumstances:
- The tenant is currently in breach of the lease for which the tenant has been provided written notice from the landlord;
- The tenant has been in persistent default of the lease for which the tenant has been provided written notice from the landlord.
While the first circumstance is quite self-explanatory, whether or not a tenant is in “persistent default” of a lease may be more up for debate between the parties.
There is no set number of defaults after which a tenant would automatically be considered in “persistent default” of the lease, however, the following examples may give an indication on this:
- Computer & Parts Land Pty Ltd v Property Sunrise Pty Ltd (Retail Tenancies) [2012] VCAT 1522
In this case, the tenant paid its rent late 9 times in two separate periods in a 4-year lease, however this was not considered a persistent default of the lease, the reason being that the breaches were not consecutive, and were not constantly repeated throughout the term.
- Westgate Battery Company Pty Ltd v G.C.A. Pty Ltd [2005] VCAT 2080
In this case, the tenant paid its rent late 22 times in one period in a 3-year lease and this tenant (understandably) was considered in persistent default of the lease, and unable to exercise its option to renew the lease.
What we can take away from this is that if the matter comes before the Victorian Civil and Administrative Tribunal, they will consider the number of defaults, the duration of the term of the lease, and whether the defaults are consecutive and repeated throughout the duration of the term.
Finally, it is important to note that for a tenant to be in default of the lease, the tenant must be provided written notice from the landlord for that breach.
For more information on how to issue a Notice of Default, please read our earlier post on this here.
We understand that every lease is different and is at times difficult to interpret. If you require any assistance in reviewing your lease or advising you of your rights under your lease, please do not hesitate to contact a member of our team.
