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Carefully managing the early stages of a lease dispute is crucial in achieving a successful outcome. From the moment you receive notice of a dispute from the landlord or tenant, or you decide you want to raise your concerns, you should be mindful of the immediate and potential risks facing your business and how to minimise or avoid them. Further, understanding the legal aspects of the lease dispute and the desired commercial outcomes of everyone involved will increase the likelihood of a quick resolution to any disagreements that arise. This article will discuss how to determine your legal position and provide guidance on the first steps you should take when dealing with a lease dispute.

Know Your Legal Position

The first step in any lease dispute is having an accurate understanding of your legal position. Is it crucial that you know:

  • whether you have a legally valid claim against the tenant or landlord, and whether they have any defences or reasonable excuses available to rely upon;
  • the validity of the other party’s claim against you, and whether you have a legitimate defence or counterclaim to it in response;
  • the enforceability of any rights and obligations relevant to either party contained in the lease (or other relevant documents); 
  • how relevant state or territory-based leasing laws may apply to your situation;
  • the relevant factual circumstances of the dispute; 
  • the key legal issues of the dispute; 
  • how judges have viewed lease disputes similar to yours; and
  • if the dispute ends up in court, what your chances of a successful outcome are. 

Before you have any formal conversations with the other party regarding the dispute (for example, written responses to letters or notices), you should understand the issues of the dispute and your legal position by taking the steps set out below.

1. Gather Evidence

Ensure you have copies of any key documents relevant to the facts or issues of the dispute, including:

  • business records such as bank or account statements, invoices and payment receipts;
  • communications (such as emails) with the other party and any third parties regarding the lease or the circumstances relevant to the dispute;
  • finalised documents such as a signed copy of the lease and any related documents such as license agreements, disclosure statements, outgoings estimates or other relevant information; and
  • any internal notes or summaries from verbal conversations.

Then, create a timeline of events (referred to as a chronology). The chronology should set out key events that led to the dispute and indicate where you might be missing evidence.

Tip: If a key statement or representation was made by email, but you no longer have a copy of it, check your archive or bin folder. Additionally, you can ask your employees for any backups or contact your email administrator. You could also obtain statements from any of your employees who are involved in the dispute or could provide additional evidence.

You should collect evidence that is both advantageous and detrimental to your case. Doing so will ensure that you understand the merits and potential weaknesses of your legal position.

2. Check the Lease and Related Contracts 

Your lease will likely set out what steps you need to take if a dispute arises. Both you and the other party should follow that process, in particular, before issuing any legal proceedings. You should also check any other contracts you have with the other party or anyone related to the dispute to determine if there are flow-on effects or additional requirements to consider. 

Tip: If you do not have a lease or it was never finalised and signed, gather the relevant business documents and correspondence that set out the terms of your arrangement, such as: 

  • the amount and frequency of rent and outgoing payments; 
  • the parties’ obligations; and 
  • other operational decisions such as a commencement and exit date.

3. Know the Rules

Review any laws, regulations or codes of conduct that apply to your type of lease. These can differ between states, as well as between commercial and retail leases.

There may also be temporary regulations put into place specifically for managing disputes.

Did you know?

  • Both landlords and tenants in a retail lease usually need to provide some form of disclosure statement prior to the lease being signed, but this is typically not required for commercial leases.
  • Retail lease tenants can have clear statutory rights in leasing law to compensation for misleading or false statements by a landlord around the time of signing the lease, whilst commercial tenants have to solely rely upon other legislation or previous cases.
  • In some states, fit-out costs can be capped for tenants in a retail lease according to amounts that were disclosed or pre-agreed, but this protection is not available for commercial tenants.
  • During the Covid-19 pandemic, the Federal Government drafted a National Code of Conduct for retail and commercial leases. Further, most state governments passed laws stating that tenants and landlords had to follow that Code when resolving disputes, even if the lease set out a different process.

4. Know Who is Who

Clarify the parties relevant to the dispute by asking the following questions:

  • Is the other party to the lease an individual or a corporate entity?
  • Does the other party have an agent or representative that you need to communicate with?
  • Are there any third parties that ought to be specifically included or excluded from discussions? 
  • What are the legal and commercial relationships between the relevant parties?

Additionally, it is crucial only to make a claim against the party you have contracted with.

Hint: You also need to be careful about unintentionally disclosing confidential information to a third party that unfairly damages the reputation of the other party.

5. Consider All Potential Resolutions

Disputes are avoided when the parties focus their efforts on finding viable solutions and compromise instead of achieving a set goal. Being flexible when it comes to the eventual agreed outcome can help you make the best of a bad situation. Be prepared to consider a range of outcomes, even if they are not your preferred choice.

Hint: Try to stay objective and remove emotion from your approach to the dispute. Although it can be difficult, understanding the other party’s perspective helps you determine your strategy and next steps.

6. Seek Legal Advice

Legal advice is most beneficial in the early stages of a disagreement before it escalates into a formal dispute. Lawyers can advise on: 

  • your legal position;
  • how the evidence relates to the claims; and 
  • what compensation or outcomes either party might be entitled to seek.

Most importantly, a lawyer can also help you consider options to resolve the disagreement, avoid the dispute and manage your communications with the other party. 

Communications

Your first step should be a verbal conversation with the relevant party. Disputes often result from a misunderstanding that you can resolve quickly by a conversation. Therefore, an informal or amicable discussion can lead to fair commercial compromises.

Everything you say or write in the early stages of a leasing dispute, unless you mark it as without prejudice’, can end up as evidence in court. As such, any communications that you may want to use as evidence in court should be kept ‘open’ and not done on a without prejudice basis. 

Hint: A formal breach notice issued under a lease should not be marked without prejudice. Concurrently with sending the formal breach notice, you may send a ‘without prejudice letter’ providing a compromise solution without reducing the legal effectiveness of the formal notice.

If unsuccessful in resolving the issues, your next steps could be informal written correspondence (emails) or formal written correspondence (letters, including from your lawyers). For example, these will set out: 

  • your legal position regarding the dispute;
  • an overview of the key circumstances, events or facts;
  • whether you are responding to a claim by the other party; or
  • whether you are initiating a claim against them.

Tip: In a leasing dispute, any communications to the other party can have significant legal relevance. Hasty responses, errors or miscommunications can expose you to detrimental outcomes and also expose you to additional liability. Passing comments can even result in you unintentionally waiving your rights under the lease or allowing the other party to terminate.

When communicating with the other party in a dispute, you should avoid making absolute statements (unless necessary) regarding actions you may or may not take, particularly where disagreement exists. 

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.

Download Now

Repudiation 

Repudiation is where one party indicates to the other that they no longer intend to comply with their obligations in the lease and plan to walk away from it. Therefore, if this intention is communicated (in writing or verbally) or demonstrated by the repudiating party’s behaviour, the other party may have grounds to: 

  • terminate the lease
  • seek compensation; or 
  • make an application to the appropriate court or tribunal to take pre-emptive action to prevent the breach.

Here are some suggested ways to reduce the chances of unintentionally repudiating a lease:

Higher Risk of Repudiation

Lower Risk of Repudiation

I will not pay my rent due to the issues you have caused.

I reserve the right to claim compensation for rent as a result of your breach of the lease.

I’ll cancel the lease and lock the doors.

Further breaches may result in me exercising my rights to terminate the lease, which may include removing your access to the premises.

I will sue you.

If these issues are not resolved, I may commence legal proceedings against you without further notice.

I will not fix the premises.

It is my position that I am not obliged to fix the premises and request you set out the proper legal basis that you are seeking to rely upon.

Communication Checklist

In any communications, make sure that you:

  • avoid using emotional or inflammatory language or personal attacks; 
  • set out the factual matters clearly;
  • attach any relevant evidence or extracts from documents; 
  • check the correct person you should be dealing with and confirm they have authority to act on behalf of their business;
  • provide a deadline for a required response (this may depend on the urgency of the issues); 
  • if you speak with the other party, make notes of everything said during the conversation; 
  • be open and provide information where appropriate to ensure that information is communicated properly; and
  • keep copies of all written correspondence relating to the dispute. 

Key Takeaways

Navigating the early stages of a lease dispute can be critical in finding a quick resolution or avoiding the dispute altogether. When facing a current or potential dispute with the tenant or landlord, it is important that you:

  1. gather relevant evidence;
  2. review the lease and any related documents;
  3. check any applicable laws;
  4. understand the legal relationship with the other party;
  5. consider all potential resolutions; and
  6. seek legal advice before taking further action.

How you communicate with the other party in the early stages of a dispute can impact your prospects of success later on, so you should be careful and strategic about what you say and how you communicate it (whether formally in writing or informally over the phone). Lease disputes can occur because of simple misunderstandings, so any efforts to increase the level of clarity and understanding can be advantageous for both the tenant and landlord in saving time and money and increasing the chances of agreeing on a solution.

If you need assistance with a current or potential lease dispute, LegalVision’s 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

What is ‘without prejudice’ communication and should I use it?

Everything you say or write in the early stages of a commercial leasing or retail leasing dispute can end up as evidence in court, unless you mark it as ‘without prejudice’. Therefore, any communications that you may want to use as evidence in court should be kept ‘open’ and not done on a without prejudice basis. 

What is repudiation?

It is where one party indicates that they no longer intend to comply with their obligations under the lease. If one party repudiates, the other party may have grounds to terminate the lease. They might also be able to seek compensation. Or in certain circumstances, they may apply to a court or tribunal to prevent the breach.

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