Renting commercial premises in Australia is very common, and when disputes arise, landlords and tenants alike are sometimes unsure what to do. Today, let’s talk about what to do when a commercial lease dispute arises.

Handling the early stages of a lease dispute properly is the key to resolving it successfully. From the moment you receive a dispute notice from a landlord or tenant, or decide to raise your own concerns, you should be mindful of the existing and potential risks you face, and how to minimise or avoid them.

In addition, understanding the legal issues involved in the lease dispute and the outcomes each party is seeking will help resolve differences quickly. In today’s article, we will also cover how to determine your legal position and provide guidance on the first steps you should take when dealing with a lease dispute.

Understand Your Own Legal Position

The first step in resolving any lease dispute is to have an accurate understanding of your own legal position. You need to know:

Whether you have a lawful and valid claim against the tenant or landlord, and whether they have a reasonable and lawful defence or justification;

Whether the claim brought against you by the other party is valid, and whether you have a reasonable and lawful defence or counterclaim;

The enforceability of the rights and obligations under the lease (or other relevant documents) as they relate to either party;

How the relevant state or territory commercial lease laws apply to your situation;

The relevant factual circumstances of the dispute;

The main legal issues in the dispute;

How judges have viewed lease disputes similar to yours;

If the dispute ultimately goes to court, how strong your chances of a successful outcome are.

Before engaging in any formal communication with the other party about the dispute (for example, a written response to a letter or notice), you should understand the issues in the dispute and your legal position by taking the following steps.

1. Gather Evidence

Make sure you retain copies of key documents relevant to the facts or issues of the dispute, including:

Business records such as bank or account statements, invoices and payment receipts;

Records of communications (such as emails) with the other party and any third parties regarding the lease or matters related to the dispute;

Final documents (such as signed copies of the lease) and any related documents (such as licence agreements, disclosure statements, outgoings estimates or other relevant information);

Internal notes or summaries of oral conversations.

Then, create a chronology of events (known as a timeline). The timeline should set out the key events that led to the dispute and highlight any evidence you may be missing.

NS Legal tip: If a key statement or representation was sent by email but you do not have a copy of it, check your archive or other folders. You may also ask staff to back it up or contact your email administrator. You can also obtain statements from employees involved in the dispute, or they may be able to provide additional evidence.

You should gather evidence that is both favourable and unfavourable to your case. Doing so will ensure that you understand the strengths and potential weaknesses of your legal position.

2. Review the Lease and Related Contracts

If a dispute arises, your lease may set out the steps you need to take. Both you and the other party should follow this procedure before commencing legal proceedings. You should also review any other contracts you have entered into with the other party or with anyone related to the dispute, to determine whether there are additional requirements to consider.

NS Legal tip: If you do not have a lease contract, or the lease was never finalised and signed, gather the relevant business documents and correspondence that set out the terms of your agreement, such as:

The amount and frequency of rent and outgoings payments;

The obligations of each party;

Other business-operating decisions, such as commencement and exit dates.

3. Know the Rules

Review the laws, regulations or codes of conduct that apply to your type of lease. These differ between states, and between commercial and retail leases.

There may also be temporary regulations specifically governing disputes.

For example, landlords and tenants of retail leases are generally required to provide some form of disclosure statement before the lease is signed, but some commercial leases do not require this.

Retail lease tenants have clear statutory rights under leasing legislation to seek compensation for misleading or false representations made by landlords before or after signing the lease, whereas commercial tenants must rely on other legislation or prior case law.

In some states, the fit-out costs for retail lease tenants can be capped based on disclosed or pre-agreed amounts, but this protection does not apply to commercial tenants.

During the COVID-19 pandemic, the federal government drafted a national code of conduct for retail and commercial leases. In addition, most state governments passed laws requiring tenants and landlords to follow the code when resolving disputes, even if the lease provides for a different procedure.

4. Know Who’s Who

Clarify the parties involved in the dispute by asking the following questions:

Is the other party to the lease an individual or a company?

Does the other party have an agent or representative you need to communicate with?

Are there any third parties who should be included in or excluded from the discussions?

What is the legal and commercial relationship between the parties involved?

In addition, it is critical to bring your claim against the party with whom you have contracted.

You also need to be careful not to inadvertently disclose confidential information to third parties, or to unfairly damage the other party’s reputation.

5. Consider All Possible Solutions

Disputes can be avoided when both parties focus their energy on finding workable solutions and compromises, rather than pursuing self-centred objectives. Being flexible in ultimately reaching an agreed outcome can help you make the best of a bad situation. Be prepared to consider a range of outcomes, even if they are not your preferred ones.

Try to remain objective and leave emotions out of your approach to the dispute. Although this is difficult, understanding the other party’s perspective can help you decide on your strategy and next steps.

6. Seek Legal Advice

Legal advice is most beneficial at the early stage, before a disagreement escalates into a formal dispute. A lawyer can advise on:

Your legal position;

The relationship between the evidence and the claims;

The remedies or outcomes the parties are entitled to seek.

Most importantly, a lawyer can also help you consider ways to resolve the disagreement, avoid disputes, and manage your communications with the other party.

Communication

Your first step should be to have an oral conversation with the party involved. Disputes are often caused by misunderstandings, but they can be resolved quickly through dialogue. As a result, an informal or friendly discussion can lead to a fair commercial compromise.

In the early stages of a lease dispute, anything you say or write, unless marked “without prejudice”, may ultimately become evidence in court. Therefore, any communication you intend to rely on as evidence in court should be kept “open”, rather than conducted on a without-prejudice basis.

A formal breach notice issued under the lease should not be marked without prejudice. At the same time as sending a formal breach notice, you may send a “without prejudice letter” offering a compromise solution that does not reduce the legal effect of the formal notice.

If the matter cannot be resolved, the next step can be informal written communication (email) or formal written correspondence (letters, including from your lawyer). The following information can be set out:

Your legal position on the dispute;

An overview of the main circumstances, events or facts;

Whether you are responding to the other party’s claim; or

Whether you are making a claim against them.

NS Legal tip: In a lease dispute, any communication with the other party may have significant legal relevance. A careless response, mistake or miscommunication can expose you to adverse outcomes and additional liability. A casual comment can even cause you to inadvertently waive your rights under the lease or allow the other party to terminate the lease.

When communicating with the other party to a dispute, you should avoid making overly absolute statements about actions you may or may not take (unless necessary), particularly where there is disagreement.

Repudiation

Repudiation refers to one party indicating to the other that they no longer intend to comply with their obligations under the lease and plan to exit the lease. Accordingly, if that intention is communicated in writing or orally, or is evidenced by the conduct of the repudiating party, the other party may have grounds to:

Terminate the lease;

Seek compensation;

Apply to the relevant court or tribunal for pre-emptive action to prevent a breach.

Here are some suggested ways to reduce the chance of inadvertently repudiating a lease:

High Repudiation Risk Statements

Because of problems you have caused, I will not pay my rent.

I will cancel the lease and lock up the premises.

I am going to sue you.

I will not repair the premises.

Low Repudiation Risk Statements

As a result of your breach of the lease, I reserve the right to claim compensation for the rent.

Further breaches may lead me to exercise my right to terminate the lease, which may include cancelling your access to the premises.

If these matters are not resolved, I may commence legal proceedings against you without further notice.

My position is that I am not obligated to repair the premises, and I request that you cite the law that supports your position.

Communication Checklist

In any communication, make sure to:

Avoid emotional or inflammatory language and personal attacks;

Clearly set out the facts;

Attach relevant evidence or document extracts;

Review who you should be dealing with, and confirm that they have authority to act on behalf of their business;

Provide a deadline for any required response (this may depend on the urgency of the matter);

If you speak with the other party, record every word of the conversation;

Where appropriate, disclose and provide information to ensure that it is properly communicated;

Retain copies of all written correspondence relating to the dispute.

Final Thoughts

Finding a quick resolution in the early stages of a lease dispute, or avoiding the dispute altogether, is critical. When you are in, or are likely to be in, a dispute with a tenant or landlord, you must:

Gather relevant evidence;

Review the lease and related documents;

Check the applicable laws;

Understand the legal relationship with the other party;

Consider all possible solutions

Before taking any further action, you are also welcome to contact us for legal advice.