NSW Commercial Lease Renewal Challenge?

[Izzy]

We are the owners of a commercial building. The commercial lease with the retail business expired on 30 June 2014. 3 months prior to the lease expiring (March 2014), after having a market review of the property, we approached the tenant to renew a further 5 year lease at the recommended rate from the review.

For many years, as the review highlighted, the rent had been below market value as we were trying to help the tenant along in hard times (now backfiring on us). The tenant responded in April 2014 that they would not sign any new lease unless it was at the same rent as they were currently paying. The tenant is now on a month to month agreement according to the old lease.

It is now October and we would like to try again to secure a new lease. We feel we should be able to approach the tenant with same proposal (that he rejected earlier), and if not accepted by end of October 2014 ( 7 months from when we initiated trying to agree on a new lease but only 4 months from the actual expiry of the lease), we intend give the tenant 1 month's notice (from mid November 2014) to vacate the property.

Are we able to do this under commercial law? Have we allowed the correct time frames so to not expose us to any further legal maneuvering from the tenant? I have read that tenants rights can include disputing the rent, and we would have to go down various legal channels to sort this out.

 

[Sarah J]

Hi Izzy,

Retail and commercial leases are governed by the Retail Leases Act 1994 (NSW). Basically, where there is no option to renew under the original lease, the landlord can propose a new agreement or option to renew six months prior to the lease ending. The landlord can change the terms of the lease, including rent, in this case. Where there is an option to renew under the original lease, the tenant is entitled to renew the lease at the original lease terms as long as they exercise the option correctly. Where the lease term finishes and the tenant remains, the lease continues on a month-to-month basis and the landlord can end or change the terms of the lease with one month's notice.

The following fact sheet may be able to further assist you:

- Small Business NSW Commissioner: end of lease and options
- Small Business NSW Commissioner: avoiding and dealing with disputes

 

[Izzy]

Thankyou Sarah,

The attachments you provided were helpful. From my understanding of what they say, we have given the commercial tenant more than 6 months from when we approached them to renegotiate a new lease so there is no avenue there for the tenants lawyer to say we have not given them enough time to negotiate .By the way, I forgot to mention that the commercial tenant made no contact with us 6 months before the lease was due to expire and other than reject our offer (and say they will only sign as new lease at the same under market rent as they have been paying), has made no contact to try and negotiate a new lease. We are assuming that the commercial tenant thinks we need them more than they need us so are willing to take a risk by moving onto a month to month lease.

The tenants layer is quite clever and will be looking for ways to delay/extend the period so to keep his commercial tenant in the building (and not have to close/move his business) and paying the same rent. If we decide to issue them with an eviction notice (to vacate in 1 month) can you see any loopholes that the tenant can say we did not do? I have read on another site that if there is a disagreement about the rent then both parties have to get the building reviewed and if each parties reviews do not agree, then it may have to go to a committee for mediation? to sort out. In the meantime this delays the eviction being able to be carried out.

 

[Sarah J]

That depends. Is there an option to renew under the original contract? Also, as I understand it, if there is an option to renew, you are only bound to your original agreement terms (i.e. rent price) as stipulated in the original contract. Hence, if you lowered the rental price during this period, you should not be bound by it for a further extended term. This is because the new negotiated contract price is an agreement outside of the original commercial contract and does not form part of the commercial contract.

 

[Izzy]

Hi Sarah,

I have looked over the original lease. Whilst there is an option to extend the lease for another 5 years, the tenant did not exercise this option. The cut off date to exercise the option was 31/12/13 and the tenant has made no attempt to negotiate a new lease. When we approached them in March this year they declined to enter into any new lease, unless it was at the same rental with no CPI increases up to 2019 (stated quite clearly in their written response). This is not a good investment for us to agree to, so we did not offer a lower rent/try to negotiate. The contact ended so they are now on a monthly lease and have forfeited alot of the benefits that exercising would have given them.

Thanks for your help. We'll see how it goes. We are going to deliver our offer again, and if not accepted will commence the eviction process. I am waiting to see what stalling tactics they throw up and on what legal grounds they have to back them up.

 

[Sarah J]

In that case, I see no problem with your proposed option. Best of luck with it!