A commercial lease is a rental agreement for an office, warehouse or another type of business spaces. Commercial leasing agreements vary widely in their terms. The terms and conditions of the lease agreement should be carefully studied and scrutinised to understand one’s rights and obligations, since it is a legally binding agreement. In case of a commercial lease, legal and commercial advice should be obtained before making any commitments or signing any lease related document or making payment of any deposit or other amount. Owen Hodge Lawyers have an experienced team of commercial lawyers in Sydney who can guide you with legal and commercial advice in relation to commercial leases.

Landlord’s Rights Against A Tenant

A Landlord is entitled to both legislative and common law rights in case of default by a Tenant under a Commercial Lease. A Landlord may lodge a simple claim for possession or seek an urgent application for injunctions or relief against forfeiture, where the Tenant is seeking to resist the eviction.

There are six methods of terminating a lease before the date of termination specified in the lease agreement. These methods are as follows:

  • Surrender of the lease;
  • Termination pursuant to a term in the lease;
  • Frustration of contract;
  • Termination pursuant to specific statutory grounds;
  • Merger; and
  • Breach of fundamental term by either the Landlord or Tenant.

In case of a breach of the lease by the Tenant, a Landlord can resume possession of the commercial space, if:

  • The breach is ‘fundamental’ or ‘essential’; or
  • The Tenant’s conduct constitutes a ‘repudiation’ or ‘disclaimer’ of the lease;
  • The breach must activate a right of re-entry or termination under the terms of the lease.

An injunction is a remedy available to a Landlord to restrain a Tenant’s default. This remedy is available under the common law and no express promise is required to seek it. The Landlord may also re-enter the premises and terminate the lease for the Tenant’s default. The Conveyancing Act 1919 (NSW) implies this right, although the right can be confirmed upon a Landlord by means of a variation of the lease agreement in writing which specifically assigns this right to the Landlord.

If the Landlord terminates a lease for the Tenant’s default, the Landlord can sue the Tenant for damages including loss of rent. This is an implied remedy available under common law. A Lease may also expressly allow a Landlord to recover a fixed sum of money from the Tenant, which may represent the “accelerated rent” due under the lease, in the event of a Tenant’s default. However, this sum of money must be a genuine assessment of damages.

A simple termination clause provided in the agreement in favour of the Landlord would usually not be challenged. However, terms quantifying damages or allowing the Landlord to avail certain benefits received are subject to judicial scrutiny of fair trading legislation.

Restricting Assignments Or Sublease

As per common law, a Landlord can have a clause included in the lease agreement which prohibits the Tenant from assigning or subleasing their leasehold estate. Alternatively, the Landlord can also have a clause which qualifies their consent for sublease. This situation is regulated by the Conveyancing Act 1919 (NSW) which specifies that the Landlord cannot unreasonably withhold consent.

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