I’ve just received a Creditor’s Petition. What now?

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If you have received a notice to remedy breach of covenant for your commercial or retail shop lease, it means the lessor (landlord) is seeking early termination of the lease.

This is clearly a very serious matter requiring your immediate attention if your business is going to be able to continue to trade from the leased premises (property).  

If you do not respond to the notice to remedy breach of covenant within the time required in the notice, you may be deemed to have forfeited your interest in the lease giving the landlord the right to terminate the lease and re-enter the property; effectively taking back control of the property.  

It is therefore imperative that you urgently seek professional advice if you have received a notice to remedy breach of covenant for your commercial or retail shop lease.

You should contact a lawyer whether or not you believe you owe the amount being claimed in the notice or are liable for the breaches of the lease alleged in the notice to remedy breach of covenant. That is because an experienced commercial leasing lawyer (as you will see below) may be able to set aside, dispute or otherwise invalidate the notice to remedy breach of covenant on technical legal grounds, or otherwise assist you with resolving your dispute with the landlord.

Information regarding a Notice to Remedy Breach of Covenant

A notice to remedy breach of covenant is issued pursuant to section 124 of the Property Law Act 1974 (Qld) (PLA). The form of notice approved for use under that section is a Form 7 Notice to Remedy Breach of Covenant. This form of notice can be used to terminate any commercial or retail shop leases in Queensland provided the term of the lease is greater than one year.

A ‘covenant’ is a promise. In the context that this word is used in the title to the Form 7 it is requiring a tenant to remedy the breach of a promise made to the landlord in the lease.

Form

A landlord issuing a Form 7 Notice to Remedy Breach of Covenant must strictly adhere to the approved form. This was endorsed in the recent case of Tyrrell & Anor v Jesbro Enterprise Pty Ltd [2017] QSC 55 where even though a covering letter served with the notice to remedy breach of covenant contained some of the information missing from the notice, the Court still held the notice to remedy breach of covenant to be invalid and dismissed the landlord’s application.

The notice to remedy breach of covenant must specify the breach complained of (section 124 (1) (a) PLA) by reference to the terms of the lease.

If the breach is capable of being remedied, the notice to remedy breach of covenant must require a tenant to remedy the breach (section 124 (1) (b) PLA). This may require a tenant to pay a sum of money such as overdue rent, or to perform another obligation in the lease.

The notice to remedy breach of covenant may also require a tenant to pay the landlord compensation in a sum of money because of the breach (section 124 (1) (c) PLA).

It is very important that the notice to remedy breach of covenant clearly expresses what it is that a tenant must do to remedy the breach being complained of for it to be considered a valid notice upon which the landlord can rely.

Service

Section 124 (1) PLA requires the notice to remedy breach of covenant to be served by the landlord on a tenant. Service is usually prescribed by the notice provisions in the lease, or according to the legislation relevant to each lease.

Time to respond

A tenant must remedy the breach complained of within a reasonable time after service of the notice to remedy breach of covenant (section 124 (1) PLA).   

What constitutes a reasonable time to remedy the breach complained of is very much dependent upon the circumstances of each case. The recent case of Drama Unit Pty Ltd v Fearndale Holdings Pty Ltd (Administrator Appointed) & Anor [2019] NSWCA 312 concerning the corresponding New South Wales provision to section 124 PLA reinforces that there is no requirement to specify in such notices what a reasonable time might be. However, the approved form for the Form 7 Notice to Remedy Breach of Covenant in Queensland does suggest, by way of example, that a specific time for the breach to be remedied be included in the form. It is then up to any Court determining the validity of the notice to consider:

  • The purpose for which the notice was given
  • The breach alleged
  • What must be done to avoid forfeiture

Consequences of invalidity

If a landlord terminates a lease and re-enters possession based on an invalid notice to remedy breach of covenant, a tenant may be entitled to compensation for any loss and damage suffered to their business because of being locked out and prevented from continuing to trade.                   

Important considerations

Because failure to respond to a notice to remedy breach of covenant has such serious consequences, the landlord issuing it must have strictly complied with all legal formalities under the lease and the PLA for issuing the notice. Some of these considerations are set out below.       

How was the notice served?

How you received the notice to remedy breach of covenant is extremely important. You should make a note of how and when you received it and keep copies of all written communications you received with it.

Are the landlord’s details correct?

Do you know the person or company who has sent you the notice to remedy breach of covenant? Compare the details on the notice with your lease documents. Do they make sense or is there some confusion?

Are your details correct?

Has the person or company who sent you the notice to remedy breach of covenant correctly described your details in the notice? This is very important; particularly in relation to your name, your company’s name, or trading name. Do these correspond with the lease documents?

Were you aware there was a problem with your lease?

The notice to remedy breach of covenant will refer to one or more matters the landlord is alleging you have not done according your obligations under the lease. Are you familiar with those issues, or is that the first time you became aware of them?

Do you owe the landlord money?

According to your own records and understanding, do you owe money to the landlord for rent, outgoings or any other amounts under the lease? If there was a balance owing to the landlord, was there another reason you had not paid it? Did they owe you a similar or larger amount of money? If so, what was that for? Did you inform the landlord that you intended to withhold payment of rent?                      

Is the amount claimed overstated?

Check your records to confirm whether the amount being claimed by the landlord in the notice to remedy breach of convent is the same as the balance you thought was owing for rent, outgoings and any other amounts payable under the lease. Has the landlord claimed in excess of what you thought was owing?

You may have these options

As you can see, there are many important considerations to be examined before responding to a notice to remedy breach of covenant. Investigating these considerations and gathering information to identify any errors in the notice takes time. We therefore urge you to consider those matters as soon as possible as they will determine your options to respond to the notice to remedy breach of covenant.

In broad terms, your options are:

Pay the claimed amount

To pay the amount claimed in the notice within a reasonable time

Settle the amount

To negotiate a resolution with the landlord who issued the notice to settle the amount claimed

Apply for an Injunction

To apply to an appropriate Court for an injunction restraining the landlord from forfeiting the lease and seeking a declaration that the notice is invalid

If the information in the notice to remedy breach of covenant is completely accurate, the first two options are the appropriate ones for you to consider. If you do not currently have the financial means to pay the full amount claimed, and the landlord will not agree to an informal arrangement to settle that amount, there may be formal measures available to you under the recently announced COVID-19 Mandatory Code of Conduct for commercial tenancies.

Alternatively, if the notice to remedy breach of covenant is not accurate, does not comply with the approved form, or has not been served correctly, you may be able to apply to Court in terms of the third option identified above.

This is not an exhaustive list. Commercial leasing is a technical and complex area of law and you should seriously consider obtaining legal advice if you believe that there may be grounds to question the validity of the notice to remedy breach of covenant you have received. Doing this may prove to be the difference between having your commercial or retail shop lease invalidly terminated or continuing to trade. Specialised legal advice may also assist you with navigating the Commonwealth government’s new code of conduct designed to protect commercial tenants during the COVID-19 pandemic and securing the protection your business requires during these difficult economic times.

Contact Gibbs Wright Litigation Lawyers

If you have recently received a notice to remedy breach of covenant and require assistance to urgently assess its ramifications for you, one of our experienced team of solicitors will be happy to help you. Contact Gibbs Wright Litigation Lawyers today for a free and confidential initial consultation to explore your options and legal rights.

The content of this publication is intended as general commentary only and may not be suitable or applicable to your personal circumstances. It is not intended to replace independent legal advice. You can contact us at our Brisbane Office for a free consultation on a range of litigation matters on (07) 3088 6364.
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