To Terminate or Not to Terminate? Navigating Lease Breaches for Unpaid Rent
- kemartin18
- Jun 9
- 3 min read
Kimberley Forman, Director
Few situations are more frustrating for a landlord than a tenant’s failure to pay rent. Understandably, the first instinct is often to terminate the lease. While termination may seem like the obvious solution, it’s not always the best course of action.
This article explores the pros and cons of terminating a lease due to non-payment of rent, including the implications of when the duty to mitigate losses arises.
The Case For Termination
Regaining Control of the Property
Termination allows the landlord to take back the premises and seek a new tenant who can meet their obligations. This may be particularly important where the tenant has a poor payment history or shows signs of financial distress.
Avoiding Prolonged Financial Loss
If a tenant is consistently failing to pay, cutting ties early can prevent further financial damage. Rather than allowing arrears to accumulate, which could make recovery more difficult, a landlord may prefer to terminate the lease.
Enforcing Legal Rights
Once the lease is terminated, landlords may pursue legal action to recover unpaid rent and damages. This could include enforcing personal guarantees, claiming against security deposits, or commencing debt recovery proceedings.
The Case Against Termination
Finding a New Tenant Takes Time
Vacancy risk is a key factor. Depending on the commercial leasing market, it may take considerable time to secure a replacement tenant. In some cases, the loss of rent during a vacancy period may be more detrimental than negotiating with the existing tenant.
Legal Costs and Complexity
Termination is not always straightforward. If a landlord wants to terminate a lease, and the tenants disputes the validity of the termination, the landlord may be drawn into costly and time-consuming legal proceedings. This can also delay the ability to re-let the premises and increase a landlord’s exposure to legal costs.
Duty to Mitigate
The duty to mitigate typically arises once the lease has been terminated. This duty requires landlords to take reasonable steps to mitigate their loss. This means actively taking steps to reduce financial harm such as re-letting the premises and/or exploring commercial alternatives, rather than simply attempting to claim damages from the defaulting tenant. Courts often scrutinise a landlord’s conduct to assess whether damages can be recovered in full.
Alternative Approaches
Before electing to terminate the lease, landlords may consider alternative options such as:
Negotiating a Payment Plan: If the tenant is experiencing temporary financial difficulties, a structured repayment plan may be preferable.
Rent Reductions or Deferrals: Offering short-term rent relief may help retain a reliable tenant and avoid the costs of finding a replacement.
Engaging in Mediation: A neutral third party may facilitate a resolution that avoids costly litigation.
Final Thoughts
The interpretation of each lease depends on its terms. Termination is a powerful tool, but it’s not always the best solution. Landlords should weigh the financial and legal implications carefully before making a decision.
Careful consideration and legal advice are essential. Understanding your rights, obligations, and the broader commercial context can help ensure the best outcome.
If you’re facing a lease breach due to unpaid rent, seeking legal advice tailored to your situation is always a wise move. Every lease and jurisdiction has its nuances, so a well-informed approach can make all the difference.
Feel free to contact us at Shand Taylor Lawyers for more information:
Kimberley Forman, Director
(07) 3307 4523
Sophia Chetcuti, Lawyer
(07) 3307 4515
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