What do I do if my tenant doesn’t pay their rent?

The recovery of rental and other payments from tenants is a fact of life for commercial landlords.  In this article we aim to share some of the key things our Cairns lease dispute lawyers have learned through their extensive experience in acting for commercial property landlords in the recovery of rent from tenants in Cairns. 

Determine your goal early

In many cases, the true problem which a landlord encounters is that the tenant they have entered into a lease with either can’t or won’t pay rent through poor commercial practices.  If you find yourself in circumstances where you simply have the wrong tenant in your building, rather than seeking to simply recover rental on an ongoing basis for the life of the lease, you may wish to consider taking the necessary legal steps to terminate the lease with a view to ultimately reletting your property to a better quality tenant.  In this case is always best to discuss your options and seek legal advice from a Lawyer in Cairns.

If you ultimately conclude that this is the case, then in addition to taking the usual debt recovery steps against the tenant (such as suing them, issuing statutory demands and/or winding them up), you will need to ensure you serve the appropriate notices (known as a Form 7) pursuant to the provisions of the Property Law Act (Qld) 1974. 

It is a little known fact to most landlords that, notwithstanding the fact that their lease will generally give them a right of termination in the case of a tenant failing to pay the rent, a landlord is not entitled to terminate a lease until they have served the tenant with a Form 7 identifying:

  1. The nature of the breach which the landlord is complaining of;  and
  2. The steps the landlord requires the tenant to take to remedy the breach and provide the tenant a reasonable period of time in which to remedy the breach complained of in the Form 7 (we usually recommend 15 days). 

The termination of a lease and/or the recovery of possession (i.e. by changing the locks) without complying with this procedure will, in almost every case, result in the landlord being found to have repudiated the lease and thereby forfeiting any further rights of recovery against the tenant and further, in some cases, being exposed to pay damages to the tenant notwithstanding the fact the tenant was themselves in breach of the lease to begin with. 

The law has developed over a long period of time to clearly favour the tenant in respect of this area.  Accordingly, the landlord has to ensure they strictly comply with the provisions of the Property Law Act (Qld) 1974 before terminating a lease.  Even in the most modest “form over substance” error in a notice or the action taken on behalf of a landlord can give rise to significant adverse commercial consequences.

Consider your options

Before a lease is terminated, we often encourage our landlord clients to ensure they have carefully though through their options as far as reletting of the premises.  In some cases, particularly depending on the property and the market at the time, a slow paying tenant may be better than no tenant at all. 

In many cases, where a tenant is consistently in default, our Lawyers will encourage our clients to use the appropriate commercial leverage which is available to them to cause the tenant to enter into a revised arrangement by which the landlord has the right to bring the lease to an end or obtains further security from the tenant and its directors (such as a charge over fit out or a mortgage over the tenant or guarantor’s property).  By taking this step ahead of time, a landlord finds themselves having more legal avenues available in circumstances where the tenant ultimately defaults.  The Law also gives the landlord rights to bring the lease to an end early in the event they are capable of securing a better tenant at some future point while the lease remains on foot in the intervening period. 

Early intervention

In most cases, a tenant’s desire to act appropriately and work with a landlord wanes over time.  Usually when a tenant first commits an act of default or starts to default due to poor trading conditions, they will often be confident of being able to trade out of it.  In these circumstances, they appreciate that they need the landlord’s support in assisting them to do and will more often than not be more willing to agree to accommodations the landlord might seek (such as the provision of additional security guarantees and the like). 

Experience has shown however, that as time wears on and where a tenant becomes less confident in their ability to trade out of the circumstances, they become more reticent to agree to accommodations the landlord may seek.

It is accordingly always our recommendation to bring matters to a head early and have a tenant enter into whatever arrangements are appropriate and to our landlord client’s interests at the onset of a tenant committing breaches rather than to wait for things to develop into an irrevocable and irretrievable situation.

If you have a tenant in Cairns which is not paying rent on time or failing to comply with the terms of its lease generally and would like to discuss the matter further to better understand your options, please contact our team of Cairns lease dispute lawyers at Preston Law on 4052 0700. 

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