Terminating Commercial Leases for Non-payment of Rent – Validity of Law Society Lease Questioned

Before a landlord can terminate a lease for the tenant’s default, it must comply with section 129 of the Conveyancing Act 1919 which requires that the landlord give a notice to the tenant requiring the tenant to remedy the default.

The section specifies certain exceptions where notice is not required, including defaults relating to licences under the Liquor Act 2007 and non-payment of rent.

A landlord wishing to terminate therefore has to consider the provisions of the lease document in relation to termination and, where the default does not relate to the Liquor Act or payment of rent, section 129.

A recent decision of the New South Wales Civil and Administrative Tribunal (Charlie Bridge Street Pty Limited v Petrazzuolo: Petrazzuolo v Charlie Bridge Street Pty Limited [2019] NSW CATCD1) has raised some interesting issues about the right of a landlord to terminate a lease for non-payment of rent without giving notice to the tenant. The decision also found that a provision of the printed Law Society of NSW lease does not comply with section 129 of the Conveyancing Act and is therefore inoperable.

In the Charlie 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 Limited v Dunecar Pty Limited & Ors [2000] NSW SC 996 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 clause 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 landlord also argued that the MI Design case was not determined on the basis of the requirements of clauses 12.2.2 and/or 12.2.4 of the Law Society lease and could therefore be distinguished from the facts in the Charlie Bridge case.

Interestingly, the Tribunal found in favour of the landlord but in doing so did not rely on the landlord’s submissions.

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 two distinct grounds for terminating the lease.  The Tribunal found, apparently relying on the M1 Design case, that clause 12.2.4 of the lease overrode clause 12.2.2, even though clause 12.2 appears to show each of the subclauses as alternatives.

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 section 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 clause 12.2.4 conflicted with that section because it purported to require the landlord to give notice of non-payment of rent to a tenant where section 129(8) of the Conveyancing Act provides that section 129 shall not affect the law relating to re-entry or forfeiture or relief in case of non-payment of rent.

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 Charlie Bridge decision is interesting for the following reasons:

• It found that an important provision of the standard Law Society lease which has been widely used in New South Wales since 2007 is inoperable.

• The decision implies that any provision in a commercial lease which requires 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. This could have far reaching consequences.

• While Courts may not be bound to follow the Charlie Bridge decision, it and the earlier Supreme Court M1 Design case, raise significant issues.

The Law Society may wish to amend clause 12.2 of its lease or otherwise respond.

Author: Jack Gordon

Contributing Author: Melissa Potter