From ‘The Castle’ to court: A reminder on protected tenancies

Making news this week was the story of Charles Joseph “Joey” Warren who obtained a court order for his rent to be fixed at $50 per month for a property located in Catherine Hill Bay NSW (the Property).

Mr Warren’s story, described by the magistrate as having been lifted from the script of the classic Australian film ‘The Castle’, serves as a careful reminder to purchasers on the types of issues that can be created when dealing with protected tenants under the Landlord and Tenant (Amendment) Act 1948 (NSW) (LTAA).

This article examines the case and the LTAA.

Wallalong Land Developments Pty Limited v Charles Joseph Warren [2024] NSWLC

In 2017, Wallalong Land Developments Pty Ltd (Wallalong) purchased the Property for the purpose of redevelopment and sought to evict Mr Warren. However, Wallalong discontinued those proceedings after it became apparent Mr Warren was a protected tenant under the LTAA. Wallalong then commenced proceedings in the Local Court to increase the rent paid by Mr Warren for the Property.

Although rare, there are several properties in NSW that are still afforded protections under the LTAA, thanks to Schedule 2 Part 7 clause 24 of the Residential Tenancies Act 2010 (NSW). If a property is found to be subject to the LTAA, protected tenants have the right to no rent increases unless agreed upon by the tenant, and have limited grounds for eviction.

Purchasers and developers need to conduct careful due diligence when buying properties, especially if the property is subject to longstanding leases as the lessee may be a protected tenant.

The LTAA and when it applies

The LTAA came into effect after World War II following a slew of war-time legislative measures aimed at retaining restraint on rent fixing.  

Despite the LTAA’s repeal, the legislation continues to apply to properties that fall under its definition of “prescribed premises” until either:

• the death of the lessee; or
• the death of the lessee’s spouse or de facto partner who resided at the prescribed premises before the lessee’s death.

Today, properties that are governed by the LTAA apply to:

• tenancies commencing before 1 January 1986; and
• premises built before 16 December 1954 where a 5A lease has not been registered.

The property must also meet one of the definitions of “prescribed premises” under section 8 of the LTAA.

The proceedings

To determine the rent payable by Mr Warren, the proceedings established that they had the jurisdiction to exercise the functions and powers of the Fair Rents Board under the LTAA. However, there has been no Fair Rents Board since 1987.

Firstly, it was agreed by the parties that:

• there was no previous determination by the Fair Rents Board in respect of the Property;
• no written lease agreement; and
• payment of rent was informally agreed upon through an oral agreement between Mr Warren and his grandparents before him, with the Wallarah Coal Company (original owners). This agreement continued when the Property was purchased from the original owners in February 2017.

The court determined the application by considering the matters listed under section 21 of the LTAA, but noted this section “does not provide a strict formula for calculating fair rent”.

From reviewing the approach generally adopted by the Fair Rents Board in several judicial review cases, the court advised that the steps for determining fair rent included:

• determining basic rent as at 31 August 1939: Although there was no evidence of actual rent paid at this date, evidence produced by the parties, including an expert property valuation report, resulted in the court estimating a weekly rent for the Property of 5 shillings per week. The court also considered the assessed annual value of the Property established by the Valuer General as at 31 August 1939 to reach this conclusion; and
• whether the basic rent is insufficient having regard to section 21 of the LTAA: Although Wallalong is liable for all taxes, rates and insurance regarding the Property, there was no evidence of increased lessor outgoings since the rent in 1939. All costs of repairs to the Property have been borne by Mr Warren and, although there have been increased costs since 1939, Wallalong was unable to provide a calculation of these costs on a pro rata basis.

The court found that, based on the evidence (or lack thereof), they could have made a fair rent determination significantly lower than the rates currently paid. However, the disparity to market rent, the passage of time and the absence of information regarding statutory outgoings created an inaccurate rent figure.

The court was therefore satisfied to make an allowance regarding increased costs due to Wallalong’s liability for rates and other services. In “doing the best that [the court] can”, the court fixed the rent for the Property at $50 per month.

Importance of thorough due diligence for purchasers

Although rare, protected tenancies still exist in New South Wales. In 2011, the Combined Pensioners & Superannuants Association of NSW Inc. estimated that the number of protected tenants in the state was between 600 to 1,400. Protected tenants are generally found in older suburbs or country towns.

The Property in the proceedings is a great example – a miner’s cottage located about one hour from Newcastle, originally owned by a mining company. These cottages were exclusively available to company employees and their families. Whilst uncommon, the proceedings demonstrate how a protected tenant may inhibit a developer’s ability to build on the land. 

It is therefore important to conduct careful due diligence when buying a property with an existing tenant, particularly when there is no written lease agreement and where the tenant or tenant’s family has been dwelling in the property for several decades.

Purchasers should also make further enquiries if:

• there is no written agreement;
• the tenant and the tenant’s family has been dwelling at the property for several decades; and
• the rent payable is significantly less than the current market rate.

Examples of due diligence that purchasers should conduct, particularly if there are concerns about the property potentially being subject to a protected tenant, include:

• finding the age of the dwelling – review records from local councils, historical societies and land valuation documents that detail changes in the land’s usage; and
• examining the history of the tenancy – the NSW Department of Fair Trading, Rental Boards Board card index system contains records registrable instruments including 5A leases, 17A agreements and fair rent determinations under the LTAA.

The full case can be read here. If you need assistance with understanding the LTAA and what due diligence you, as purchasers, should undertake before buying a property with protected tenants, please get in touch with our team below.

Disclaimer
The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Elly Ashley

Caitlyn Trussell

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