Tenant not paying rent: arrears and breach notices under a commercial lease
When a tenant stops paying rent or breaches the lease, a landlord has real remedies. Each one has steps that must be followed, and a mistake can turn a strong claim into a claim against the landlord.
Start with the lease
Your remedies come first from the lease. Most commercial leases have a default clause that lists what counts as a default, what notice must be given, and what the landlord may then do: re-enter and end the lease, remedy the breach at the tenant’s cost, call on the security and claim damages. Many also say which obligations are essential terms, which matters for damages if the lease ends.
Read the clause before you act and follow it exactly. A notice with the wrong period, or one not served as the lease requires, can undo everything that follows.
Breach notices for breaches other than rent
For a breach other than non-payment of rent, the Property Law Act 1958 (Vic) says a right of re-entry or forfeiture cannot be enforced until the landlord has served a notice that:
- specifies the breach;
- requires the tenant to remedy it, if it can be remedied; and
- requires the tenant to pay compensation for it.
The tenant must then have failed to comply within a reasonable time, or within any period of at least 14 days that the lease fixes. Common examples are a failure to repair, unapproved alterations, use outside the permitted use, and, depending on how the lease describes them, unpaid outgoings or other charges. The requirement applies to retail leases and cannot be excluded by the lease. The tenant may apply for relief against forfeiture, which may be granted on terms.
Unpaid rent and re-entry
Section 146 does not apply to forfeiture for non-payment of rent, so the lease sets the steps. Many leases allow re-entry once rent has been unpaid for a stated period, whether or not it has been formally demanded. Others require a written notice first. Before re-entering:
- confirm the amount and the dates, and check that nothing in the lease suspends or reduces the rent;
- check you have not waived the default, for example by accepting rent after you knew of it without reserving your rights;
- make the re-entry peaceable, usually by changing the locks when the premises are closed, and record the condition and contents of the premises; and
- tell the tenant in writing that you have re-entered, and how it can collect its goods.
The tenant can still apply for relief against forfeiture, which is commonly granted if the arrears and the landlord’s costs are paid. Under a retail lease, VCAT can exercise the Supreme Court’s powers to grant relief. A tenant may also seek an urgent injunction: see locked out by your landlord.
A tenant who disputes the amount does not automatically defeat the notice. The Supreme Court has held that a default notice under a retail lease was not invalid merely because it claimed the full rent without allowing for an abatement the tenant said it was entitled to.
Calling on the security
A bank guarantee or security deposit can usually be called on for unpaid rent, on the terms the lease sets. Check whether the lease requires notice to the tenant first, and whether the bank guarantee itself sets conditions. Many leases require the tenant to restore the security after a call. Under a retail lease, a cash deposit must be held in an interest-bearing account and, if the tenant has met its obligations, returned within 30 days after the lease ends. See security deposits and guarantees.
Suing for arrears, and guarantors
- Court or VCAT. A claim for unpaid rent can be brought in a court or at VCAT. Under a retail lease, a dispute solely about the payment of rent is not a retail tenancy dispute under the Retail Leases Act 2003 (Vic), so no Small Business Commission certificate is needed. If the dispute is about more than rent, for example where the tenant raises a counterclaim, the retail rules, including mediation first, may apply. See our guide to the Retail Leases Act.
- Guarantors. A landlord can claim against a guarantor under the guarantee. Under a retail lease, VCAT’s jurisdiction over disputes involving guarantors is not exclusive, and a guarantor who has been called on may refer the dispute to the Small Business Commission for mediation.
- Interstate parties. VCAT cannot hear a case between individuals who live in different states. If the landlord and a guarantor are both individuals and live in different states, the claim may need to go to a court.
- Costs. At VCAT, each party usually pays its own legal costs. In a retail tenancy dispute, the Act limits costs orders to narrow cases.
- Time limits. See time limits for lease claims.
Getting an order is not the end of the job. Our main site explains how to recover a debt in Victoria, step by step.
The risk of wrongful termination
If the landlord re-enters without a valid right, for example because the notice was defective, the notice period had not expired, no default had occurred, or the default had been waived, the tenant may obtain an injunction restoring possession and claim damages. A wrongful termination may itself be treated as a repudiation of the lease by the landlord. Advice before re-entry costs far less than defending a claim afterwards.
Damages after the lease ends
Ending the lease does not always let the landlord recover the rent it would have received for the rest of the term.
- Repudiation. The High Court has held that ordinary contract principles apply to leases. Where the tenant has repudiated the lease, for example by abandoning the premises and refusing to pay, a landlord who terminates can claim damages for the loss of the benefit of the lease for the rest of the term, often called loss of bargain damages.
- Re-entry for a lesser breach. Where the landlord simply relies on a re-entry clause for a breach that is neither repudiatory nor of an essential term, its damages are generally limited to its loss up to termination, such as the arrears.
- Essential terms clauses. A lease can make paying rent on time an essential term, and the High Court has given effect to a lease that did so.
- Mitigation. The landlord must generally take reasonable steps to reduce its loss, usually by trying to re-let the premises.
How we help
- Default and breach notices drafted to the lease and section 146.
- Advice before re-entry, and re-entry done lawfully.
- Calls on bank guarantees and security deposits.
- Claims for arrears and damages against tenants and guarantors, at VCAT or in court.
- Responding to a tenant’s injunction or relief application.
Start with a free 15-minute phone call. For other work, we quote in writing before we start.
Common questions
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Check the default clause, then, depending on the lease, serve any required notice, call on the security, sue for the arrears, or re-enter and end the lease. Take advice before re-entering, because a wrongful re-entry can lead to a claim against you.
No. Section 146 of the Property Law Act 1958 (Vic) does not apply to non-payment of rent, but the lease may require its own notice. A section 146 notice is needed before re-entry for other breaches.
A reasonable time to remedy the breach and pay compensation, or any period the lease fixes, which must be at least 14 days.
Only in some cases. Damages for the rest of the term are generally available where the tenant repudiated the lease or breached an essential term, and the landlord must try to re-let to reduce its loss.
Law referred to
- Property Law Act 1958 (Vic) s 146.
- Retail Leases Act 2003 (Vic) ss 24, 81, 86, 87, 89(2) and (4), 92 and 94A.
- Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17; Shevill v Builders Licensing Board (1982) 149 CLR 620; Gumland Property Holdings Pty Ltd v Duffy Bros Fruit Market (Campbelltown) Pty Ltd (2008) 234 CLR 237.
- Club Fogolar Furlan Melbourne v Paramount Investments Group Pty Ltd [2024] VSC 208.
Last reviewed: October 2026, by a Victorian solicitor with a current practising certificate. This page is general information about Victorian law as at October 2026. It is not legal advice about your lease.
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