Will your demolition notice cut the mustard under your commercial lease?
While commercial property leases are almost always for fixed terms it’s still fairly common for them to contain a provision allowing the landlord to effectively cut short the agreed lease term if the landlord wants to demolish or substantially renovate the building. Even though this might, at first blush, seem counter-intuitive and maybe a trifle unfair, including such a term is completely proper and conforms with normal industry practice.
However, the landlord’s right to terminate for early demolition is subject to a number of legal constraints.
First, the Retail Leases Act 1994 (NSW) imposes restrictions on how this can be done in leases covered by that legislation. In broad terms, at least 6 months notice of termination must be given and, on receiving that notice, the tenant is entitled to itself terminate the lease at any time by giving 7 days notice.
Secondly, the demolition notice will only be valid if, when giving the notice, the landlord had a genuine proposal to carry out works which can only be done if the premises are vacated. As long as the landlord has a genuine proposal at the time, the cases clearly show that it is irrelevant if the landlord also had other motives (such as to seek a higher rental return from the premises from another prospective tenant after the proposed demolition or refurbishment work is completed).
This position was most recently affirmed in the 2019 decision of the Appeal Panel of the NSW Civil and Administrative Tribunal in Wynne Avenue Property Pty Ltd v MJHQ Pty Ltd.
As the wrongful termination of any agreement (lease or other) can amount to a repudiation of that agreement and thereby put the party purporting to terminate in breach, it is always best for landlords to err on the side of caution and hold off issuing a demolition notice until the landlord holds demonstrable evidence of its intention to carry out the works. Lodging a development application for the works before issuing the notice will generally help to establish a genuine intention to proceed with the demolition, although this may not necessarily be conclusive.
If you’d like to know more about this topic, please contact us at Assured Legal Solutions.