Thinking about evicting tenant not paying rent?
It is a reasonably straightforward process, however the process must be followed or you could wind-up with some serious legal problems.
- The non payment of rent or rent arrears is a very common problem in commercial tenancies. A business downturn, or some other reason, and the lessee could not afford to continue making payments to the lessor.
- In situations like this, having the correct provisions in your lease could mean the difference between being compensated for your losses, or losing a considerable amount of time and money.
- Usually, a breach of this kind will entitle you to almost all of your reasonably incurred losses, payable to the lessor as a liquidated debt, upon termination of the lease.
Evicting Tenant not Paying Rent
There are a number of procedures to follow if you are considering evicting tenant not paying rent. They are:
- Correctly identify and particularise the breach;
- Serve the lessee with a notice to remedy the breach;
- Considering the provisions of your lease, forfeiture and possession of the property;
- Sue for liquidated debt to cover your costs of the breach.
This article will step you through each of the points above, and provide you with some top tips to ensure that you maximise the chances of success.
Breach of the Commercial Lease
If you are considering evicting tenant not paying rent or has rental arrears then you have to identify this as a breach of the lease and what clauses of the lease this conduct has breached.
A clause to pay rent is in almost all cases, an essential term of the lease. It will usually be defined as an essential term of the lease. Also, the common law has defined the payment of rent to be an essential term of a lease.
In Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286 the High Court said that an essential term is:
a term of the contract which went so directly to the substance of the contract or was so “essential to its very nature that its non-performance may fairly be considered by the other party as a substantial failure to perform the contract at all”.
In Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115 the court said that:
The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or a substantial performance of the promise.
The payment of “rent” in this context will almost always be an essential term. Breach of an essential term of a contract will allow the innocent (non-breaching) party to do a number of things, one of which is to terminate the contract and claim damages from the breaching party. See Shevill v Builders Licensing Board (1982) 149 CLR 620.
Commercial leases are slightly different in that they are also governed by various pieces of legislation, such as the Property Law Act 1974 (QLD) and the Retail Shop Leases Act 1994 (QLD). As such, there is a legislative provisions governing the process for terminating a lease.
Serve the Lessee with a Notice to Remedy the Breach
(QLD) outlines the process required to serve the breaching lessee with a notice to remedy the breach. If you want to exercise your right of re-entry or forfeiture under your lease and under Section 124 of the Property Law Act 1974 (QLD), then you will need to first give notice to the lessee.
Section 124 of the Property Law Act 1974 (QLD) says:
(1) A right of re-entry or forfeiture under any proviso or stipulation in a lease, for a breach of any covenant, obligation, condition or agreement (express or implied) in the lease, shall not be enforceable by action or otherwise unless and until the lessor serves on the lessee a notice—
(a) specifying the particular breach complained of; and
(b) if the breach is capable of remedy, requiring the lessee to remedy the breach; and
(c) in case the lessor claims compensation in money for the breach, requiring the lessee to pay the same;
and the lessee fails within a reasonable time after service of the notice to remedy the breach, if it is capable of remedy, and, where compensation in money is required, to pay reasonable compensation to the satisfaction of the lessor for the breach.
When evicting tenant not paying rent, you will need to do the following for the notice to be effective:
- The notice must be in writing; and
- The notice must correctly identify the parties to the lease;
- The notice must identify the particulars of the breach, including the clause of the lease which covenants that the lessee must pay an amount of rent at a certain time or date;
- The notice must outline how the lessee can remedy the breach;
- The notice must outline how much unpaid rent is required to be paid;
- The notice must stipulate that the breach must be remedied within a reasonable time;and
- The notice must be served on the lessee.
If you are evicting tenant not paying rent – If you have correctly served a correct notice, and given the lessee a reasonable time to remedy the breach or breaches, then you may be able to exercise your right of re-entry or forfeiture under your lease. Once you have terminated the lease you can then commence debt recovery proceedings to recover your reasonable expenses as a result of the breach.
The Provisions of your Lease, Forfeiture and Possession of the Property
When evicting tenant not paying rent, it is vital that you have fully complied with law. For example, if the notice is incorrect, you terminate the lease when you didn’t have the legal authority to do so, then your termination may be seen as a repudiation, allowing the lessee to accept the repudiation, terminate and recover damages from you. You absolutely must get legal advice before attempting to terminate a contract and/or a commercial lease.
What you are able to do at this point in the proceeding depends on the provisions of your lease.
Sue for Liquidated Debt to Cover your Costs of the Breach
The liquidated damages you are able to recover again depends on the lease. A carefully drafted default clause or clauses in your lease may include all reasonable costs, including (but not limited to):
- The outstanding rent owed plus any future rent lost;
- Default interest on the outstanding rent;
- All reasonable costs incurred; and
- Legal fees in relation to the breach.
You need to ensure that you have the right clauses in your contract, and that those clauses do not constitute a penalty – see our article here about penalty clauses.
Useful Lease Clauses for Evicting Tenant not Paying Rent
Evicting tenant not paying rent is a rare but necessary part of being a commercial lessor. It doesn’t happen all that often, but when it does, you will need to be able to rely on your lease. It is vital that you have carefully drafted clauses to ensure you are fully legally protected. Check out our page about contract clauses in debt recovery.
- Personal Guarantee – In a lot of cases the lessor will be a company. You should not enter into a lease unless you have at least one (1) of the directors of the company as a guarantor.
- Charging Clause – It is also a great idea to have a charging clause as part of the guarantee. A charging clause allows you to lodge an equitable charge (caveat) over the real property of the guarantor.
- PPSR Charge – As well as a charge over real property, it is also worthwhile registering a charge over personal property in the Personal Property Securities Register (“PPSR”).
- Default Interest – It is a great idea to have a default interest clause in the lease. This way you can recover the interest rate you could have been able to recover, had you been paid the rent on time.
- Legal Costs – It is good to have a clause in the lease that makes the lessor liable for all reasonable legal costs incurred as a result of the breach.
Evicting Commercial Tenant not Paying Rent FAQ
Here is a frequently asked questions (FAQ) section based on the article about evicting tenants not paying rent.
This section aims to provide clear and concise answers to common questions landlords may have regarding the eviction process.
What should I do first if my tenant stops paying rent?
First, you need to identify and particularise the breach of the lease, specifically the non-payment of rent. This involves reviewing the lease to confirm the clause that mandates rent payments. Once identified, you should prepare to serve a Notice to Remedy the Breach to the tenant. This notice must be detailed, specifying the amount owed and the timeframe for payment.
What is a Notice to Remedy the Breach?
A Notice to Remedy the Breach is a formal document served to the tenant, indicating that they have breached their lease agreement. It specifies the nature of the breach, such as non-payment of rent, and provides a clear timeframe for the tenant to remedy the issue. The notice must include details like the breach, the amount of unpaid rent, and the steps the tenant must take to comply. This is a critical step before any eviction proceedings can commence.
What are the essential elements of a Notice to Remedy the Breach?
The notice must be in writing and correctly identify the parties involved in the lease. It should clearly outline the breach, citing the specific clause of the lease that has been violated. Additionally, the notice must explain how the breach can be remedied, state the amount of unpaid rent, and give the tenant a reasonable time to rectify the breach. Proper service of the notice is essential to ensure it is legally binding.
How long should I give my tenant to remedy the breach?
The timeframe given to remedy the breach should be reasonable, typically defined by the lease agreement or legislation. Generally, a period of 14 to 30 days is considered reasonable, allowing the tenant sufficient time to pay the outstanding rent or address the issue. This timeframe should be clearly stated in the Notice to Remedy the Breach. Providing a reasonable period is crucial for the notice to be legally enforceable.
What happens if the tenant does not remedy the breach within the given timeframe?
If the tenant fails to remedy the breach within the specified timeframe, you may proceed with exercising your right of re-entry or forfeiture under the lease. This means you can terminate the lease and take possession of the property. Following this, you can begin debt recovery proceedings to reclaim any losses incurred due to the breach. It’s essential to follow all legal procedures to avoid complications.
Can I immediately evict the tenant after the breach is identified?
No, immediate eviction is not allowed. You must first serve the tenant with a Notice to Remedy the Breach and provide them with a reasonable timeframe to address the issue. Only if the tenant fails to remedy the breach within this period can you proceed with eviction. Skipping these steps can lead to legal challenges and potential liabilities.
What legal provisions govern the eviction process in Queensland?
In Queensland, the eviction process is governed by the Property Law Act 1974 (QLD) and, in some cases, the Retail Shop Leases Act 1994 (QLD). These laws outline the necessary steps and legal requirements for terminating a lease due to non-payment of rent or other breaches. It is important to comply with these provisions to ensure the eviction is lawful. Seeking legal advice is often recommended to navigate these regulations correctly.
What is a liquidated debt in the context of lease breaches?
A liquidated debt refers to the compensation a landlord can claim from a tenant who has breached the lease, such as by not paying rent. This debt typically includes all reasonably incurred losses resulting from the breach. It can cover outstanding rent, future rent loss, default interest, and legal costs. Liquidated debts are enforceable once the lease is terminated and proper legal procedures are followed.
How can having a personal guarantee in the lease help in case of non-payment of rent?
A personal guarantee requires at least one director of the tenant company to personally guarantee the lease obligations. This provides additional security to the landlord, ensuring that if the company fails to pay rent, the guarantor can be held personally liable. It increases the likelihood of recovering unpaid rent and associated costs. This clause should be clearly outlined in the lease agreement.
What is a charging clause and how does it protect the landlord?
A charging clause allows the landlord to place an equitable charge (caveat) over the real property of the guarantor. This means that if the tenant defaults on rent payments, the landlord can lodge a caveat against the guarantor’s property, securing the debt. This clause provides a significant layer of protection, ensuring that the landlord has a tangible asset to claim against. It should be included in the lease agreement for added security.
How does a PPSR charge benefit the landlord?
A PPSR (Personal Property Securities Register) charge allows the landlord to register a security interest over the tenant’s personal property. This means that in the event of default, the landlord has a legal claim over the tenant’s assets listed in the PPSR. It provides another avenue for recovering unpaid rent and other costs. Registering a PPSR charge should be part of a comprehensive lease agreement.
Why is a default interest clause important in a lease agreement?
A default interest clause stipulates that if rent is not paid on time, the tenant must pay interest on the overdue amount. This interest compensates the landlord for the delay and serves as a deterrent against late payments. Including this clause in the lease agreement ensures that the landlord can recover additional costs incurred due to late rent. It is an effective tool for managing rental income flow.
What steps should a landlord take before terminating a commercial lease?
Before terminating a commercial lease, a landlord must ensure all legal requirements are met. This includes serving a correct Notice to Remedy the Breach, providing a reasonable timeframe for the tenant to remedy the breach, and ensuring the lease provisions allow for termination. Legal advice should be sought to avoid potential legal pitfalls. Properly following these steps is crucial for a lawful and effective lease termination.
What could happen if a landlord incorrectly terminates a lease?
If a landlord incorrectly terminates a lease, it can be considered a repudiation of the contract. This gives the tenant the right to accept the repudiation, terminate the lease, and potentially claim damages from the landlord. Such mistakes can lead to significant financial and legal consequences for the landlord. Therefore, it is vital to seek legal advice and ensure all termination procedures are correctly followed.
How can a landlord recover unpaid rent after terminating the lease?
After terminating the lease, a landlord can commence debt recovery proceedings to claim unpaid rent and other associated costs. This may involve legal action to obtain a court order for the debt. The landlord can claim outstanding rent, future rent loss, default interest, and legal costs. Ensuring the lease includes robust clauses for debt recovery can facilitate this process.
