Running a business involves juggling many financial responsibilities, and sometimes commercial rent can become challenging to meet. If you’re a tenant leasing commercial or retail premises in NSW and find yourself unable to pay rent, understanding the potential consequences and your options is crucial for protecting your business and minimising financial damage.
The Immediate Consequences of Non-Payment
Non-payment of rent and other amounts due under your lease (such as outgoings) constitutes a breach of your lease agreement. This isn’t just any breach either – it’s typically considered a fundamental breach that can have serious consequences for your business operations.
The Process Landlords Usually Follow
Notice of Default
Depending on your lease terms, your landlord may be required to issue a notice specifying the breach and giving you a specific period to remedy it. However, this isn’t always mandatory, so it’s essential to carefully review your lease agreement to understand whether your landlord must provide notice before taking further action.
Lease Termination
If you don’t remedy the breach within the specified timeframe (or if your lease allows for immediate termination for non-payment), your landlord may terminate the lease and take possession of the premises.
Re-entry and Lockout
Perhaps the most confronting consequence is when your landlord re-enters the premises and changes the locks, sometimes without notice. This means you could arrive at your business one morning to find you can’t access your own premises.
Financial Recovery Actions
Once your lease is terminated and you’re locked out, your landlord may pursue you for:
- Unpaid rent and outgoings
- Other losses, including costs of reletting the premises
- Legal costs incurred in the process
Security Called Upon
Your landlord may also call upon any security you’ve provided under the lease, such as a security bond, bank guarantee, or personal guarantee.
Relief Against Forfeiture: Your Legal Lifeline
If you’ve been locked out or had your lease terminated for non-payment, you may be able to apply to the court for relief against forfeiture. The court has discretion to reinstate your lease if you can demonstrate that you’ve paid the arrears and compensated the landlord for their losses.
This legal process can be expensive, typically requiring both a solicitor and a barrister. Critically, you must pay what you owe to the landlord before going to court to seek reinstatement of your lease.
Practical Steps When You Can’t Pay Rent
Communication is Key
If you know you won’t be able to meet your rent obligations, the most important step is to communicate with your landlord or property manager immediately. Whether you’re waiting on a delayed payment from a major client or experiencing temporary cashflow issues, keeping your landlord informed can make a significant difference.
We regularly see tenants who bury their heads in the sand when facing rent difficulties, often because they’re hoping to resolve the situation quickly. While communication doesn’t remove your landlord’s right to take action for breach, maintaining an open dialogue may give them confidence that you’ll address the arrears and get back on track.
The Cost of Silence
Saying nothing and simply not paying rent almost always causes irreparable damage to your landlord-tenant relationship. This makes it much more difficult to resolve matters once your cashflow improves, and significantly reduces your chances of negotiating a workable solution.
Protecting Your Business
Commercial rent issues can escalate quickly in NSW, with potentially devastating consequences for your business. The key is acting early – both in terms of communication with your landlord and seeking legal advice about your rights and options.
Don’t let rent arrears spiral into lease termination and lockout. If you’re facing difficulties with commercial rent payments or need advice about your lease obligations, contact our experienced commercial property team. We can help you understand your rights, negotiate with landlords, and protect your business interests during challenging times.
Ready to protect your business? Book a consultation with our commercial property specialists today.
