Built into many retail leases is a quiet power: the ability to terminate early if demolition is on the cards. But as case law shows, these clauses don’t give landlords a blank cheque. Whether you’re leasing out a shop or running a business from one, it’s worth understanding how these clauses work in practice.
Demolition and Redevelopment: What the Law Requires
In Victoria, demolition-based termination rights are governed not just by lease terms but also by section 56 of the Retail Leases Act 2003 (Vic). That section says a landlord can only terminate the lease on demolition grounds if two conditions are met:
- The landlord gives at least 6 months’ written notice; and
- The landlord has a genuine proposal to demolish the building (or part of it) and provides sufficient details of that plan.
The Act also clarifies that “demolition” includes substantial repairs, renovations, or reconstructions that can’t be practicably carried out while the tenant remains in possession.
Case in Point: Zen Holistic v Bacchus Marsh Centre
In 2022, the Victorian Civil and Administrative Tribunal looked at exactly this issue. The landlord had served a notice to terminate under a demolition clause, citing plans to redevelop by splitting the leased premises into two shops and creating new service connections.
But the tenant fought back. They argued the works weren’t actually “demolition” under the lease or the Act and that the landlord’s proposal wasn’t sufficiently detailed or genuine.
The Tribunal agreed there was a serious issue to be tried. The judge noted that simply converting one shop into two might be redevelopment, but not necessarily “demolition” as defined in the lease or the Act. The proposed works weren’t aimed at repairing, renovating, or reconstructing a building in disrepair; they were about reconfiguring the space for commercial gain.
The Tribunal granted an injunction stopping the landlord from terminating the lease while the case was heard. This meant the tenant could continue trading, and the landlord couldn’t evict them based on a demolition clause, at least not without proving their case at trial.
What This Means for You
If you’re a landlord, a demolition clause can’t be used as a quick way to end a lease and bring in a new tenant at a higher rent. You’ll need a detailed plan to demolish, not just ‘redevelop’, a real need for vacant possession, and a willingness to defend your decision if challenged.
If you’re a tenant, don’t assume a demolition notice is set in stone.
Ask questions.
Get the details.
You may be able to challenge the notice, especially if the proposal looks more like a refurbishment or strategic re-lease than actual demolition.
Both parties benefit from clear drafting, early communication, and good legal advice. Termination clauses are powerful, but they’re not bulletproof. Understanding the limits can help you avoid costly disputes.
Disclaimer
The information on our website is general and is not legal advice. We put lots of work into making our content insightful but it may not apply to your personal circumstances. We’re more than happy to help with your individual issues – just reach out.