If you have received a notice to remedy breach of covenant for your commercial or retail shop lease in Queensland, it can mean that the lessor (landlord) is seeking early termination of the lease. This is clearly a very serious matter requiring your immediate attention if your business is going to be able to continue to trade from the leased premises (property).

If you do not respond to the notice to remedy breach of covenant within the time required in the notice, you may be deemed to have forfeited your interest in the lease giving the landlord the right to terminate the lease and re-enter the property, effectively taking back control of the property.

What is a Notice to Remedy Breach of Covenant?

A notice to remedy breach of covenant is issued under section 124 of the Property Law Act 1974 (Qld) (PLA). The form of notice approved for use under that section is a Form 7 Notice to Remedy Breach of Covenant. This form of notice can be used to terminate any commercial or retail shop leases in Queensland provided the term of the lease is greater than one year. A ‘covenant’ is a promise. In the context of a Form 7, it relates to the breach of a promise made to the landlord in the lease.

Form

A landlord issuing a Form 7 must strictly adhere to the approved form. This was endorsed in the case of Tyrrell & Anor v Jesbro Enterprise Pty Ltd where even though a covering letter served with the Form 7 contained some of the information missing from the notice, the court still held the notice to be invalid and dismissed the landlord’s application. The Form 7 must specify the breach by reference to the terms of the lease. If the breach can be remedied, the notice must require a tenant to remedy the breach. This may require a tenant to pay a sum of money such as overdue rent, or to perform another obligation in the lease. The Form 7 may also require a tenant to pay the landlord compensation in a sum of money because of the breach. It is very important that the notice clearly expresses what it is that a tenant must do to remedy the breach being complained of for it to be considered a valid notice upon which the landlord can rely.

Service

The Notice to Remedy Breach of Covenant must be served by the landlord on a tenant. Service is usually prescribed by the notice provisions in the lease, or according to the legislation relevant to each lease.

Time to Respond

A tenant must remedy the breach complained of within a reasonable time after service of the notice to remedy breach of covenant (section 124 (1) PLA). What constitutes a reasonable time to remedy the breach complained of is very much dependent upon the circumstances of each case. The recent case of Drama Unit Pty Ltd v Fearndale Holdings Pty Ltd (Administrator Appointed) & Anor concerning the corresponding New South Wales provision to section 124 PLA reinforces that there is no requirement to specify in such notices what a reasonable time might be. However, the Form 7 in Queensland does suggest, for example, that a specific time for the breach to be remedied can be included in the form. It is then up to any court determining the validity of the notice to consider:

• The purpose for which the notice was given
• The breach alleged
• What must be done to avoid forfeiture

Consequences of Invalidity

If a landlord terminates a lease and re-enters possession based on an invalid notice to remedy breach of covenant, a tenant may be entitled to compensation for any loss and damage suffered to their business because of being locked out and prevented from continuing to trade.

Important considerations

Because failure to respond to a notice to remedy breach of covenant has such serious consequences, the landlord issuing it must have strictly complied with all legal formalities under the lease and the PLA for issuing the notice. Some of these considerations are set out below.

• How was the notice served?
  The way in which you received the notice to remedy breach of covenant is extremely important. You should make a note of how and when you received it and keep copies of all written communications you received with it.
• Are the landlord’s details correct?
  Do you know the person or company who has sent you the notice to remedy breach of covenant? Compare the details on the notice with your lease documents. Do they make sense or is there some confusion?
• Are your details correct?
  Has the person or company who sent you the notice to remedy breach of covenant correctly described your details in the notice? This is very important; particularly in relation to your name, your company’s name or trading name. Do these correspond with the lease documents?
• Were you aware there was a problem with your lease?
  The notice to remedy breach of covenant will refer to one or more matters the landlord is alleging you have not done according your obligations under the lease. Were you familiar with those issues, or is that the first time you became aware of them?
• Do you owe the landlord money?
  According to your own records and understanding, do you owe money to the landlord for rent, outgoings or any other amounts under the lease? If there was a balance owing to the landlord, was there another reason you had not paid it? Did they owe you a similar or larger amount of money? If so, what was that for? Did you inform the landlord that you intended to withhold payment of rent?
• Is the amount claimed overstated?

 
Check your records to confirm whether the amount being claimed by the landlord in the notice to remedy breach of covenant is the same as the balance you thought was owing for rent, outgoings and any other amounts payable under the lease. Has the landlord claimed in excess of what you thought was owing?

Action

As you can see, there are many important considerations to be examined before responding to a notice to remedy breach of covenant. Investigating these considerations and gathering information to identify any errors in the notice takes time. We therefore urge you to consider those matters as soon as possible as they will determine your options to respond to the notice to remedy breach of covenant.

In broad terms, your options are:

• Pay the claimed amount
  To pay the amount claimed in the notice within a reasonable time.
• Settle the amount

To negotiate a resolution with the landlord who issued the notice to settle the amount claimed.

• Apply for an injunction

 
To apply to an appropriate court for an injunction restraining the landlord from forfeiting the lease and seeking a declaration that the notice is invalid.

If the information in the notice to remedy breach of covenant is completely accurate, the first two options are appropriate.

Alternatively, if the notice to remedy breach of covenant is not accurate, does not comply with the approved form, or has not been served correctly, you may be able to apply to a court for an injunction.

Seeking Advice

Commercial leasing is a technical and complex area of law and you should seriously consider obtaining legal advice if you believe that there may be grounds to question the validity of the notice to remedy breach of covenant you have received. Doing this may prove to be the difference between having your commercial or retail shop lease invalidly terminated or continuing to trade.

Conclusion

If you are in Queensland and have recently received a notice to remedy breach of covenant and require assistance to urgently assess its ramifications for you, one of our experienced team of solicitors will be happy to help you. Make a booking with Fox Piper for an confidential initial consultation to explore your options and legal rights.