Commercial lease arrears raise questions that do not arise with ordinary trade debts: the ongoing nature of the tenancy, the distinction between debt recovery and lease termination, and — for retail leases — specific legislative requirements that constrain how you can respond. This guide works through each layer in turn.
The nature of commercial lease arrears
Unpaid rent under a commercial lease is a debt owed by the tenant to the landlord. It is recoverable like any other commercial debt — by demand, negotiation, and if necessary by legal proceedings. But the lease relationship is ongoing: the landlord has a continuing obligation to allow the tenant to occupy, and the tenant has a continuing obligation to pay. Those two streams run in parallel and must be managed separately.
A common mistake is to conflate "the tenant hasn't paid" with "I want to end the lease". These may both be true, but the remedies are different. Recovery of arrears is one path; termination for breach is another. Choosing the wrong one, or mixing them up, can jeopardise both.
Your obligations under the lease
Before issuing any formal notice, read your lease. A well-drafted commercial lease will specify:
- The date on which rent is due and the period it covers.
- The notice period required before the landlord can take action for non-payment.
- The form of notice required (written, to the tenant's registered address).
- The timeframe within which the tenant may remedy a default after notice.
- Whether the landlord must offer to mediate before terminating (common in retail leases).
Acting in breach of these provisions — for example, terminating before a required remedy period has elapsed — can expose you to a claim for wrongful re-entry or breach of the landlord's covenant for quiet enjoyment. Follow the lease first.
Retail lease legislation
Retail leases are subject to state-specific legislation that imposes obligations beyond those in the lease document. In Queensland, the Retail Shop Leases Act 1994; in Victoria, the Retail Leases Act 2003; and in New South Wales, the Retail Leases Act 1994. These Acts:
- Require landlords to give a minimum period of notice before taking action for non-payment of rent.
- Mandate a mediation step (through the relevant state body) before most disputes can be taken to the tribunal.
- Restrict or prohibit certain self-help remedies — including changing the locks and seizing goods.
A landlord who takes action outside these requirements — particularly changing locks or removing a tenant's property — risks significant liability. If you are dealing with a retail tenancy, understand the legislation that applies before taking any step beyond a demand letter.
Formal notice requirements
To validly commence action for non-payment of rent, most commercial leases and the retail leases Acts require a formal written notice of default. This notice should:
- Identify the breach (rent unpaid from [date]).
- Quantify the arrears (amount due as at the date of notice).
- State the timeframe within which the tenant must remedy the breach (typically 14–30 days, depending on the lease and the Act).
- State clearly that failure to remedy may result in the lease being terminated or legal proceedings commenced.
Serve the notice in the manner specified in the lease — usually by registered post or hand delivery to the tenant's registered address. Keep the delivery record.
Debt recovery vs. termination
Recovery of arrears and termination of the lease are distinct legal paths and the choice between them is a commercial decision that depends on the circumstances:
- Debt recovery without termination — pursue the outstanding rent as a debt while the tenant remains in occupation. Appropriate where the relationship has otherwise been satisfactory, the tenant is paying current rent, and you want to preserve a going-concern tenancy.
- Termination for breach — serve the appropriate notice, wait for the remedy period to expire, then re-enter (in accordance with the lease and any applicable legislation). Appropriate where the tenant is not paying current rent, the arrears are significant, and there is no realistic prospect of the relationship continuing.
Note that re-entry without following the proper process — including a court order in some circumstances — can constitute trespass and expose the landlord to a damages claim. Distress for rent (self-help seizure of a tenant's goods) has been abolished in Queensland, Victoria and New South Wales. Do not attempt it.
After termination: recovering the balance
Terminating the lease does not extinguish the tenant's liability for arrears and, depending on the lease, for future rent until a replacement tenant is found. Once the tenancy is ended:
- Quantify all arrears, outgoings and any make-good costs.
- Apply any security deposit or bank guarantee held, in accordance with the lease.
- Send a formal demand for the balance.
- Pursue the balance through debt recovery — through a recovery agent for the negotiation phase, and through court proceedings if necessary.
If the former tenant has vacated and is not responding, a recovery agent can often locate and engage them more effectively than continued in-house pursuit. The longer the balance sits unpaid, the less it is likely to produce.
This guide is general information only. It does not constitute legal or financial advice. Retail lease legislation varies by state and changes over time — obtain advice specific to your situation before acting.