Terminating leases can be fraught with risk. If a landlord attempts to terminate a lease, and the purported termination is invalid, the landlord themselves will have repudiated the lease and be liable for damages.

Both landlords and tenants should be aware that section 129 of the Conveyancing Act 1919 (NSW) prohibits a landlord from terminating a lease unless the landlord serves a written notice on the tenant:

a. Specifying the particular breach by the tenant; and,

b. If the breach can be remedied, requiring that the tenant remedy that breach within a reasonable time; and,

c. If the landlord requires compensation, requiring that compensation in the notice.

Importantly, this sub-section (8) of this section states that s 129 notice requirements do not apply where the breach is for the non-payment of rent.

A new case provides light on how this legislation interacts with the Law Society’s Commercial Lease.

• Charlie Bridge Street Pty Ltd v Petrazzuolo; Petrazzuolo v Charlie Bridge Street Pty Ltd (2019) ACML ¶85-450 (“the Charlie Bridge Street case”).

This case involved a city-based café, and the adoption between the parties of the standard ‘Law Society Commercial Lease’ (note: the lease would have been a retail lease by virtue of the use of the premises as a café).

The tenant’s café was struggling. The landlord granted the tenant an indulgence of reduced rent for 12 months – which the tenant requested be extended for a further 2 months, with the discounted amount to be ‘amoritised back at a later stage of the lease’.

It was the timing of this ‘amortisation’ which resulted in a dispute between the two parties. The landlord informed the tenant that the tenant was in arrears, and 4 days later the landlord reclaimed possession of the premises.

Matters of termination were dealt with in the lease by the following clause:

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

12.2.1 the lessee has repudiated this lease; or

12.2.2 rent or any other monies due under this lease is 14 days overdue for payment; or,

12.2.3 the lessee has failed to comply with the lessor’s notice under section 129 of the Conveyancing Act 1919; 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.

How did Senior Tribunal Member Bluth deal with this matter?

Interesting, the Senior Member construed the terms of the lease and determined that clause 12.2.4 applied to this breach and, imported a notice requirement on clause 12.2.2. In other words, clause 12.2.2 could not be read on its own, and it needed to be read together clause 12.2.4.

The reason for this reading of the lease terms is that there was earlier Supreme Court authority (most relevantly MI Design Pty Limited v Dunecar Pty Limited & Ors [2000] NSW SC 996) which had dealt with the same lease and construed the lease terms in that way. No earlier Supreme Court decision, however, had dealt with the issue of non-payment of rent.

If clause 12.2.4 applied, did the Landlord need to give 14 days’ written notice? The Senior Member held no – finding that clause 12.2.4 of the lease must be struck out.

That is because, accordingly to the Senior Member, clause 12.2.4 seeks to “circumvent” sub-section 8 of s 129, which (as mentioned earlier) states that s 129 notice requirements do not apply where the breach is for the non-payment of rent.

Accordingly, “the provisions of clause 12.2.4 are rendered inoperable”.

The landlord did not therefore have to provide 12 days written notice and the termination was valid. This decision then holds significant implications for the standard Law Society lease.

Comment: Respectfully, this author believes the ‘more correct’ interpretation of the lease is that clause 12.2.2 stands alone, and this case could have been decided on that basis; without needing to strike out clause 12.2.4. Clauses 12.2.2 and 12.2.4 are dealt with on an “or” basis – not an “and” basis. Moreover, section 129 applies ordinarily for breaches but the operation of section 129 is excluded by sub-section (8) when the breach is one of non-payment of rent. Accordingly, you do not even need to go down the path of the legislation applying and striking out clause 12.2.4.

The Senior Member did, however, have to adopt the approach that was used because of the comments made in previous cases which did not directly relate to this issue.

“NOTE: This case has now been overturned in part by the appeal decision of Charlie Bridge Street Pty Ltd v Petrazzuolo [2019] NSWCATAP 184”

For expert legal advice in relation to lease, contact Maclarens Lawyers on 96823777.

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