I’ve just received a Progress Claim. What now?

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If you have received a notice of termination of 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 of termination of lease immediately, your lease may be cancelled giving the landlord the right to re-enter the property; effectively taking back control of the property and significantly disrupting your business and resulting in any security you have provided under the lease being called upon. If the lease is terminated, you and any guarantors of the lease remain liable for all the financial obligations under the lease until the property is re-let.      

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

You should contact a lawyer whether or not you believe you are liable for the breaches of the lease being relied upon by the landlord to justify termination. 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 on technical legal grounds, or otherwise assist you with resolving your dispute with the landlord including reinstating the lease and/or securing compensation for you.

There are also various forms of relief currently available to tenants of eligible commercial leases under the Retail Shop Leases and Other Commercial Leases (COVID-19 Emergency Response) Regulation 2020 (Qld) which gives effect to the good faith leasing principles set out in the ‘National Cabinet mandatory code of conduct – SME commercial leasing principles during COVID-19’ (the Code).

Information regarding a Notice of Termination of Lease

A notice of termination of lease is usually preceded by a notice to remedy breach of covenant 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.

The landlord must issue a Form 7 before terminating the lease unless the lease has been repudiated by the tenant in that the tenant has displayed an inability or unwillingness to be bound by the lease (Wash Investments Pty Ltd & Ors v SCK Properties Pty Ltd & Ors [2016] QCA 258).                      

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
  • Whether the notice was defective or ambiguous
  • If the notice was served correctly when determining whether a tenant has had a reasonable time to remedy the breach of the lease.

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.

Relief against forfeiture

If a landlord terminates a lease either by issuing a notice of termination of lease or by simply changing the locks, the tenant may have the right to seek relief against such ‘forfeiture’ of their right to occupy or have lawful access to the property. This right can be granted by a Court if it sees fit in the circumstances of the tenant’s situation. Usually, this will require the breach complained of by the landlord to be remedied by the tenant before such relief will be considered.

Tenant’s chattels

When a tenant receives a notice of termination of lease it does not mean the landlord automatically acquires ownership of the tenant’s chattels. The tenant must not de denied access to the property to recover their chattels as leverage to recover unpaid lease payments. Reasonable access should be allowed by the landlord to allow the tenant to remove their chattels.

However, if the tenant’s chattels are not removed promptly, the landlord may be able to treat them as abandoned and take ownership or remove them at the tenant’s cost.

Important considerations

Because failure to respond to a notice of termination of lease 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 of termination of lease 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 of termination of lease? 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 of termination of lease 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 of termination of lease may refer to a Form 7 Notice to Remedy Breach of Covenant previously served on you setting out 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 those matters or of the Form 7 that was alleged to have been sent to you?    

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? Had you started negotiations with the landlord under the Code for rent relief?

Is the amount claimed overstated?

Check your records to confirm whether the amount being claimed by the landlord in the Form 7 Notice to Remedy Breach of Convent referred to in the notice of termination of lease 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 of termination of lease. Investigating these considerations and gathering information to identify any errors in the notice and the preceding Form 7 Notice to Remedy Breach of Covenant 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 of termination of lease.

In broad terms, your options are to:

  • Pay the amount claimed in the notice and/or Form 7 before the notice of termination of lease takes effect if the terms of the lease allow
  • Negotiate a resolution with the landlord who issued the notice of termination of lease to settle the amount claimed and seek a withdrawal of the notice and reinstatement of the lease
  • Issue a breach notice against the landlord if you have complaints against the landlord, before the notice of termination of lease takes effect if the terms of the lease allow
  • Apply to an appropriate Court for an injunction restraining the landlord from forfeiting the lease and seeking a declaration that either the Form 7 and/or the notice of termination of lease are invalid, or for relief against forfeiture of the lease   

If the information in the notice of termination of lease is completely accurate, the first two options are the appropriate options 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 Code for rent relief or relief from termination.

The Code will not apply to rent owed for the period before 29 March 2020. However, if your lease is an eligible lease under the Code (because you are a JobKeeper eligible SME with an annual turnover under $50 million), and you have failed to pay rent or open for business since then, the landlord is prevented from:

  • Terminating the lease
  • Seizing your chattels situated at the property
  • Seeking damages for your default
  • Requiring you to pay interest, fees or charges on your arrears
  • Making a claim upon the lease security deposit
  • Making demand upon you or your guarantor to perform lease obligations
  • Exercising any other rights under the lease of the property

Alternatively, if the Form 7 Notice to Remedy Breach of Covenant and/or notice of termination of lease are not accurate, are not in the required form, or have not been served correctly, you may be able to apply to Court in terms of the fourth 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 notices 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. Experienced legal advice may also assist you with navigating the Code 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 of termination of lease 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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