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Termination of lease by landlord with only 3 days’ notice

Background

Charlie Bridge Street Pty Ltd v Petrazzuolo BC201900622 [2019] NSWCATCD 1

The Tenant (Charlie Bridge Street Pty Ltd) leased premises from the Landlord (Petrazzuolo) on terms set out in a registered lease for five years with an option for a further 5 years and was granted a 50% discount on the rent for the first 12 months.  The Tenant regularly paid the rent late however always paid within the 14 day grace period under the lease.  Due to difficulties in trading, the Tenant requested a further 2 months’ rent at the discounted rate and this amount was to be “amortised back at a later stage in the lease”.  The Landlord agreed.  An invoice was issued by the Landlord for the 2 months’ rent including the amortised amount.  The Tenant queried this as he was under the impression the amortised rent would be paid at a later stage.  Discussion took place but there was no agreement reached.

The Landlord then informed the Tenant in writing they were in breach of the lease.

The Tenant did not pay the rent and 3 days later the Landlords arranged for the locks to be changed and re-took possession of the premises. The Tenant lodged a Retail Leases Application seeking damages in the amount of $300,000 and relief against forfeiture of the lease.  The parties attended mediation however failed to reach a settlement.

As the Landlords found a new tenant for the premises, the Tenant amended its Retail Leases Application to no longer seek relief against forfeiture and instead claimed damages for wrongful termination of the lease, including the return of the fitout and rental equipment or, alternatively, a sum for further damages for loss due to the non-return of such equipment.  The Tribunal found that sufficient notice and requests were made to the Tenant by the Landlords to remove the fitout and the rental equipment from the premises.  Pursuant to the lease, the Landlord was entitled to deal with any property of the Tenant not removed and charge the Tenant the cost. The Tribunal agreed the Landlords were entitled to do so.

The Landlords claimed damages from the Tenant for breach of lease including the difference between the incentive rent (which they stated was only agreed on the assumption of a five year lease remaining in place), unpaid rent until repossession, unpaid rent until new tenant commenced, termination costs, locksmiths, mediation, etc, NCAT legal costs and preparation of new lease costs.

Applicable section in Conveyancing Act 1919 (NSW)

Section 129 (as applicable to this case) states:

129 Restrictions on and relief against forfeiture of lease

(1) A right of re-entry or forfeiture under any proviso or stipulation in a lease, for a breach of any covenant, condition, or agreement (express or implied) in the lease, shall not be enforceable by action or otherwise unless and until the lessor serves on the lessee a notice:

(a) specifying the particular breach complained of, and

(b) if the breach is capable of remedy, requiring the lessee to remedy the breach, and

(c) in case the lessor claims compensation in money for the breach, requiring the lessee to pay the same,

and the lessee fails within a reasonable time thereafter to remedy the breach, if it is capable of remedy, and where compensation in money is required to pay reasonable compensation to the satisfaction of the lessor for the breach.

(8) This section shall not affect the law relating to re-entry or forfeiture or relief in case of non-payment of rent.

(10) This section applies to leases made either before or after the commencement of this Act, and shall have effect notwithstanding any stipulation to the contrary.”

Applicable lease clauses

Clause 5.1.1 of the lease states the “lessee must pay to the lessor or as the lessor directs the rent state in item 13A of the Schedule”.

Clause 12 of the lease provided that the landlord can re-take possession or demand possession of the premises if “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”.

Crux of the case

The Tribunal critically analysed a number of cases with respect to s129 of the Conveyancing Act 1919 (NSW) however found their circumstances were not similar, as this case dealt with breach for non-payment of rent where a notice is not required.

The Tenant relied heavily on Santow J’s judgment in MI Design Pty Ltd v Dunecar Pty Ltd [2000] NSWSC 996 which stated “There is a mandatory 14 days’ notice, either statutory under s129 if applicable (with its concomitant obligatory opportunity to the tenant to remedy, if capable of remedy, or pay claimed compensation) or else contractual. The original lease makes clear that such notice is an essential pre-condition for taking possession of the property, irrespective of the nature of the breach (apart from the tenant repudiating the lease as provided in 12.2.1)”.  The Tenant’s submission was that the re-entry by the Landlords was illegal because the Landlords failed to give at least 14 days’ written notice of the breach and omitted to state the Landlords’ intention to end the lease in accordance with clause 12.2.4.

The Landlords submitted there was no legal precedent established in MI Design which requires a lessor to issue a notice and give a further 14 days in the case of non-payment of rent after the rent is 14 days in arrears.  The Tribunal agreed.

The Tribunal held that clause 12 of the lease was an attempt to have the landlord provide notice of breach in circumstances where the landlord was not required to do so by s129 of the Conveyancing Act 1919 (NSW) (i.e. in re-entering and forfeiting the lease in the case of non-payment of rent).  The Tribunal found that clause 12 did not comply with s129(8) of the Conveyancing Act 1919 (NSW).

Conclusion

The Tribunal found the Landlords were entitled to re-enter and re-take possession of the premises without further notice to the Tenant even though the lease specified 14 days’ notice was required  Section 129 of the Conveyancing Act 1919 (NSW) overrides the provisions of the lease.

Even though this case suggests that a landlord doesn’t need to give notice to terminate a lease for failure to pay rent where the lease requires a notice, we would recommend notices in these circumstances.  Even in circumstances where the breach seems obvious and clear, there is a chance that an error could be made.  Giving a notice protects the landlord against that chance of error whereas terminating without notice leaves no room for error.

Gillian Kirwan
Lawyer

Paul Carroll
Partner

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