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Who Pays in a Commercial Lease Dispute?

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Without a doubt, having a dispute with your landlord can be stressful. Add to that concerns about cost and the pressure intensifies.  However, it is possible to manage these kinds of situations so that your expenses remain as minimal as possible.  This article discusses how tenants can deal with a commercial lease dispute and where costs arise as they do so. When considering commercial lease disputes, it is important to distinguish between retail and non-retail leases.

Retail Leases

If a commercial lease is a retail lease, particular state or territory legislation provides certain minimum standards for parties in a rental relationship to observe. It also outlines specific procedures for commercial lease disputes. For example, in New South Wales, the relevant legislation is the Retail Leases Act 1994 (NSW). Its Victorian equivalent is the Retail Leases Act 2003 (Vic). Your lease will tell you if it is a retail lease.

If you are having a dispute, your first task is to read your contract closely. You need to be able to answer two questions:

  • What does it say about my particular issue?
  • Is there a clause that requires me to pay my landlord’s costs in the event of a dispute?

If the lease has a provision that is relevant to your matter, consider whether it is possible to approach your landlord informally to resolve the issue.

Negotiation is by far your most cost-effective solution. It can also preserve a level of goodwill between you and your landlord. However, be sure to note accurately any conversation or communication you have with your landlord: dates and records of what each party said. It could be important later.

If your lease requires the lessee to pay the lessor’s fees in the event of a dispute, you should consider getting advice about the reasonableness of it. Be aware that such a clause is different from one requiring a tenant to pay a reasonable sum to their landlord for the preparation of the lease itself. For example, in NSW, a tenant might have to pay a reasonable amount to facilitate an amendment to a lease.

If the matter remains unresolved after informal discussions, you will need to seek resolution of the commercial lease dispute in the relevant tribunal. For instance, the relevant NSW tribunal is the NSW Civil and Administrative Tribunal (NCAT). However, these tribunals can typically only hear retail lease disputes where the application is less than or equal to a threshold. In NSW, this is $400,000.

Before you apply to the tribunal, you and your landlord will likely be required to participate in formal mediation. For example, in NSW parties to a commercial lease dispute within the jurisdiction of NCAT must engage in mediation with the Office of the NSW Small Business Commissioner. Mediation uses negotiation and discussion to isolate the issues between the parties and come to a mutually acceptable solution.

Regarding cost, mediation is more cost-effective than litigation. It will save you money and may lead to a good outcome for you. You and your landlord might also be able to come to an agreement about the costs of mediation. For example, that each of you bears your costs.

If mediation is unsuccessful, typically a commissioner or other figure will issue you a certificate to that effect. You can then make an application to the appropriate tribunal. You will usually need to provide your certificate to be able to do so.

Making an application requires payment of a fee. You will have to participate in a directions hearing and then attend your hearing. As proceedings in a tribunal are less formal than in a court, you can present your case. That saves you the expense of legal representation if you so wish. Your costs will then be limited to preparing your matter.

The tribunal will hear your matter and make orders. The general rule in these tribunals as to costs is that each party bears their own. It can make a costs order requiring a party to pay the other party’s costs in certain limited circumstances. However, costs orders are exceptional.

However, costs refer only to the expense of preparing a matter for the tribunal. That is different to any money you might have to pay by order to resolve the dispute.  For example, in some instances, a tribunal can require a party to compensate the other.

Non-Retail Lease

If your lease is a non-retail, commercial lease or your retail lease application exceeds the threshold, you cannot apply to the relevant tribunal. In these instances, legal action in a court may be necessary.

In these cases, first, read the terms of your lease closely. You need to know what it says about your issue and whether it requires you to pay your landlord’s legal fees in the event of a dispute.  If negotiation with your lessor is a possibility, you could approach them directly. Again, keep a written record of any and all communication between you both.

If negotiation is not possible, seek mediation of the commercial lease dispute. Alternative dispute resolution is easily more cost effective than litigation and may resolve the matter entirely. It might also be possible to come to an agreement as to the expense of mediation.

If your lease includes a clause whereby the lessee pays the lessor’s legal fees in case of dispute, you need to consider advice about the reasonableness of the provision before making any decisions about instigating legal action.


If you need any assistance settling a leasing dispute, get in touch with LegalVision’s dispute resolution lawyers by calling 1300 544 755 or by filling out the form on this page.

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