A recent decision of the NSW Civil and Administrative Tribunal (Tribunal) has shed light on whether a Landlord can take possession of a property without notice due to a Tenant’s failure to pay rent, and has provided clarity on whether standard clause 12.2.4 of the Law Society Commercial Lease is in fact “inoperable“.
Re-entry of premises and termination of lease
Under section 129 of the Conveyancing Act 1919 No 6 (NSW) (Act), prior to a Landlord having the ability to terminate a lease due to a Tenant’s breach, a Landlord is required to issue the Tenant a notice specifying the breach, and provide them with reasonable time to remedy it.
In the event the Tenant fails to remedy the breach, the Landlord then has the right of re-entry and may terminate the lease. This requirement to serve a Tenant a notice specifying the breach, however, does not extend to circumstances relating to the non-payment of rent, in accordance with section 129(8) of the Act.
In accordance with section 129(10), section 129 of the Act applies to all leases, notwithstanding any provision in a lease that provides otherwise.
Charlie Bridge Street Pty Ltd v Petrazzuolo
These proceedings concerned a commercial lease that was terminated by the Landlord as the Tenant had not paid rent in accordance with the terms of the lease.
While the lease provided that the Landlord could take possession of the property if rent was 14 days overdue, the lease also included standard clause 12.2.4 of the Law Society Commercial Lease that provides that a Landlord can take possession if:
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 lease 14 days’ written notice of the lessor’s intention to end this lease.
The Tenant relied upon clause 12.2.4 of the lease and submitted that the Landlord wrongfully terminated the lease as they did not issue the Tenant with a notice providing them reasonable time to remedy the breach by paying the owing rent. Accordingly, the Tenant argued the Landlord was liable for damages.
The Landlord submitted that the termination of the lease was lawful and in accordance with clause 12.2.2 of the lease.
At first instance, the Tribunal considered that while the insertion of clause 12.2.4 was an attempt to require the Landlord to provide the Tenant with a notice of their breach in circumstances where the Act does not require them to do so, the Tribunal held that in accordance with section 129(10) of the Act, section 129(8) of the Act applied irrespective of any lease provision to the contrary and therefore, a lease provision could not require a Landlord to issue a notice in circumstances concerning the non-payment of rent. On this basis, the Tribunal held that clause 12.2.4 of the Law Society Commercial lease was “inoperable” and contrary to section 129(10) of the Act.
On appeal, while the Tribunal agreed that the Landlord could take possession of the Property without notice in accordance with clause 12.2.2 of the lease, it found that clause 12.2.4 of the Law Society Commercial Lease was not inoperable as section 129 of the Act does not expressly prevent the operation of a lease provision relating to the non-payment of rent. Instead, section 129 simply imposes obligations on Landlords in relation to exercising their right of possession in cases other than that concerning rent.
Accordingly, the Tribunal confirmed that parties are free to reach their own agreement in relation to whether a Landlord is required to issue a notice of breach in circumstances relating to the non-payment of rent. Therefore, as clause 12.2.2 of the lease was drafted to provide the Landlord the ability to take possession without notice, the Landlord could lawfully re-possess the Premises.
The decision highlights the significance of ensuring possession and termination clauses in leases are appropriately drafted to deal with circumstances concerning the non-payment of rent, specifically, if Tenants wish for a notice to be provided prior to re-possession.
The decision further highlights the importance of Landlords being aware of their obligations under the lease in the event they are ever in the position to exercise their right of possession.