Cancelling a commercial lease when the rent isn’t paid

Property

Commercial lease cancellation for non-payment of rent can be expensive, frustrating and treacherous for a landlord. This is why it is important to follow the correct procedure to try and avoid any extra stress.

It can be frustrating and costly for a commercial landlord trying to deal with a tenant who isn’t paying rent. One option is to serve a notice of intention to cancel the lease. Sending the tenant a notice of intention to cancel the lease will make it clear that the tenant needs to pay up or risk having their lease terminated.

Cancelling a lease is likely to have a large impact on the tenant’s business and if the notice is not correct then the tenant has rights to seek recovery for damages. It is important that the notice contains the correct content and is served properly. Preparation and service of the notice should be handled by an experienced lawyer to avoid issues. The process for providing a notice is set out under the Property Law Act 2007 and in the Auckland District Law Society Deed of Lease. A notice can be served as soon as the tenant is in default but it must provide the tenant a minimum of ten workings days from the date of service to make payment of rental arrears.

A landlord should be prepared to terminate the lease if the tenant does not comply with the notice and this will usually mean finding a replacement tenant. Fortunately a landlord does not have to immediately cancel the lease after the ten working day notice period. A landlord can cancel the lease and re-enter the premises at any time after the notice period has expired, provided the amount claimed in the notice has not been paid. This allows a landlord time to find a replacement tenant.

The purpose of the notice is to allow the ability to validly cancel a lease and all costs are normally payable by the tenant even if the lease isn’t cancelled. If the landlord does validly cancel the lease then the tenant remains responsible for any rental arrears and also the costs involved with reinstating the premises as part of their lease end obligations.

A Landlord still may encounter issues around re-entry of the premises and recovering payment from the tenant and these issues should be considered. However, more often than not, it is better to have the tenant replaced even if the landlord’s costs and rental cannot be recovered.

The specialist Commercial Property Team at Cavell Leitch has expertise acting for both the tenant and landlord in respect of lease cancellations. If you require any advice please contact the team.

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Copyright © Cavell Leitch. All rights reserved. Redistribution is only permitted with express written permission. For enquiries please contact us. This article by its nature cannot be comprehensive and cannot be relied on by clients as advice. It is provided to assist clients to identify legal issues on which they should seek legal advice. Please consult the professional staff of Cavell Leitch for advice specific to your situation.