01 Oct Landlords Hampered from Terminating Lease when Tenants Go Bust

by Kristy Collins, Senior Associate

As from 1 July 2018, amendments to the Corporations Act mean that any commercial leases which are entered into on or after this date cannot contain within them provisions which automatically allow a Landlord to terminate a Lease simply because of a Tenant company encountering any of the following:

• It entering into voluntary administration;
• Having a managing controller (this includes a receiver and manager) appointed over the whole or substantially the whole of the Tenant’s property; or
• It makes a public announcement that it will be entering into a scheme of arrangement for the purposes of avoiding being wound up in insolvency.

The effect of these changes does remove the balance of power from the Landlord and are based on policy decisions by the government to try and enable businesses to trade out of financial difficulty. As a lease over a premises is generally an important and valuable contract for any business, the ability of a Landlord to control access to those premises after a Tenant company has entered into administration has a dramatic effect on the business’ ability to trade out of that financial difficulty.

The amendments mean that a Landlord cannot just rely on the administration of a Tenant company to lawfully terminate a Lease. Serious consideration and revision needs to be made to the default provisions of any commercial leases which come into existence on or after 1 July 2018.

The Commercial Team at Fedorov Lawyers have considered the effect of the changes and invite landlords to engage our services to assist to amend the version of the leases they currently use to take into account these changes. Call us now.