Tenant breaches - practical tips for landlords

In the context of declining economic conditions, it is becoming increasingly common for tenants to run into financial difficulties which might find them in breach of their lease.

It is important landlords are aware of the notice requirements set out in the Property Law Act 1974 (Qld) (Act) which must be complied with before a lease can be terminated for breach of an express or implied condition. Given that failure to comply with these requirements may prevent a landlord from terminating a lease, it is advisable to engage a lawyer to ensure compliance.

Notices to remedy

Pursuant to section 124 of the Act, a landlord’s right to re-enter a premises or terminate a lease for breach of covenant is not enforceable until the landlord serves on the tenant a notice, which sets out the following:

• details of the particular breach complained of
• if the breach is capable of remedy, the notice must require the lessee to remedy the breach, and
• if the landlord is claiming monetary compensation for the breach, it must direct the tenant to pay the compensation.

It is fundamental the Government’s approved form be used.

Common errors in notices

There are a number of common errors made in notices.

Where notice is not in an ‘approved form’

In some cases, the validity of notices has been disputed where there have been very minor faults in the form and content of the notice. For example, recently it was contended failure to include the most recent phone number of a government department on the notice form made the notice invalid.

However, the Queensland Supreme Court did not accept this argument and decided only substantial compliance was required. It is important to note this was a very minor change and more substantial errors or omissions may be less likely to be granted the same leniency.

Where notice does not contain enough specific details

The notice must include precise details of the breach and set out what is necessary to remedy the breach.

Breaches capable of remedy are generally considered to include:

• failure to pay rent or outgoings
• failure to repair the premises, and
• failure to maintain insurance before an actionable occurrence.

Breaches often considered irremediable are:

• bankruptcy or liquidation
• failure to maintain insurance after an actionable occurrence
• where a party is convicted of an offence, and
• assignment/subletting without consent.

Courts both in Australia and the United Kingdom have recently started to narrow the scope of what are considered irremediable breaches and now take a practical as opposed to theoretical approach.

For instance, where the lease contains a requirement to perform some act by a specified date, technically, the breach is incapable of remedy but the courts are now taking a broader practical view and assuming the breach is not necessarily irremediable.

It is prudent to serve a notice on the lessee requiring remedy of the breach, even if you are unsure whether the breach is technically capable of remedy.

Where the notice contains errors

While a notice is not automatically invalid merely for containing small errors, the extent of the errors and whether they are likely to be misleading are the determining factors.

For example, in a recent Queensland case a notice was issued substantially overstating monies due to the landlord, to the extent the lessee could not be in a position to calculate the appropriate payment. Subsequently, the notice was found to be invalid and the landlord could not terminate the lease.

Reasonable time limits

The tenant must be given a reasonable time to remedy any breaches or pay appropriate compensation. Compensation will obviously be an inappropriate remedy where the lessee has entered into liquidation or committed some other irremediable breach.

While an exact period for compliance can be set out in the notice, it must be reasonable in the circumstances. Even if a timeframe is specified in the lease, this will not necessarily be considered by a court to be reasonable. Care must be taken to ensure the period granted is proportionate to what is required to remedy the breach.

Summary

Upon becoming aware a tenant has breached a covenant in the lease, a landlord should issue a notice requiring the breach to be remedied with sufficient specificity to enable the tenant to know precisely how they have breached the lease and what they need to do to remedy the breach. Even if it does not appear that the breach is capable of remedy it is still prudent to issue a notice.

It is highly recommended legal advice is sought prior to issuing a notice to remedy to breach, given the serious consequences of serving a non-compliant notice.

For further assistance or enquiries please contact:

Stephen Jones on 07 3233 8973.