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As a landlord, it is understandably very frustrating when your tenants do not pay rent on time. You need rent as part of your income and to deploy or invest the money you receive as part of the initial property investment. Tenants do not pay rent for various reasons. As challenging as the situation is, there are recommended ways to handle it. This article will outline what to do if your commercial tenant is not paying their rent on time.

Talking to Your Tenant

Although the situation may be frustrating, it is a good idea to talk to your tenant to figure out why they have not paid the rent. This will give you vital information. It may also allow you to decide whether you should let them “catch up” or whether the problem is unlikely to end. If there is hope for a turnaround and this is temporary, discuss with your tenant how they can make up for the missed payments, such as adding an amount to their regular rent until they pay off their debt. Any agreement made should be recorded in writing for future ease. If there appears no real prospect of turning the situation around, then taking action earlier rather than later is recommended to avoid compounding losses and creating bigger problems for all concerned.

Consult Your Lease

It is a good idea to check your lease and see whether any clauses cover a non-payment of rent. Your lease may outline the procedure for your situation and what your tenant needs to do in what amount of time. 

It is best to ensure that you include such a clause in the lease before signing it. As a result, your interests and source of income remain protected even if your commercial tenant cannot pay rent. 

Cancellation of Lease Under the Property Law Act

Under the Property Law Act, you can exercise a right to cancel the lease if the tenant fails to pay rent. You can cancel the lease if:

  • the tenant has failed to pay rent for 10 or more working days (during the COVID-19 pandemic, this will be 30 working days instead);
  • you have given the tenant a notice stating your intention to cancel the lease; and,
  • at the expiry of the period stated in the notice, the rent has not been paid.

The notice will need to include the:

  • nature and extent of the breach;
  • amount to be paid to remedy the breach;
  • period within which the tenant must remedy the breach – they must pay rent;
  • consequence that if the breach is not remedied within the period specified, then you may cancel the lease;
  • tenant’s right to apply to the court for relief against cancellation of the lease.

Once you have provided notice to the tenant, there are three ways in which you can proceed:

  1. agree with the tenant that you should terminate the lease;
  2. cancel the lease by peacefully re-entering the premises after 10 (or 30 during the COVID-19 pandemic) working days – this is a risky option, and you must enter during daylight hours; or,
  3. cancel the lease by applying to the High Court after 10 or 30 working days, which may give you an order of possession and rental arrears.

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Process for a Unit Title

If your commercial property is a unit title, you can apply to the High Court to cancel the unit plan or lease under the Unit Titles Act. However, you can only apply to cancel the lease if the tenant has failed to pay rent for one month.

Before you apply to the High Court, you need to serve a notice to inform people about your application to cancel the unit plan. You need to serve a notice to:

  • every unit owner;
  • any person with interest in any easement or covenant;
  • any person who has a registered interest, easement, caveat or notice of claim on any unit or common property;
  • all insurers who have effected insurance on the building; and
  • the Registrar-General of Land.

The High Court will review your application, and may allow a cancellation of the unit plan if the action is just. Once it accepts your application, the High Court will make a declaration authorising the cancellation and giving instructions for repayment of rent. 

Once a declaration is made, you have six months to apply to the Registrar to cancel the unit plan or lease. 

Key Takeaways

If your tenant is not paying rent on time, there are four main ways to proceed. You can start by talking to the tenant and agreeing on a solution. Then, you can consult your lease to see if it contains a procedure for non-payment of rent. If not, you can try to cancel the lease under the Property Law Act. If your property is a unit title, then you can apply to cancel the lease under the Unit Titles Act. Whatever path you choose, you must be careful to follow the proper procedures. 

If you need advice on what to do if your tenant is not paying rent, contact our leasing lawyers, who can help you as part of our LegalVision membership. You will have unlimited access to lawyers who can answer your questions and draft and review your documents for a low monthly fee. Call us today on 0800 005 570 or visit our membership page.

Frequently Asked Questions

What should a notice include?

Under the Property Law Act, the notice you serve must include the type of breach, the amount to be paid and how much time the tenant has to pay. Furthermore, you need to include the extent of the breach and the consequences for not remedying the breach.

Can I re-enter the property if the rent is unpaid?

You cannot immediately enter the property if rent is unpaid. You need to serve a notice first and allow the tenant to try and remedy the breach. Once the time period expires, you can re-enter the premises during daylight after 10 working days (30 during the COVID-19 pandemic) to cancel the lease. 

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