How (not) to terminate a lease
A recent Supreme Court of New South Wales decision, Dee-Tech Pty Ltd v Neddam Holdings Pty Ltd (No 2)  NSWSC 517, highlights that a notice of termination of lease must be carefully drafted. In this case the notice was held to be unenforceable. The tenant remained in the premises for a further term and the landlord was responsible for part of the costs of the litigation.
An essential term of the lease was that the tenant maintain certain insurances and provide evidence of this to the landlord. The tenant failed to comply with this term, and the landlord served the tenant with a notice demanding that this default be remedied.
Around four weeks later, the landlord’s managing agent served the tenant with a document headed ‘notice to vacate’. The notice stated that the agent was ‘instructed’ to terminate the lease for non-payment of rent, but did not specify the date on which the lease would terminate.
The tenant filed a claim for relief against forfeiture and exercised its option to renew. Lengthy proceedings followed.
The court held that the notice to vacate was not legally enforceable because it did not unequivocally communicate to the tenant that the lessor was treating the lease as at an end.
The court noted that this intention would have been communicated if the notice:
- clearly stated that the lease was terminated;
- specified from when the termination was to take effect; and
- demanded repossession of the premises.
Because the lease had not been validly terminated, the tenant was granted relief against forfeiture, and a declaration that it had validly exercised the option to renew. The court subsequently assessed costs on an 'issue by issue' basis and held that the landlord was liable for a portion of the tenant's legal costs.
How does it affect you?
Landlords who make the commercial decision to terminate a lease due to tenant default must ensure that the notice of termination complies strictly with the terms of the lease and unequivocally states that the lease is at an end and the date from which termination takes effect. Landlords should also obtain legal advice at each stage of the default and lease termination process.
Tenants who are served with a notice of termination should seek legal advice to determine whether the notice is enforceable at law and also whether a claim for relief against forfeiture may reasonably be commenced.
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