Carefully managing the early stages of a lease dispute is crucial in achieving a successful outcome. From the moment you receive notice of a dispute from the landlord or tenant, or you decide you want to raise your concerns, you should be mindful of the immediate and potential risks facing your business and how to minimise or avoid them. Further, understanding the legal aspects of the lease dispute and the desired commercial outcomes of everyone involved will increase the likelihood of a quick resolution to any disagreements that arise. This article will discuss how to determine your legal position and provide guidance on the first steps you should take when dealing with a lease dispute.
Know Your Legal Position
The first step in any lease dispute is having an accurate understanding of your legal position. It is crucial that you know:
- Whether you have a legally valid claim against the tenant or landlord, and whether they have any defences or reasonable excuses available to rely upon;
- the validity of the other party’s claim against you, and whether you have a legitimate defence or counterclaim to it in response;
- the enforceability of any rights and obligations relevant to either party contained in the lease (or other relevant documents);
- how relevant state or territory-based leasing laws may apply to your situation;
- the relevant factual circumstances of the dispute;
- the key legal issues of the dispute;
- how judges have viewed lease disputes similar to yours; and
- if the dispute ends up in court, what your chances of a successful outcome are.
Before you have any formal conversations with the other party regarding the dispute (for example, written responses to letters or notices), you should understand the issues of the dispute and your legal position by taking the steps set out below.
1. Gather Evidence
Ensure you have copies of any key documents relevant to the facts or issues of the dispute, including:
- business records such as bank or account statements, invoices and payment receipts;
- communications (such as emails) with the other party and any third parties regarding the lease or the circumstances relevant to the dispute;
- finalised documents such as a signed copy of the lease and any related documents such as license agreements, disclosure statements, outgoings estimates or other relevant information; and
- any internal notes or summaries from verbal conversations.
Then, create a timeline of events (referred to as a chronology). The chronology should set out key events that led to the dispute and indicate where you might be missing evidence.
If a key statement or representation was made by email, but you no longer have a copy of it, check your archive or bin folder. Additionally, you can ask your employees for any backups or contact your email administrator. You could also obtain statements from any of your employees who are involved in the dispute or could provide additional evidence.
You should collect evidence that is both advantageous and detrimental to your case. Doing so will ensure that you understand the merits and potential weaknesses of your legal position.
2. Check the Lease and Related Contracts
Your lease will likely set out what steps you need to take if a dispute arises. Both you and the other party should follow that process, in particular, before issuing any legal proceedings. You should also check any other contracts you have with the other party or anyone related to the dispute to determine if there are flow-on effects or additional requirements to consider.
If you do not have a lease or it was never finalised and signed, gather the relevant business documents and correspondence that set out the terms of your arrangement, such as:
- the amount and frequency of rent and outgoing payments;
- the parties’ obligations; and
- other operational decisions such as a commencement and exit date.
3. Know the Rules
Review any laws, regulations or codes of conduct that apply to your type of lease. These can differ between states, as well as between commercial and retail leases.
There may also be temporary regulations put into place specifically for managing disputes.
Did you know?
- Both landlords and tenants in a retail lease usually need to provide some form of disclosure statement prior to the lease being signed, but this is typically not required for commercial leases.
- Retail lease tenants can have clear statutory rights in leasing law to compensation for misleading or false statements by a landlord around the time of signing the lease, whilst commercial tenants have to solely rely upon other legislation or previous cases.
- In some states, fit-out costs can be capped for tenants in a retail lease according to amounts that were disclosed or pre-agreed, but this protection is not available for commercial tenants.
- During the Covid-19 pandemic, the Federal Government drafted a National Code of Conduct for retail and commercial leases. Further, most state governments passed laws stating that tenants and landlords had to follow that Code when resolving disputes, even if the lease set out a different process.
4. Know Who is Who
Clarify the parties relevant to the dispute by asking the following questions:
- Is the other party to the lease an individual or a corporate entity?
- Does the other party have an agent or representative that you need to communicate with?
- Are there any third parties that ought to be specifically included or excluded from discussions?
- What are the legal and commercial relationships between the relevant parties?
Additionally, it is crucial only to make a claim against the party you have contracted with.
You also need to be careful about unintentionally disclosing confidential information to a third party that unfairly damages the reputation of the other party.
5. Consider All Potential Resolutions
Disputes are avoided when the parties focus their efforts on finding viable solutions and compromise instead of achieving a set goal. Being flexible when it comes to the eventual agreed outcome can help you make the best of a bad situation. Be prepared to consider a range of outcomes, even if they are not your preferred choice.
Try to stay objective and remove emotion from your approach to the dispute. Although it can be difficult, understanding the other party’s perspective helps you determine your strategy and next steps.
6. Seek Legal Advice
Legal advice is most beneficial in the early stages of a disagreement before it escalates into a formal dispute. Lawyers can advise on:
- your legal position;
- how the evidence relates to the claims; and
- what compensation or outcomes either party might be entitled to seek.
Most importantly, a lawyer can also help you consider options to resolve the disagreement, avoid the dispute and manage your communications with the other party.
Communications
Your first step should be a verbal conversation with the relevant party. Disputes often result from a misunderstanding that you can resolve quickly by a conversation. Therefore, an informal or amicable discussion can lead to fair commercial compromises.
Everything you say or write in the early stages of a leasing dispute, unless you mark it as ‘without prejudice’, can end up as evidence in court. As such, any communications that you may want to use as evidence in court should be kept ‘open’ and not done on a without prejudice basis. If you want to convey a settlement offer without compromising your legal rights later on, you may want to mark any proposal as ‘without prejudice’ to prevent it being used as evidence against you.
A formal breach notice issued under a lease should not be marked without prejudice. Concurrently with sending the formal breach notice, you may send a ‘without prejudice letter’ providing a compromise solution without reducing the legal effectiveness of the formal notice.
If unsuccessful in resolving the issues, your next steps could be informal written correspondence (emails) or formal written correspondence (letters, including from your lawyers). For example, these will set out:
- your legal position regarding the dispute;
- an overview of the key circumstances, events or facts;
- whether you are responding to a claim by the other party; or
- whether you are initiating a claim against them.
In a leasing dispute, any communications to the other party can have significant legal relevance. Hasty responses, errors or miscommunications can expose you to detrimental outcomes and also expose you to additional liability. Passing comments can even result in you unintentionally waiving your rights under the lease or allowing the other party to terminate.
When communicating with the other party in a dispute, you should avoid making absolute statements (unless necessary) regarding actions you may or may not take, particularly where disagreement exists.
RN LEGAL has assisted many clients with their leasing matters. If you or someone you know requires assistance with leasing matters, please contact RN LEGAL on (02) 9191 9293 or email mail@rnlegal.org.