Do you always need to give a lessee a notice to remedy breach before terminating a lease?

Do you always need to give a lessee a notice to remedy breach before terminating a lease?

Apparently not, according to the District Court of Queensland in the recent case of Wash Investments Pty Ltd v SCK Properties Pty Ltd [2016] QDC 077.

Wash Investments operated a carwash business and they leased the business premises from SCK Properties. They were often behind in their payment of rent and outgoings.

Situation – What happened?

In 2013, SCK Properties issued a notice to remedy breach under section 124 of the Property Law Act 1974. It has always been generally understood that a notice under this section had to be first served on a lessee and a reasonable time allowed for the lessee to remedy the breach, no matter the nature of the breach before the lessor could terminate a lease if the lessee didn’t comply with the terms of the lease.After approximately 3 weeks had passed, SCK Properties took back possession of the premises on the basis that Wash Investments hadn’t remedied their breach. Wash Investments disputed that SCK Properties had a right to re-enter the premises and said that they had never even received the notice and it either went to a wrong address or was never sent at all.

After considering many issues regarding the validity of the notice, the Court decided that it was not important whether the notice was valid or not, as Wash Investments had repudiated the lease and SCK Properties had a right under the common law to accept that repudiation without first giving a notice to remedy breach under the Property Law Act 1974. “Repudiation” is a concept under the common law (which is different to laws created by the government) where someone has clearly shown that they no longer intend to do something that it is important they do under a contract.

Terms of the Guarantee

The Court found that Wash Investments had repudiated the lease because it consistently failed to meet lease obligations but more particularly, by a letter sent by Wash Investments to SCK Properties stating that if the rent was not reduced, they would have to close the business and declare bankruptcy. The Court pointed out that section 124 specifically states that its requirements must only be followed before a lessor exercises its right to terminate the lease or re-enter the premises “under any proviso or stipulation in the lease.” This meant that a lessor exercising a common law right did not need to comply with section 124.

While it is somewhat difficult to establish repudiation, this case potentially provides an alternative remedy for lessors to the need to issue a section 124 notice and wait out the notice period before terminating or re-entering or used as an argument in proceedings where a section 124 notice has been found to not have been correctly issued.

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