August 2019

Terminating commercial leases for non-payment of rent in New South Wales – validity of Law Society lease upheld

In an earlier article we discussed a decision of the New South Wales Civil and Administrative Tribunal Charlie Bridge Street Pty Ltd -v- PetrazzuoloPetrazzuolo -v- Charlie Bridge Street Pty Ltd [2019] NSW CATCD1 which found that a provision of the printed Law Society of New South Wales lease did not comply with section 129 of the Conveyancing Act and was therefore inoperable.

In the Charles Bridge case the landlord repossessed premises and terminated the lease for non-payment of rent, without notice, relying on clause 12.2 of the 2007 version of the Law Society lease.  The wording of that clause is substantially unchanged in the 2018 version of the Law Society lease and is as follows:

12.2     The lessor can enter and take possession of the property or demand possession of the property if –

            ……..

12.2.2  rent or any other money due under this lease is 14 days overdue for payment: or

            ……..

12.2.4  the lessee has not complied with any term of this lease where a lessor’s notice is not required under section 129 of the Conveyancing Act 1919 and the lessor has given at least 14 days written notice of the lessor’s intention to end this lease.

The tenant argued, in effect, that clause 12.2.4 of the lease overrode clause 12.2.2 so that the landlord was required to give at least 14 days written notice of its intention to terminate the lease for non-payment of rent.

The tenant relied on an earlier judgement of Santow J in MI Design Pty Ltd -v- Dunecar Pty Ltd & Ors [2000] NSW SC996 which included some statements tending to support its argument.

The landlord argued that it was entitled to repossess the premises and terminate the lease for non-payment of rent, without giving notice, because 12.2.2 of the lease gave it that right, and clause 12.2.4 should not be construed as overriding clause 12.2.2.

The Tribunal did not accept the landlord’s argument that clauses 12.2.2 and 12.2.4 of the lease should be read as providing 2 distinct grounds for terminating the lease.  The Tribunal found, relying on the MI Design case, that clause 12.2.4 of the lease overrode clause 12.2.2.

However, the Tribunal found in favour of the landlord on the basis that because clause 12.2.4 of the lease purported to require the landlord to give 14 days notice of termination in the case of non-payment of rent, the clause did not comply with section 129 (10) of the Conveyancing Act which provides that section 129 applies notwithstanding any stipulation to the contrary.  The Tribunal found that because clause 12.2.4 of the lease was inoperable, the landlord could rely on clause 12.2.2 of the lease to terminate the lease for non-payment of rent without giving notice to the tenant.

The tenant appealed to the Appeal Panel of the Tribunal.  Charlie Bridge Street Pty Ltd -v- Petrazzuolo [2019] NSWCATAP 184.

The Appeal Panel accepted the arguments raised by the landlord in the original hearing, and in the appeal, finding that the statements in the MI Design case which tended to support the tenant’s position were obiter dicta and therefore not binding on the Appeal Panel (for the benefit of non-lawyers, obiter dicta means an observation by the Court which was not essential to its finding and therefore not a binding precedent).

The Appeal Panel agreed with the landlord that clauses 12.2.2 and 12.2.4 of the lease should be read as providing 2 alternative grounds for terminating the lease.  That is, the landlord could terminate the lease for non-payment of rent relying on clause 12.2.2.

The Appeal Panel decision is important for the following reasons:

  • It overruled the decision at first instance in the Charlie Bridge case which was to the effect that an important provision of the standard Law Society lease which has been widely used in New South Wales since 2007 was inoperable.

  • The first instance decision in the Charlie Bridge case implied that any provision in a commercial lease which required the landlord to give notice to the tenant before terminating the lease for non-payment of rent may be invalid as being in conflict with section 129 of the Conveyancing Act. The Appeal Panel decision disagreed with this view, thereby removing doubt about the validity of such provisions.

  • The first instance decision in the Charlie Bridge case was based on some statements in the earlier Supreme Court MI Design case. The Appeal Panel found that these statements were obiter dicta and therefore not binding on the Appeal Panel.  This finding helps to clarify the law in this area.

Author: Jack Gordon

Contributing Author: Melissa Potter