Arguably, the most fundamental term within a leasing agreement relates to rent, with this being the frequent subject of lengthy negotiations, and oftentimes disputes, when things go sour. One issue continuously encountered within the realm of property law is the failure of a tenant to pay rent to their landlord, and the tenant subsequently falling into rental arrears.
Coleman Greig’s Commercial Property team is often asked the question: “As a landlord, what can I do when my tenant fails to pay up?”. If as a landlord you find yourself in such a circumstance, you do have a number of avenues by which to pursue the rent owed to you, including:
- Opening two-way communications with the tenant surrounding a payment strategy or rental reduction;
- Mediation;
- Seeking an order from the NSW Civil & Administrative Tribunal, forcing the tenant to comply with the terms of the lease; or
- Termination of the lease.
In the recent decision of Charlie Bridge Street Pty Ltd v Petrazzuolo [2019] NSWCATCD 1, the landlord pursued several avenues when their tenant fell into arrears. When all else failed, the landlord took the drastic action of changing the locks and retaking possession of the property.
Facts of the Case
The parties entered a five-year lease, with rent discounted to 50% for the first 12 months. The tenant’s cafe business was struggling, and rent was often paid several days late. The tenant subsequently requested an extension of the 50% discount for a further 2 months.
Whilst the landlord did agree to this discount, a dispute arose pertaining to the rent payable moving forward. After a significant amount of correspondence, the tenant failed to make payment of the rent, at which point the landlord emailed the tenant stating that they were in breach of the lease. Four days later, the landlord re-took possession of the property.
Clause 12.2.4 of the lease stipulated that if the tenant failed to pay rent, the landlord would be required to provide 14 days’ notice before re-taking possession of the premises. The tenant lodged an application to the courts seeking compensation for wrongful termination based on the failure to provide 14 days’ notice.
The court was in turn tasked with determining whether clause 12.2.4 of the lease could circumvent s129 of the Conveyancing Act 1919, which states:
- S129(1): A landlord can re-take possession only if it services notice of the breach, allowing reasonable time to remedy that breach; and that
- S129(8): The section has no effect relating to re-entry in the case of non-payment of rent.
Taking the above points into account, in circumstances where the breach in question is a failure to make rental payments, the landlord is entitled to re-take possession of the premises without providing 14 days’ notice.
The Tribunal determined that clause 12.2.4 was inoperable, and was in turn overridden by the Conveyancing Act 1919. It was held that the landlord acted within its rights under s129(8) of the Conveyancing Act 1919 in both terminating the lease and re-taking possession of the property.
Additionally, the tenant’s claim for compensation was dismissed.
Conclusion
The decision handed down in the case of Charlie Bridge Street Pty Ltd v Petrazzuolo [2019] NSWCATCD 1 provides a number of important points that Coleman Greig encourages both landlord’s and tenant’s to take into account, including:
- The importance of paying rent on time;
- When terms of your lease contradict legislation, legislation will usually prevail;
- The importance of having a full understanding of your legislative obligations at all times; and
- Seek qualified legal advice if you believe the other party has breached the terms of your lease.
If you have a query relating to any of the information in this piece, or you require assistance in negotiating or simply understanding the terms of your lease as either a tenant or a landlord, please don’t hesitate to get in contact with Coleman Greig’s Commercial Property team:
