On 1 February 2019 the New South Wales and Civil and Administrative Tribunal (Tribunal) held in Charlie Bridge Street Pty Ltd v Petrazzuolo [2019] NSWCATCD 1 that a landlord validly terminated a lease by re-entering the premises when the tenant failed to pay rent, even though the landlord did not give notice to the tenant of its intention to terminate the lease.
This article will set out the facts of this case, the relevant provisions of the standard Law Society of New South Wales form of commercial lease (Law Society Lease), section 129 of the Conveyancing Act 1919 (NSW) (the Act), and examine why the landlord’s termination by re-entry was valid and did not require prior notice.
What happened in this case?
Charlie Bridge Street Pty Ltd (CBS) leased retail premises from Rafaelle and Laura Petrazzuolo (Petrazzuolo), which CBS operated as a café. The lease commenced on 1 June 2016, with rent due on the first day of each month and a 50% discount applying to the rent for the first 12 months of the lease. The lease was in the form of a Law Society Lease with special conditions.
On or about 8 June 2017, CBS asked Petrazzuolo to extend the 50% rent discount for a further 2 months for June and July 2017, with the discounted amounts for June and July to be added onto the rent at some stage in the future. Petrazzuolo agreed.
On or about 3 September 2017, Petrazzuolo issued a tax invoice to CBS for the rent for the month of September. Petrazzuolo included in the invoice the amounts that were discounted in June and July 2017. CBS informed Petrazzuolo that it understood that the discounted amounts would be payable at a later stage. The parties failed to reach agreement as to when the discounted amounts were payable by CBS.
CBS did not pay the rent for September 2017.
On 13 September 2017, Petrazzuolo sent an email to CBS stating that CBS was in breach of the lease because the rent was unpaid.
On 17 September 2017, Petrazzuolo purported to terminate the lease by changing the locks and re-entering the premises.
What did CBS argue?
CBS argued that Petrazzuolo had invalidly terminated the lease by re-entering the premises because:
- discussions as to the rent that was payable were ongoing and the total amount of rent payable by CBS was unclear; and
- Petrazzuolo was obliged under either section 129 of the Act or clause 12.2.4 of the lease to give CBS notice of its intention to terminate the lease and a reasonable time, being 14 days, in which to remedy the non-payment of rent.
What were the relevant provisions of the Act and the Law Society Lease?
Section 129(1) of the Act states that if a lease permits the landlord to terminate a lease by re-entry or forfeiture when there is a breach of the lease, then the landlord cannot rely on that provision of the lease unless they give the tenant a notice of the breach and give the tenant a reasonable time in which to remedy the breach.
Section 129(8) of the Act states that section 129(1) does not exclude the law relating to re-entry, forfeiture or relief in the case of non-payment of rent.
Section 129(10) of the Act states that section 129 of the Act overrides any contrary provision in a lease.
Clause 12.2.4 of the Law Society Lease grants a landlord a right to terminate a lease by re-entry or forfeiture for any breach of the lease but only if, where section 129 of the Act does not apply, the landlord gives the tenant at least 14 days’ notice of its intention to terminate the lease.
What was the Tribunal’s decision?
The Tribunal rejected the arguments of CBS and held that Petrazzuolo had validly terminated the lease by re-entry into the premises because:
- the fact that discussions had taken place as to the amount of rent that was payable did not mean that the rent was not payable. The discussions only provided some explanation as to why CBS chose not to pay the rent;
- at common law, a landlord does not need to give notice before terminating a lease by re-entering the premises where the tenant’s breach is the non-payment of rent;
- section 129(1) of the Act did not apply, because section 129(8) of the Act preserves the position at common law; and
- the notice requirement in Section 12.2.4 of the Law Society Lease was of no effect in this case because the breach relied on by Petrazzuolo was non-payment of rent and clause 12.2.4 is inconsistent with the common law rules in relation to re-entry or forfeiture for non-payment of rent. Section 129(10) of the Act caused the common law to override the contrary notice requirement in clause 12.2.4 of the lease.
Petrazzuolo was entitled to recover damages of $78,630.60 from CBS, being the short paid rent for June and July 2017, rent for the period after termination and before Petrazzuolo secured a new tenant, the cost of cleaning the premises and changing the locks, and the cost of preparing and entering into a new lease.
Implications of the Tribunal’s decision?
This case is useful in clarifying the extent of a landlord’s obligations to give notice when a tenant has failed to pay rent. Both parties to a lease will need to be aware when using the Law Society Lease that provisions like clause 12.2.4 may not apply to protect a tenant if different rules apply under legislation. Landlords and tenants should seek legal advice as to the laws that may impact on their lease.
At Bryks Lawyers, we have extensive experience in preparing commercial leases to suit the needs of both landlords and tenants. Contact us today to see how we can assist you!
