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My Landlord Sent a Letter of Demand for $106,000 - What Are My Rights as a Tenant in NSW?

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The first thing to understand is this: a letter of demand is not a court order. It is a formal payment request, not a legal obligation to pay the amount stated by a specific date. Receiving one is serious, but it does not mean the amount claimed is correct, legally enforceable, or that you have no options.

In NSW, tenants who receive a landlord letter of demand have specific rights, defences, and response pathways that are frequently not explored before money changes hands or a court claim is filed. At Prompt Law, we work with tenants in exactly this situation. This guide explains what a letter of demand actually means, what your rights are under NSW law, and the step-by-step process for responding correctly.

Not sure how to respond to your landlord’s demand? Get a free 15-minute consultation with our commercial lawyers before you take any action.

 

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What Is a Landlord Letter of Demand in NSW?

A letter of demand is a formal written notice from a landlord (or their lawyer) stating that money is owed and demanding payment within a specified time. In the commercial lease context, letters of demand commonly claim amounts for:

  • Unpaid rent during the lease term
  • Make-good obligations at the end of the lease (repairs, reinstatement, cleaning)
  • Loss of rent during a vacancy period after early termination
  • Legal costs incurred by the landlord in connection with the lease
  • Outgoings or building service charges claimed under the lease
  • Damages for alleged breach of lease conditions

Importantly, the amount claimed in a letter of demand is the landlord’s own calculation of what they believe they are owed. It is not verified by any court or tribunal. The figure may be inflated, incorrectly calculated, or include amounts that are not legally recoverable under the lease or under NSW law.

Do You Have to Pay Immediately?

No. A letter of demand creates no immediate legal obligation to pay the amount stated. The deadline given in the letter (often 7 or 14 days) is set by the landlord, not by a court. If you do not pay by that date, the landlord’s next step is to either negotiate or commence legal proceedings.

That does not mean you should ignore the letter. A letter of demand is usually the final step before court action. If proceedings are commenced, costs increase significantly and your options narrow. Responding strategically within the timeframe, even if that response is a counter-position rather than payment, is almost always better than silence.

Your Rights as a Tenant Facing a Letter of Demand in NSW

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Right 1: The Right to Challenge the Amount Claimed

The landlord’s calculation of the amount owed is not final. You have the right to dispute any component of the claim that is incorrect, not supported by the lease, or not recoverable under NSW law. Common areas where landlord claims are successfully challenged include:

  • Make-good claims that exceed what the lease actually requires
  • Loss of rent claims that do not account for the landlord’s duty to mitigate (that is, to actively seek a replacement tenant)
  • Legal cost claims that include costs not recoverable under the lease or the Civil Procedure Act 2005 (NSW)
  • Claims for outgoings that were not properly disclosed or reconciled under the lease
  • Interest calculations that use a rate not specified in the lease

Right 2: The Right to Rely on the Landlord's Duty to Mitigate

Under NSW law, a landlord cannot simply sit back after a tenant vacates and claim months of future rent as damages. The landlord has a duty to take reasonable steps to find a replacement tenant. If they fail to do so, the amount of rent they can recover as damages is reduced.

In practice, this means reviewing whether the landlord actively marketed the property after your departure, how quickly they found a new tenant, and whether their leasing terms were reasonable. If they made no effort or turned down reasonable offers from prospective tenants, their loss-of-rent claim may be significantly reduced or extinguished.

Right 3: The Right to Rely on the Bank Guarantee

If you provided a bank guarantee as security under the lease, the landlord’s right to call on that guarantee is governed by the lease terms and by general law. A bank guarantee call is not automatic on receipt of a letter of demand. The landlord must generally demonstrate a valid claim under the lease before calling on the guarantee, and in some cases, a court can restrain a call on a bank guarantee where the claim is genuinely disputed.

If your bank guarantee has already been called on or is at risk of being called, this is urgent. A lawyer needs to review the lease terms and the circumstances of the call immediately.

Right 4: The Right to Negotiate a Settlement

Most commercial lease disputes that begin with a letter of demand are resolved by negotiation before they reach court. A well-structured counteroffer, backed by legal analysis of the strengths and weaknesses of both sides’ positions, often results in a settlement that is significantly lower than the amount originally demanded.

Negotiating directly with a landlord without legal advice is a risk. Landlords and their solicitors are experienced in these negotiations. Having a lawyer negotiate on your behalf levels the playing field and ensures you do not inadvertently make admissions or give up rights in the course of discussions.

Right 5: The Right to Defend Any Court Proceedings

If the landlord commences proceedings in the NSW District Court or Supreme Court to recover the claimed amount, you have the right to file a defence. Defences can include a denial of the amount claimed, a dispute of the landlord’s calculation, a counterclaim for any amounts the landlord owes you, and an argument that the landlord failed to mitigate their loss.

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CASE STUDY: $106,000 Letter of Demand with $62,000 Bank Guarantee Held

Client situation: A commercial tenant came to us after receiving a letter of demand from their landlord claiming $106,000 for loss of rent, make-good costs, and legal fees following an early lease termination. The landlord had also indicated it intended to call on a $62,000 bank guarantee held as security under the lease. The client had already vacated the premises three months earlier.

The issues we identified: On reviewing the claim, we identified three significant problems with the landlord’s position. First, the loss of rent figure assumed the property would remain vacant for a further 18 months, with no evidence that the landlord had taken steps to find a replacement tenant. Second, the make-good claim included works that were not specified in the lease’s reinstatement clause and appeared to relate to improvements the landlord wanted to make, regardless of the tenancy. Third, the legal cost component included fees that were not recoverable under the lease’s costs clause.

Our approach: We wrote a detailed response to the letter of demand, disputing each component of the claim and formally notifying the landlord that any call on the bank guarantee would be contested on the basis that the underlying claim was not established. We initiated without-prejudice negotiations with the landlord’s solicitors.

Result: The matter settled at $31,000 (inclusive of a negotiated release of the bank guarantee). The client’s total exposure was reduced from $106,000 to $31,000, a saving of $75,000. The bank guarantee was returned without being called on.

Step-by-Step: How to Respond to a Landlord Letter of Demand in NSW

  1. Do not pay or ignore the letter. Avoid responding directly until you have legal advice, as anything you say may be treated as an admission.
  2. Gather your lease documents, including the agreement, variations, and bank guarantee details. Check the response deadline and act quickly.
  3. Have a lawyer review the claim, identify what is valid, and respond on your behalf. They can dispute incorrect amounts, request evidence, and negotiate a settlement.
  4. If a bank guarantee is involved, act urgently to protect it. Most matters are resolved through negotiation, but be prepared to defend the claim if needed.
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How Prompt Law Can Help With Your Letter of Demand

A $106,000 letter of demand is not just a bill. It is the opening position in a negotiation. The landlord expects a response, and in our experience, the gap between the amount first claimed and the amount ultimately settled is often substantial. The quality of your legal response determines how much of that gap you recover. Our property lawyers help you by:

Claim review: We read the letter of demand against your lease and identify every component that is overstated, unsupported, or not legally recoverable

Bank guarantee advice: Where a bank guarantee is held or threatened, we advise on the landlord’s right to call on it and on any available steps to prevent an improper call

Written response: We draft and send a formal legal response disputing the claim, preserving your rights, and setting the tone for negotiation

Negotiation: We conduct without-prejudice negotiations with the landlord’s solicitors to achieve the best available settlement without the cost and risk of court proceedings

Court representation: If the matter proceeds to the NSW District Court or Supreme Court, we represent you at all stages, including filing a defence, interlocutory steps, and hearing

FAQs: Landlord Letter of Demand NSW Tenant Rights

What is a landlord's letter of demand in NSW?

A landlord’s letter of demand is a formal written notice claiming that money is owed under a lease and demanding payment within a set timeframe. It is a legal step taken before court proceedings. The amount claimed is the landlord’s own calculation and is not verified or approved by any court. Receiving one does not mean you are legally required to pay the amount stated.

No, not automatically. A letter of demand is not a court judgment. You have the right to dispute the amount, challenge specific components of the claim, or negotiate a settlement. If you do not pay, the landlord’s next step is to either negotiate or commence court proceedings. Ignoring the letter entirely is not advisable, but paying without review is equally risky.

Do not pay and do not respond directly to the landlord without legal advice. Locate your lease documents, note the response deadline in the letter, and contact a commercial lawyer as soon as possible. Even if you cannot get advice before the deadline, a lawyer can send a holding letter acknowledging receipt and reserving your rights while a full review is completed.

Yes. You have the right to dispute any component of the claim that is incorrectly calculated, not supported by the lease, or not recoverable under NSW law. Common successful disputes involve inflated make-good claims, loss of rent calculations that do not account for the landlord’s duty to mitigate, legal cost claims that exceed what the lease allows, and interest calculated at a rate not specified in the lease.

Under NSW law, a landlord cannot simply claim the full remaining rent after a tenant vacates without taking reasonable steps to find a replacement tenant. This is called the duty to mitigate. If the landlord failed to actively market the property, set unreasonable rental terms, or turn down legitimate replacement tenants, their loss of rent claim can be substantially reduced. Evidence of the landlord’s mitigation efforts is a key part of any dispute.

A bank guarantee call requires a valid underlying claim. If the underlying debt is genuinely disputed, there may be grounds to challenge or restrain the call through court proceedings. The landlord’s right to call on the guarantee depends on the specific wording of both the bank guarantee instrument and the lease. If a call is threatened or has already been made, this is urgent and requires immediate legal advice.

In NSW, the standard limitation period for a contract claim (including a lease) is 6 years from the date the cause of action arose. However, this does not mean you have 6 years to respond to a letter of demand. Once proceedings are commenced, the complexity and cost of defending them increase significantly. Resolving the dispute before proceedings are filed is almost always preferable.

If you ignore a letter of demand, the landlord’s most likely next step is to file a statement of claim in the NSW District Court or Supreme Court (depending on the amount). Once proceedings are filed, your response time is limited (typically 28 days), legal costs increase for both parties, and your negotiating position weakens. Ignoring the letter does not make the claim go away.

Whether a landlord can recover their legal costs depends on the costs clause in your lease and on NSW law. Many leases include a clause entitling the landlord to recover legal costs if a default occurs, but those clauses are interpreted strictly. Excessive costs, not connected to the default, or not authorised by the clause, may be successfully challenged. The Civil Procedure Act 2005 (NSW) also limits the costs recoverable in some court proceedings.

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