When a commercial lease dispute erupts between a landlord and tenant, the consequences can be serious. A retailer forced to close. A landlord watching rental income dry up. A business relationship that once worked perfectly now reduced to letters from solicitors and mounting legal bills.
For Australian business owners and property managers, commercial lease disputes are an increasingly common reality. Rising insolvencies โ up 57% in the year to November 2024 according to CreditorWatch โ have placed enormous pressure on lease obligations across the country. Melbourne’s office vacancy rate hit 19.6% in late 2024, the highest since 1995, while retail and industrial sectors face their own pressures. In this environment, disputes over rent, outgoings, and make-good obligations are inevitable.
The good news: the vast majority of commercial lease disputes can be resolved without setting foot in a courtroom. Mediation is not only faster and cheaper than litigation โ in most Australian states, it is legally required before a dispute can proceed to a tribunal or court.
This article explains how commercial lease disputes arise, what the law requires, and why mediation is the most effective path to resolution.
What Is a Commercial Lease Dispute?
A commercial lease dispute is any disagreement between a landlord and tenant (or subtenant) over the terms, obligations, or performance of a commercial, retail, or industrial lease agreement.
These disputes can arise at any point during the lease term โ at inception, during the tenancy, at renewal, or at the end of the lease when make-good obligations come into play.
The Most Common Causes of Commercial Lease Disputes in Australia
Rent Arrears and Rent Reviews
Unpaid rent is the most common trigger. But disputes also frequently arise over how rent reviews are conducted โ particularly market rent reviews, where landlords and tenants may have very different views on what the market rate actually is. Ambiguous review clauses, informal arrangements, and disagreements over the timing and method of review can all lead to conflict.
Under most commercial and retail lease legislation, rent review mechanisms must be clearly specified. Disputes often arise when leases contain generic CPI review clauses but market conditions have diverged significantly from inflation, or where fixed percentage increases have become commercially unworkable. A mediator can help both parties reach a pragmatic rent adjustment without requiring a formal valuation dispute process.
Outgoings and Unexpected Charges
Commercial leases typically pass property-related expenses โ rates, insurance, maintenance, management fees โ to the tenant as “outgoings.” Disputes arise when outgoings are poorly disclosed upfront, exceed estimates, or include charges the tenant disputes as recoverable (such as capital works or land tax).
Under state-based retail leases legislation, landlords have specific disclosure obligations. Failure to comply can render parts of the lease unenforceable, which is itself a source of dispute.
Make-Good Obligations
At the end of a lease, tenants are typically required to restore the premises to their original condition โ removing fit-out, repairing damage, and reinstating the space. The scope of this obligation is frequently disputed, particularly when lease terms are vague or the premises have changed significantly during the tenancy.
Make-good disputes are particularly amenable to mediation. Often, the real issue is not who is legally right but rather reaching a practical and cost-effective agreement about what work needs to be done and who will fund it. Landlords frequently prefer a cash settlement over insisting on costly reinstatement that may simply be demolished before the next fit-out anyway.
Repairs and Maintenance Responsibilities
Who is responsible for a leaking roof, a broken HVAC system, or structural damage? Lease agreements often draw a line between landlord and tenant responsibilities, but that line is frequently contested โ especially in older buildings where the distinction between fair wear and tear and actual damage is blurred.
Early Termination and Lease Break Clauses
When a business fails or circumstances change, tenants sometimes need to exit a lease before its expiry. Disputes over whether a break clause applies, what notice is required, and what the financial consequences are can quickly become adversarial.
Lease Renewal and Option Disputes
Tenants who have invested in fit-out and built a customer base at a location have a strong interest in lease renewal. Disputes over whether an option was validly exercised, what terms apply on renewal, and whether the landlord is obliged to grant a new lease are common โ and can have significant consequences for both parties.
What the Law Requires: State-by-State Overview
Australia’s approach to retail and commercial lease disputes is governed by state and territory legislation. In most jurisdictions, mediation is a mandatory step before a dispute can be escalated to a tribunal or court.
New South Wales
The Retail Leases Act 1994 (NSW) requires parties to retail lease disputes to apply to the NSW Small Business Commissioner for mediation before the matter can proceed to the NSW Civil and Administrative Tribunal (NCAT). The cost of mediation is typically shared equally between the parties. The Commissioner’s mediation service is available for disputes involving retail leases, including disputes about rent, outgoings, make-good, and lease renewal. If mediation fails, the Commissioner issues a certificate that must accompany any application to NCAT.
Victoria
The Retail Leases Act 2003 (Vic) requires retail lease disputes to be referred to the Victorian Small Business Commission (VSBC) before proceeding to VCAT. The VSBC offers free preliminary assistance and low-cost mediation โ an accessible entry point for businesses of all sizes. The VSBC can also assist with disputes about the disclosure statement or the validity of the lease itself.
Queensland
The Retail Shop Leases Act 1994 (Qld) directs retail lease disputes through the Queensland Small Business Commissioner (QSBC), which provides mediation services. Disputes unresolved at mediation can proceed to QCAT, which can hear retail shop lease disputes up to $750,000 in value.
South Australia
South Australia’s Retail and Commercial Leases Act 1995 (SA) governs both retail and commercial leases in certain circumstances. The Small Business Commissioner SA provides mediation services for tenancy disputes before parties can access SACAT (the South Australian Civil and Administrative Tribunal).
Western Australia
The Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) and the Small Business Commissioner Act 2012 (WA) establish a mediation pathway for retail lease disputes in Western Australia. The Small Business Development Corporation provides free dispute resolution assistance.
Australian Capital Territory and Northern Territory
Similar frameworks operate in the ACT and NT. The Leases (Commercial and Retail) Act 2001 (ACT) requires parties to attempt mediation before proceeding to ACAT. Northern Territory tenancy disputes can be referred to the Tenancy Dispute Resolution Service.
For non-retail commercial leases โ office, industrial, or mixed-use โ mandatory mediation may not apply, but private mediation through a service like Mediations Australia remains the most practical and cost-effective first step.
Cost Comparison: Mediation vs Litigation
The financial case for mediation is compelling. Consider the realistic cost comparison for a mid-range commercial lease dispute:
| Pathway | Approximate Cost (each party) | Timeframe |
|---|---|---|
| Mediation (Small Business Commissioner) | $0โ$500 | 2โ8 weeks |
| Private mediation | $1,500โ$4,000 | 1โ4 weeks |
| Tribunal hearing (NCAT/VCAT/QCAT) | $5,000โ$20,000+ | 3โ12 months |
| Supreme Court litigation | $30,000โ$150,000+ | 1โ4 years |
These are indicative ranges only. Costs vary significantly depending on the complexity of the dispute, legal representation, and jurisdiction.
Even in a relatively straightforward dispute over unpaid rent of $30,000, the cost of litigating through a Supreme Court could easily exceed the value of the claim. Mediation, in contrast, can produce a binding agreement at a fraction of the cost โ often within a few weeks.
Why Mediation Is the Right Choice for Commercial Lease Disputes
Cost
Commercial litigation is expensive. Legal fees, tribunal filing fees, and the time cost of drawn-out proceedings can quickly eclipse the value of the original dispute. A mediated outcome โ even one that involves a rent reduction or a negotiated lease exit โ is almost always cheaper than the alternative.
Speed
Tribunal and court proceedings for commercial lease matters can take months or years to resolve. Mediation can be arranged within days or weeks, and many disputes are resolved in a single session. For a business operating under the cloud of an unresolved dispute, speed matters enormously.
Confidentiality
Court proceedings create a public record. Mediation is entirely confidential โ what is said in the room stays in the room. For businesses concerned about reputation, client relationships, or competitive sensitivity, this is a significant advantage.
Preservation of the Commercial Relationship
Not every lease dispute ends the tenancy. In many cases, both parties want to continue the relationship โ just on terms that work. A mediator facilitates a conversation that courts cannot: one that acknowledges both parties’ legitimate interests and works toward a solution both can live with. The adversarial posturing of litigation makes this kind of resolution almost impossible.
Control Over the Outcome
When a dispute goes to a tribunal or court, the decision is made by someone with no understanding of your business, your circumstances, or your relationship with the other party. Mediation puts decision-making power back in the hands of the people who actually have to live with the outcome.
You can read more about how mediation works and what to expect from the process on our resources page.
What Happens in a Commercial Lease Mediation Session?
A typical commercial lease mediation follows this structure:
1. Pre-mediation preparation
Both parties are asked to prepare a brief summary of their position and the key issues in dispute. Relevant documents โ the lease agreement, correspondence, financial records โ are gathered. You can review our guide on preparing for mediation for practical tips.
2. Opening statements
Each party has an opportunity to explain their perspective without interruption. The mediator listens, asks clarifying questions, and begins to map the issues.
3. Joint and private sessions
The mediator may facilitate joint discussion between the parties, or conduct separate private sessions (“shuttle mediation”) where confidential conversations take place with each party. This is particularly useful where the relationship has broken down or emotions are running high. Learn more about shuttle mediation and whether it might suit your situation.
4. Negotiation and agreement
The mediator helps the parties explore options, test proposals, and move toward agreement. When an agreement is reached, it is documented and signed by both parties โ creating an enforceable record of the resolution.
5. If mediation is unsuccessful
If the parties cannot reach agreement, the mediator (or the relevant Small Business Commissioner) issues a certificate confirming that mediation has been attempted. This certificate is typically required to proceed to a tribunal or court.
Common Mistakes in Commercial Lease Disputes
Understanding what not to do is just as important as knowing the process. Here are the most common mistakes parties make when navigating commercial lease disputes:
Escalating too early
Many landlords issue formal breach notices or termination notices before attempting any direct conversation. This immediately entrenches the dispute and often triggers defensive responses from tenants. A phone call or meeting โ or an early referral to mediation โ can resolve many issues before they harden into formal disputes.
Ignoring disclosure obligations
Landlords who fail to meet their disclosure obligations under the relevant retail leases legislation may find that their ability to enforce certain lease terms is compromised. Before taking action in a dispute, it is important to understand whether your own conduct under the lease has been technically compliant.
Treating the dispute as purely legal
Commercial lease disputes are business disputes. The best outcomes account for the practical and commercial realities facing both parties โ the landlord’s need for cash flow and an occupied tenancy, the tenant’s need for a viable operating cost base. Focusing purely on legal rights often produces pyrrhic victories.
Not preparing adequately for mediation
Arriving at mediation without a clear understanding of your own legal position, the documents supporting your case, and your desired outcome wastes the process. Good preparation โ including, where appropriate, obtaining legal advice before the session โ dramatically improves the prospects of resolution.
Delaying too long
The longer a dispute festers, the more expensive it becomes and the more entrenched the parties’ positions become. Early mediation โ even before formal legal action is threatened โ is almost always more productive than mediation that occurs only after litigation has been filed.
What Happens After Mediation Fails?
In the minority of cases where mediation does not produce a resolution, the parties are not left without options. The pathway depends on the jurisdiction and the nature of the lease:
- Retail leases: The mediating body (Small Business Commissioner or equivalent) will issue a certificate of failed mediation, which is required before proceeding to the relevant tribunal.
- Non-retail commercial leases: The parties may pursue their dispute through the relevant state Supreme Court or District Court, depending on the value of the claim. In NSW, the District Court has jurisdiction up to $750,000; above that, the Supreme Court.
- Urgent matters: Where a tenant faces imminent eviction or a landlord faces immediate loss, urgent injunctive relief can be sought from a court even before or during a mediation process.
It is also worth noting that failed mediation does not foreclose the possibility of later settlement. Many commercial lease disputes that do not resolve at mediation are subsequently settled through solicitor-to-solicitor negotiation, often on the eve of a tribunal hearing. The mediation process, even when it does not produce an agreement on the day, typically narrows the issues and brings the parties closer together.
Tips for Preparing for Commercial Lease Mediation
- Gather your documents early. Bring the full lease agreement, all correspondence, financial records relevant to the dispute, and any notices or demands issued.
- Know your bottom line. Before you enter mediation, be clear on what outcome you need and what you are prepared to accept.
- Focus on interests, not positions. The most productive mediations happen when parties explain what they actually need, not just what they are demanding. A landlord may need cash flow certainty; a tenant may need reduced outgoings in the short term. Understanding each other’s underlying interests opens up solutions that pure positional bargaining cannot.
- Be prepared to compromise. Mediation is not a win-lose process. Both parties will likely move from their opening positions. That is not weakness โ it is pragmatism.
- Consider whether legal advice is appropriate. While you do not need a lawyer in mediation, it can be helpful to obtain independent legal advice before the session to understand your rights and obligations under the lease and the relevant legislation.
Key Takeaways
- Commercial lease disputes are increasingly common in Australia, driven by economic pressure, rising insolvencies, and complex lease obligations
- The most frequent causes are rent arrears, outgoings disputes, make-good obligations, and repair responsibilities
- In most Australian states, mediation is legally required before a retail lease dispute can proceed to a tribunal or court
- The cost of mediation is a fraction of litigation โ even in relatively modest disputes
- Mediation is faster, cheaper, confidential, and more likely to preserve the commercial relationship than litigation
- Both landlords and tenants benefit from early engagement with mediation rather than allowing disputes to escalate
Resolve Your Commercial Lease Dispute Without Going to Court
Whether you are a landlord dealing with a tenant in arrears, a tenant disputing excessive outgoings, or either party facing a make-good claim at the end of a lease, mediation offers a faster, cheaper, and less damaging path to resolution.
At Mediations Australia, our accredited mediators have extensive experience with commercial lease disputes across all Australian states and territories. We can arrange mediation quickly and help both parties reach a durable, enforceable agreement.
Book a consultation with Mediations Australia โ
This article is for general information purposes only and does not constitute legal advice. For personalised guidance regarding your specific situation, please consult a qualified legal professional or accredited mediator.
