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As a landlord, you will be dealing with commercial lease agreements daily. Lease agreements are there to ensure that you have remedies if your tenant breaches their obligations. You must have a lease agreement as if you do not, you will not get any compensation. However, even if you have a commercial lease agreement, your tenants may still default on their lease. This means that they refuse to pay their rent and want to terminate their agreement. If tenants default, it can cause you lost income, and you may struggle to find a new tenant quickly. This article will explain whether you can cancel your commercial lease if your tenant defaults and provide tips to stay protected as a New Zealand landlord.

Notice of Intention

If your tenant decides to default on their lease, then there is a process you need to follow. Your tenant may default because they are struggling to pay rent or want to move to new premises. The notice of intention should outline: 

  • what provision of the contract that the tenant has breached;
  • how they can remedy the breach; and
  • how long they have to remedy the breach. 

If the tenant fails to pay rent, then the length of time your tenant has to pay any rent arrears is 10 days. After this time has elapsed, you can cancel the commercial lease. However, if your lease states that rental payments can be overdue by more than 10 days, you must comply with that provision. If you cancel the lease too early, you may have been held to have repudiated the contract, which means your tenant may be able to claim damages for this.

The notice of intention must contain the landlord’s intention to cancel the lease if the beach is not remedied. This is important as the tenant must know that the contract may be at risk of cancellation. If the tenant is in rent arrears, then this must be outlined in the notice of intention as well. The notice can be issued to the tenant if rent remains unpaid after as little as one day. 

Another provision that the notice of intention should contain is a line advising the tenant that they can apply to the court to stop the cancellation of the lease. Courts are usually favourable to tenants and will block any lease cancellation if they can pay back all of their costs.

Physical Occupation

Once you have issued the notice of intention, you must wait until the time has elapsed before taking further action. If the tenant has still not met their obligations under the lease agreement, you are then entitled to cancel the commercial lease. Once the lease is cancelled, it means the tenant must leave the property. 

If they refuse to leave, then you will be entitled to re-enter the property yourself. The best way to do this would be to change the locks on your property so the tenant cannot continue to occupy it. However, you can only enter the property during daylight hours and cannot use force or breach the peace.

Aftermath

After the lease has been cancelled, you are still able to apply to the court to claim rent arrears from your tenant. If you are successful, your tenant will have to pay back any rent that they are owing. However, it is likely that if your tenant was unable to pay their rent initially, it means that the business is out of money or bankrupt. This means that your tenant may not have any money for them to pay you back.

In some cases, the commercial lease might be backed up by a guarantor. The guarantor will have signed the lease on behalf of the tenant. They are there to guarantee any payments that your tenant cannot make. Guarantors are usually used in the case of a new or struggling business. If there is a guarantor, you will be entitled to seek any late rental payments. However, if they are in the same position as the tenant, they may not help.

Key Takeaways 

It can be stressful as a landlord if your tenant defaults on their lease. However, it is essential to know that you can follow steps to make sure that you get your rental payments and cancel the lease. Make sure your notice of intention contains all the necessary provisions and that you wait the appropriate time before you decide to cancel your lease. You can apply to the court afterwards to get back any late rental payments if there are still any overdue. If you need any legal assistance with commercial leases, contact LegalVision’s property and leasing lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

Can I wait less than ten days before cancelling the lease if it says in my contract?

No, even if there is a number before ten days, you must wait the entire ten days before cancelling the lease.

Will I be able to get all my rent arrears back?

This depends on the state of your tenant and whether they have any funds to pay you back. If they are bankrupt, you may not get anything.

Can I sue my tenant for trespass if they remain on the property after the lease has been cancelled?

Yes, you can sue for trespass as they are illegally on your property. However, it is unlikely your tenant will stay on the property for this long.

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