Cancelling a lease – what's changed for landlords?

By Susan Bright, Senior Associate

There is a new regime for landlords wanting to exercise their powers of re-entry under a lease, or forfeit a lease.

Under the Property Law Act 2007 (the Act) the term "forfeiture" has been replaced with the word "cancellation". The notice requirements on cancellation have been significantly changed and landlords must now give notice before re-entering and cancelling the lease for non-payment of rent.

There are two methods to cancel a lease:

• by application to the court for an order for possession; or

• by peaceable re-entry onto the premises.

However, prior to taking the above steps, the appropriate notices must be served.

Notice requirements for cancellation

The Act continues to draw a distinction between cancellation for non-payment of rent and cancellation for breaches of other covenants. The procedure however, particularly in relation to the exercise of re-entry for non-payment of rent, has changed.

Non-Payment of Rent

Cancellation is effected only if:

• rent is at least 10 working days in arrears; and

• the landlord has given the tenant notice of its consequent intent to cancel the lease should the rent not be paid within the specified period in the notice (which cannot be less than 10 working days after the date the notice is served).

A landlord may give notice of their intention to cancel the lease as soon as there is a default, but may not re-enter the premises until at least 10 working days after the notice has been served. This is possible because the minimum 10-day period of notice for paying the arrears may run at the same time as the minimum 10-day period for which the rent must be in arrears.

Therefore it would be prudent for a landlord to give notice as soon as possible after the default so that the landlord can exercise its right to re-enter and cancel the lease at the earliest opportunity.

Breach of Other Covenants

Cancellation is effected only if:

• the landlord has given the tenant notice of its consequent intent to cancel the lease; and

• the breach is not remedied by the date given in the notice (which must be reasonable in the circumstances, depending on the breach and what action is required in order to remedy the breach).

Notice requirements

For notices to cancel the lease, either for non-payment of rent or breach of other covenants, the notice must:

• inform the tenant of the nature and extent of the breach;

• outline what must be done to remedy it;

• advise the tenant of the landlord's intention to cancel the lease if the breach is not remedied within the specified timeframe;

• notify the tenant of their right to apply to court for relief against cancellation; and

• advise the tenant to seek legal advice.

For breach of other covenants, the landlord may, and can, require compensation for an amount considered reasonable in the circumstances, either in lieu of the tenant remedying the breach or where a breach is incapable of remedy.

It is necessary to give notice to each tenant individually as well as to each guarantor. Further, the landlord must give notice to any mortgagee or receiver, any sublessee, and to any mortgagee or receiver of the sublessee where these parties are known to the landlord. While the failure to notify these parties will not invalidate the notice, it will potentially enable these parties to seek an extension of time to remedy the breach. All these parties also have the right to apply for relief.

the last straw - possession or re-entry

If the rental arrears specified in the notice are not paid or the breach is not remedied and/or compensation paid (if applicable) within the specified time period, the landlord may apply to court for possession of the property.

Alternatively, the landlord can re-enter and cancel the lease, however another notice must be served to effect this. The re-entry must be undertaken peaceably and in accordance with Section 91 of the Crimes Act 1961 (i.e. not by forcible entry and detainer where the premises are actually being possessed and peaceably occupied by another). It is advisable that re-entry should take place outside business hours when the premises are empty (but within daylight hours).

Practical Steps of Re-entry: Serve required notices. Choose an appropriate time to minimise conflict (re-entry must be peaceable). Re-entry should be done during the day (between 6am-9pm). Take a locksmith, re-enter and change locks to secure premises and a security guard (if you think the situation warrants it) to keep you and the premises secure. Take inventory of the landlord and tenant's fittings and chattels. Remove tenant's fittings and chattels to a safe and secure place as the landlord becomes a bailee for the tenant. Alternatively, arrange a suitable time with the tenant to allow them to enter the premises and remove such fittings and chattels.

Please contact us if you require any further information.

Enquiries and information

For more information on any of the cases, articles and features in Property Update, please email Jane Holland or call on 64 9 916 8983.