What do you do when your Commercial or Retail Lease Tenants Stops Paying Rent

When a commercial or retail tenant in New South Wales stops paying rent, the financial and operational impact can be significant. While it is important to respond quickly, it is equally important to follow a careful and legally compliant process. Taking the right steps from the outset helps protect your position and reduces the likelihood of disputes. The following guidance outlines the key considerations for landlords navigating rental arrears.

Review the Lease Agreement

The first step is to carefully review the lease. Commercial and retail leases set out the tenant’s obligation to pay rent, what constitutes a breach, and the process for dealing with non-payment. The lease will also outline any notice requirements and timeframes. Understanding these terms before taking further action ensures your response is consistent with your contractual rights and reduces the risk of procedural error.

Communicate with the Tenant

Before taking any formal step, it is often worthwhile speaking with the tenant to understand why rent has not been paid. Many tenants experience temporary cash-flow pressure and may be open to negotiating a short-term arrangement. Constructive communication can resolve matters early and preserve the tenant–landlord relationship. It is important to document all discussions and attempts to resolve the issue informally.

Additional Requirements for Retail Tenants

Where the tenant occupies retail premises, additional obligations apply under the Retail Leases Act 1994 (NSW)(the Act). The Act imposes requirements that override inconsistent lease terms and provide additional protections to retail tenants.

Under section 80 of the Act, a landlord must issue a written breach notice before terminating a retail lease for non-payment of rent. The notice must identify the breach, specify the outstanding amount, and give the tenant at least 7 days to remedy the breach. This is a compulsory requirement, even though the Conveyancing Act 1919 (NSW) (Conveyancing Act) otherwise allows termination without notice for rent arrears. Retail landlords must also comply with statutory service requirements under section 81 of the Act improper service may invalidate any termination.

In addition, the Act restricts lockouts, limits the ability to charge penalty interest or fees unless clearly permitted in the lease, and prevents termination for certain outgoings unless proper estimates and reconciliations have been provided. These protections mean that retail landlords must take particular care to ensure full compliance with statutory obligations before enforcing their rights.

Serve a Notice to Remedy Breach

If informal discussions do not result in payment, the next recommended step is to issue a notice to remedy the breach. For commercial tenancies, while section 129(8) of the Conveyancing Act confirms that a notice is not technically required for non-payment of rent, serving one is considered best practice. A notice provides clarity, demonstrates that you have acted reasonably, and gives the tenant a final opportunity to remedy the arrears. The notice should identify the breach, specify the amount owed, provide a clear breakdown, and allow a reasonable timeframe for compliance.

For retail tenants, this step is mandatory, as outlined above.

Ensure the Notice Is Properly Served

The effectiveness of any notice depends on proper service. This requires checking the service provisions in the lease and complying with any statutory requirements. Incorrect service can delay enforcement and expose the landlord to challenge, particularly in the retail context where the Act requires strict compliance.

Consider Lease Termination or Re-Entry

If the tenant does not comply with the notice within the specified timeframe, you may have grounds to terminate the lease and re-enter the premises. This step must be taken cautiously. Unlawful termination or improper re-entry can expose the landlord to claims for damages or reinstatement. Retail premises are subject to additional protections, including restrictions on lockouts under section 77 of the Retail Leases Act. Given the seriousness of termination decisions, legal advice is strongly recommended before taking any steps that affect the tenant’s possession.

Be Aware of the Tenant’s Right to Seek Relief

Tenants, both commercial and retail, may apply to the Court for relief against forfeiture under section 129(2) of the Conveyancing Act. Courts often grant relief where the tenant can show the breach can be remedied and they are able to meet future obligations. A well drafted notice and clear communication will strengthen your position if the matter proceeds to court.

Keep Thorough Records

Throughout the process, it is essential to maintain detailed and organised records. This includes copies of all notices, rent ledgers, correspondence, and any agreements or concessions offered. Good record keeping strengthens your position if the matter escalates or becomes subject to legal proceedings.

Managing rental arrears involves navigating both contractual obligations and statutory requirements. Engaging experienced legal advisors ensures each step is handled correctly and that your rights are protected. The team at Solari & Stock can assist with reviewing your lease, preparing compliant notices, advising on termination and re-entry, and guiding landlords through disputes. Early legal guidance helps prevent missteps and supports a timely, commercially sensible outcome.

If you require assistance or tailored advice, Solari & Stock is available to support you throughout the process. Contact our Commercial Team of Michael Solari and Valentina Abouzeidon 8525 2700 or click on the Contact Us button to request an appointment.

Article by Valentina Abouzeid
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