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While the leasing of a premises is a routine (and often necessary) step for a business, it is also a serious legal and financial obligation for all parties involved. As a result, a legal dispute concerning a business lease can have significant consequences for both landlords and tenants. This article will provide an overview of commercial and retail leasing disputes, including your options for resolving a dispute and the first steps you should take. 

About Leasing Disputes

From a legal perspective, lease disputes can be complex. Notably, the law that governs commercial and retail leasing, as well as property rights generally, vary from state to state. In addition, the day-to-day management of a lease dispute can also be difficult because there are often multiple lines of communication between the parties and their respective agents.

Typically, the stakeholders involved in a dispute can include:

The Landlord (Lessor)

This is the owner of the property (which is often under a mortgage to a bank). This could be a large commercial property investor or a mum-and-dad investor.

The Landlord’s Agent

An agent is engaged to handle day to day matters on behalf of the landlord. 

Tenant (Lessee)

The tenant is the business on the lease. It could be an individual sole trader, a company or another type of business structure.

Guarantor(s)  

Landlords will often only agree to lease out a premises to a business if an individual guarantees the performance of the lease. This means that if the business fails, the individual will still be liable to pay rent and other costs under the lease. 


The guarantor under a lease will often be the director of the lessee company. 

Strata

Further complicating things, often the landlord owns a unit in a broader strata plan. In this type of arrangement, there is usually common property (such as, lobbies, roofs, and corridors) that is collectively owned and governed by a body corporate of multiple landlords.

Lease disputes can occur at any stage of a leasing engagement: 

  • prior to commencement; 
  • during the term; 
  • during renewal discussions; or 
  • after termination. 

Lease disputes can be very disruptive to a tenant’s day to day business. They can also cause landlords to lose income for a sustained period of time. 

Types of Leasing Disputes

There are many different types of leasing disputes that may arise. However, some common types of lease disputes involve disputes regarding:

  • late payment of rent by the tenant. These disputes have arisen particularly since the beginning of the COVID-19 pandemic;
  • who is responsible for repairs. Often, tenants make claims against landlords for failing to provide repairs or maintenance in a timely fashion, which can have a flow-on impact on their business operations;
  • allocation of outgoings. Outgoings are building expenses, which landlords typically pass to tenants under the lease such as water costs, council rates tax, maintenance cost, and so on. These can be a major cost for tenants and are often the subject of disagreement;
  • the ‘make good’ responsibilities of a tenant as a lease comes to an end. Tenants are typically responsible for returning the premises to an appropriate condition, which can be a costly process. Parties often have disagreements over the scope of the make good responsibilities;
  • the term of the lease. For example, sometimes, there can be disagreements over whether a lease has been renewed. Most leases set out strict procedures the parties need to follow when renewing the lease, including a timeframe for when this must be done;
  • eviction. Sometimes landlords lock out tenants from the premises without proper legal authorisations;
  • subletting or assignment. The process to sublease or assign a lease to another party will usually have quite specific requirements. If these processes are not followed, things can become complicated; and
  • misleading and deceptive conduct. Conduct that is misleading (or likely to mislead) is generally prohibited at law, and leasing is no exception. 

Lease Drafting

Often, commercial leases are drafted in a way that are generally favourable to landlords, and put a significant burden on tenants. Tenants should be aware of this and seek legal advice when entering into a lease. Doing so will give them the opportunity to understand how their various obligations will operate. Additionally, it provides an opportunity to negotiate any particular terms they are not happy with. Getting lease advice before entering a lease is the number one strategy for reducing the risks of legal disputes down the track.

How to End a Lease Factsheet

A factsheet that sets out the three ways to end a commercial lease in Australia: surrendering your lease, assigning it or subletting it.

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Options for Resolving a Dispute

If you do find yourself in a dispute with your landlord or your tenant, thankfully, there are options.

Negotiation

Firstly, a lot of disputes can be resolved through negotiation. This can be informal, such as a phone call between parties, or more formal, via exchange of letters drafted by lawyers. Even if there is substantial disagreement over how a lease clause should be interpreted or over the factual basis of an allegation, the parties may decide that it is in their mutual interest to compromise and to avoid the legal fees associated with a drawn-out legal dispute.

Mediation

If appropriate, parties can also take disputes to mediation, which is a negotiation session guided by a neutral third party. Leases often have mediation clauses that require the parties to take this step before going to court. Retail lease legislation also requires that parties to retail leases do this. Mediation can be an effective procedure for finding a compromise. It will allow both parties to have their say and then work through all live issues in a structured manner, guided by a professional. However, the mediator will not make a determination on what to do. The parties have to come to an agreement themselves.

Tribunal

If all else fails (or if you need urgent assistance, for example, to prevent an eviction), you can go to a tribunal and seek a judgment. This process can be both expensive and risky, so you should always consult a lawyer first. It is also worth noting that most litigated matters do not go to trial but rather settle partway through the proceedings. Sometimes litigation can be a useful tool to force another party to negotiate when they are otherwise not coming to the table.

Settlement Agreements

Whichever dispute resolution method you proceed with, it is almost always advisable to document any settlement agreement via a formal agreement or deed. It should set out the settlement terms and limit either party’s ability to take the allegations any further.

First Steps to Deal With a Lease Dispute

If a dispute arises, the first things you should do are:

  1. review all the lease and associated documents;
  2. consider getting legal advice to understand the rights and obligations under the lease and whether any legislation applies; and
  3. communicate clearly with the other party. You should ensure that key correspondence is in writing so that you can maintain a paper trail. You should set out the allegations, the legal basis and factual circumstances that support your allegation, the resolution that you are seeking, and a timeline for a response.

Ideally, you should not make any major decisions, such as withholding rent or terminating a tenancy, without consulting a leasing dispute lawyer. If you do not follow these actions in a legally correct manner (which will often depend on the wording of your particular lease), you can be exposed to unintended consequences.

Key Takeaways

Commercial or retail leasing disputes can arise at any stage of a leasing arrangement. Additionally, they can have significant negative consequences for both landlords and tenants.  It is important to understand the types of leasing disputes that may arise and the ways that you can resolve a dispute to avoid the high costs of going to court. If you need help with a leasing dispute, LegalVision’s experienced dispute resolution lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions 

When do leasing disputes occur?

Lease disputes can occur at any stage of a leasing engagement including: prior to commencement, during the term, during renewal discussions or even after termination. 

What are some options for resolving a leasing dispute?

Often, disputes can be resolved through negotiation. Alternatively, you may choose to use mediation where an independent third party guides the negotiations. You can additionally go to a tribunal to seek a judgement but this process is more costly and risky.

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

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