• Admin

Termination of a commercial/retail lease – does the landlord’s clause do the job intended of it?

Overview


  • Fortunately for the Law Society form of lease (and similarly drafted leases), a recent appeal decision reaffirmed the effectiveness of a key clause a landlord would rely upon when terminating a lease.

  • The case is also an opportunity for landlords to carefully consider their particular termination of lease clauses, to ensure such clauses are not at risk of similar arguments raised from a tenant.


The case at first instance


  • The lease was a retail lease (being a cafe). In the New South Wales Civil and Administrative Tribunal (NCAT) case Charlie Bridge Street Pty Ltd -v- Petrazzuolo; Petrazzuolo -v- Charlie Bridge Street Pty Ltd [2019] NSW CATCD1 the tenant had argued that clause 12.2.2 was not effective.

  • The landlord terminated the lease by re-entry for non-payment of rent, without notice, relying on clause 12.2 of the 2007 version of the Law Society lease.

  • The clause provided 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.


  • In short, the tenant argued that clause 12.2.4 of the lease overrode clause 12.2.2, having the effect that the landlord was required to give at least 14 days written notice of its intention to end the lease for non-payment of rent. The landlord argued it could rely on clause 12.2.2 alone and that the two means to terminate the lease were distinct alternatives from which to select.

  • Note that section 129(8) of the Conveyancing Act 1919 (NSW) allows for a lease to be terminated (assuming the lease provides for that) without service on the tenant of a formal section 129 notice to remedy breach of covenant in the case of non-payment of rent. This exception does not apply to any other breach of lease (where a notice is required).

  • NCAT found in favour of the landlord ultimately, though in its decision making it held that an important termination of lease provision in the standard Law Society lease (and likely mirrored in some other leases) was not effective. In this regard, the decision implied that any provision in a commercial lease which required a 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(10) of the Conveyancing Act [which provides that section 129 applies ‘notwithstanding any stipulation to the contrary’].


The result at appeal


  • The Appeal Panel of NCAT (in Charlie Bridge Street Pty Ltd -v- Petrazzuolo [2019] NSWCATAP 184) supported the landlord and, importantly, provide some clarity as to the interaction between the clauses 12.2.2 and 12.2.4.

  • At paragraph 34 the Appeal Panel states:

We determine that clause 12.2.2 of the lease gives a lessor a basis upon which that lessor may enter and take possession of the property without prior notice to the tenant. In other words, we consider that clause 12.2.2 provides a basis for re-entry which is independent from clause 12.2.4. We consider that each of the subclauses of clause 12.2 is intended to operate separately from each other.



For landlords


  • Generally, it is prudent to ensure that your commercial lease termination clauses are sound and not likely to give rise to possible interpretation arguments (particularly where you rely on such clause to terminate a lease).

  • In the event a landlord is considering terminating a lease, we strongly recommend that legal advice is sought. The interrelationship between contract law (a lease being a contract) and section 129 of the Conveyancing Act 1919 (NSW) is complex.


For tenants


  • If you have been served with a section 129 notice or indeed your lease has been terminated by the landlord (and you may for example be wondering whether the landlord’s actions were valid and lawful), legal advice is recommended.



John Douglas

Principal

Douglas Legal

401 views