Understanding demolition clauses in commercial and retail leases

Assisted by James Duff.

A ' demolition clause' is a lease term which gives a Landlord the authority to terminate a lease in order to take on repairs, renovations or the complete reconstruction of a leased premises. Demolition clauses are sometimes seen as controversial, and can be the catalyst for disputes relating to the termination of leases - as was the case in the matter of Wynne Avenue Property Pty Ltd v MJHQ Pty Ltd [2019] NSWCATAP 41, discussed below.

Demolition clauses in retail leases are governed by Section 35 of the Retail Leases Act 1994 (NSW), which stipulates that:

1. The lease cannot be terminated based on a demolition clause unless the details of the proposed demolition provided by the landlord constitutes a 'genuine proposal' for demolition, and the demolition is to occur within a reasonably practicable time after the lease is to be terminated.