Leases can be terminated on the happening of particular events, such as the destruction of the premises, some specified change of circumstances or non-payment of rent resulting in a breach of covenant. Termination of a lease for breach of covenant is within the power of the Lessor. The Lessor’s (Landlord) right to lawfully terminate a lease is significant because the risk of termination is vital to obtaining a Lessee’s (Tenant) compliance with the lease.
The procedure for termination is relatively easy provided that all steps taken by the Lessor comply with the legal requirements. If the term of the lease is greater than twelve months, the Lessor must serve a notice in the approved form on the Lessee advising the Lessee that they have breached the lease, the reasons for the breach, how the breach is to be remedied and a suitable time frame to remedy the breach. The Lessor should be very careful interacting with the Lessee after notice has been served because if an agreement is reached allowing the Lessee to remedy the breach it may prevent the Lessor from terminating the lease if the lessee does not uphold the agreement.
In the event the Lessee fails to remedy the breach the Lessor is entitled to exercise their power and terminate the lease. The Lessor may exercise this power in one of two ways:-
a) Physical re-entry by the Lessor;
b) Institution and service of proceedings for possession by the Lessor against the Lessee.
Alternatively the lease may provide other options available to the Lessor in the event of the Lessee’s default. In Queensland, physical re-entry is not strictly necessary as it is sufficient that the Lessor makes a clear demand for possession. For example, the Lessor may enter the leased premises and announce to the lessee that they are effecting a reentry and changing the locks. It is prudent to have the locks changed because a demand without recovery of possession is of no benefit to the Lessor. An unequivocal demand communicated to the lessee is sufficient for a re-entry of the premises providing that no physical violence has been engaged in order for the lessor to achieve his purpose. If the Lessor does not wish to terminate the lease by effecting a physical re-entry, or is unable to recover control over the premises by physical re-entry it is advised that the lease be terminated by immediately instituting proceedings in the Supreme Court for possession.
Once the Lessor has terminated the lease, the Lessee may apply to the Court for relief. In some circumstances, the Court may reinstate the lease, for example, the Court may consider that the termination of the lease would cause significant harm to the business and its owners and employees.
The Lessors power to terminate the lease makes the risk of termination very significant in ensuring that the Lessee complies with their obligations under the lease. This right is the most effective remedy as a termination of a lease would put upon the Lessee a significant inconvenience. Despite the Lessee being granted the right to make an application for relief, the termination of the lease by the Lessor is nevertheless very effective in obtaining strict compliance with the lease obligations.
