Commercial tenancy disputes cluster in predictable places, and most are resolvable if addressed while the relationship still functions. The ones that become serious usually involved a tenant who stopped paying rent.
Do not stop paying rent
Whatever the dispute, withholding rent is generally the worst available option unless you have a clear contractual or statutory right.
Non-payment gives the landlord cancellation and re-entry rights, and it converts a dispute about their obligation into a dispute about your default. A tenant in arrears has almost no negotiating position.
Pay under protest and in writing if necessary, stating that payment is without prejudice to your claim. That preserves your position without handing them a remedy.
Outgoings disputes
The most common dispute area. Recurring issues:
- Capital costs recovered as outgoings. Structural repairs and capital improvements should generally sit with the landlord. Check what the lease actually permits — wording allowing recovery of capital items is expensive over a long term.
- Management fees at levels that bear no relationship to work done.
- Apportionment in a multi-tenant building — whether your share reflects your actual proportion.
- Estimates versus actuals, and whether reconciliation happens.
You are generally entitled to ask for supporting documentation. Ask in writing, and ask specifically.
Repairs and maintenance
The lease allocates responsibility, typically with the landlord responsible for structure, roof and building services, and the tenant for the interior and their own fitout.
Where a landlord will not carry out repairs that are their responsibility, options include a formal written demand with a reasonable timeframe, and in some cases carrying out the work and seeking recovery — but only where the lease permits it, since self-help without a right is itself a breach.
Document the problem with dated photographs and written notification from the outset. Disputes about when a defect was reported are common.
Rent review disagreements
Market rent reviews have a dispute mechanism in the lease, usually involving independent valuation. Follow the process and the timeframes precisely, since missing a step can mean accepting the landlord’s figure by default.
Get your own valuation evidence. A tenant who disputes a review without evidence is negotiating from nothing.
Access and quiet enjoyment
Landlords generally have access rights for inspection and repairs, subject to notice. Disputes arise where access is excessive, poorly notified, or where works substantially interfere with trading.
Where building works materially disrupt your business, check whether the lease provides for rent abatement. Many do in defined circumstances, and tenants frequently do not read that far.
Make good at the end
Reinstatement obligations produce the largest disputes because the sums are significant and the standard is subjective.
The protections are established at the start:
- A photographed and agreed condition report at commencement.
- Written agreement about which fitout elements must be removed and which may remain.
- Landlord consent for alterations recorded, including any agreement about reinstatement.
Without those, you will be arguing about the condition of premises you occupied for a decade against a landlord with a schedule of dilapidations.
Negotiate make good at the point of any lease renewal, when you have leverage.
Assignment refusal
Most leases require landlord consent to assignment, commonly with consent not to be unreasonably withheld. Disputes arise when a tenant selling their business has a buyer and the landlord will not approve.
“Not unreasonably withheld” is a real constraint. A landlord refusing a financially sound assignee for no articulated reason is vulnerable.
Note that assigning does not necessarily release you — many leases keep the outgoing tenant liable if the incoming one defaults, unless a release is negotiated.
Seismic issues
Increasingly disputed: who pays for strengthening, what happens if a rating changes during the term, and whether the tenant can terminate if the building is deemed earthquake-prone.
Where the lease does not address this expressly, the position falls to general damage and destruction provisions, which are frequently a poor fit. This is a term to negotiate on any new lease or renewal.
Resolution
Most commercial leases contain a dispute resolution clause — commonly negotiation, then mediation, then arbitration. Follow it.
Mediation resolves the majority of commercial tenancy disputes and costs a fraction of litigation. Both parties usually have an ongoing interest in the relationship, which makes it more productive than in a one-off transaction.
Get the lease reviewed by a lawyer before escalating. Many disputes turn on a clause the tenant had not read.
General information only, not legal advice.
