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[2025] NSWSC 265
General information, not legal advice.
Supreme Court of NSW
2025-03-26
Brereton J
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Source: NSW Caselaw (www.caselaw.nsw.gov.au). Converted to plain text by ZoeLaw. Not the official version.
Medium Neutral Citation: ZeroBonds Residential Pty Ltd v Commissioner for Fair Trading [2025] NSWSC 265
Hearing dates: 19, 20 February 2025
Date of orders: 26 March 2025
Decision date: 26 March 2025
Jurisdiction: Equity - Commercial List
Before: Brereton J
Decision: The Amended Summons is dismissed with costs.
Catchwords: LEASES AND TENANCIES – Residential Tenancies Act 2010 (NSW) – rights and obligations of landlords and tenants – where the Plaintiff seeks a negative declaration – a Bond Replacement Product – proper construction of s 23 of the Residential Tenancies Act 2010 (NSW) – whether the Bond Replacement Product would contravene s 23 of the Residential Tenancies Act 2010 (NSW) – where there is a prohibition in relation to requiring or receiving payment from a tenant – whether the phrase “before or when” is to be given a temporal construction.
LEASES AND TENANCIES – Residential Tenancies Act 2010 (NSW) – rights and obligations of landlords and tenants – where the Plaintiff seeks a negative declaration – a Bond Reversal Product – whether the Bond Reversal Product contravenes s 32 of the Residential Tenancies Act 2010 (NSW) – kinds of payments a tenant may be required to pay for a residential tenancy agreement – where the section has the express words of connection “for or in relation to”.
STATUTORY INTERPRETATION – literal meaning – natural and ordinary meaning – promoting the legislative purpose or object underlying the Act –Interpretation Act 1987 (NSW).
Legislation Cited: Interpretation Act 1987 (NSW)
Competition and Consumer Act 2010 (Cth)
Residential Tenancies Act 2010 (NSW)
Residential Tenancies Act 1987 (NSW) (repealed)
Residential Tenancies Amendment Act 2024 (NSW)
Retail Leases Act 1994 (NSW)
Residential Tenancies Amendment Bill 2024 (NSW)
Cases Cited: Ali v Insurance Australia Limited [2022] NSWCA 174
Aubrey v The Queen (2017) 260 CLR 305
Australian Gas Light Co v ACCC (No 2) [2003] FCA 1229
Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334
Blanning v Clark and Residential Tenancies Tribunal of New South Wales (unreported, Supreme Court of NSW 30 November 1990)
CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384
Commonwealth v Sterling Nicholas Duty Free Pty Ltd (1972) 126 CLR 297
Fabian Barbaro and Belinda Barbaro v Neil Hayter-Burgess and Katie Hayter-Burgess [2014] NSWCATCD 188
Newcastle City Council v GIO General Ltd (1997) 191 CLR 85
Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191
SZTAL v Minister for Immigration and Border Protection (2017) 262 CLR 362
Taheri v Vitek (2014) 87 NSWLR 403
Uelese v Minister for Immigration and Border Protection (2015) 256 CLR 203
Texts Cited: Macquarie Dictionary, 9th edition (2023)
New South Wales Legislative Assembly, Second Reading Speech, Residential Tenancies Amendment Bill 2024 (NSW) (Hansard), 15 October 2024
New South Wales Legislative Council, Second Reading Speech, Residential Tenancies Amendment Bill 2024 (NSW) (Hansard), 24 October 2024
Category: Principal judgment
Parties: ZeroBonds Residential Pty Ltd (Plaintiff)
Commissioner for Fair Trading (Defendant)
Representation: Counsel:
C E Bannan, L M Dargan (Plaintiff)
R Francois (Defendant)
Solicitors:
Bridges Lawyers (Plaintiff)
Commissioner for Fair Trading, Department of Customer Service (Defendant)
File Number(s): 2024/00364599
Publication restriction: n.a.
The Plaintiff (ZeroBonds) has developed two products that it wishes to make available to residential tenants in New South Wales. The products are referred to as a Bond Replacement Product and a Bond Reversal Product. As the names suggest, the first product is designed to be a substitute for the traditional rental bond that a tenant gives at the commencement of a residential tenancy. The second product is designed to replace a rental bond after it has already been given by a tenant. The two products operate in similar ways and share standard terms. The difference between them is really just a matter of timing.
By an Amended Summons filed on 11 March 2025, ZeroBonds seeks declarations as follows:
that the provision by ZeroBonds of each of the Bond Replacement Product and Bond Reversal Product does not contravene sections 23 or 32 of the Residential Tenancies Act 2010 (NSW) (Act);
alternatively, that:
a. ZeroBonds does not contravene section 23 of the Act if it requires or receives payment for the provision of the Bond Replacement Product or the Bond Reversal Product, unless it requires or receives such payment as a condition of entry into a residential tenancy agreement; and
b. ZeroBonds does not contravene section 32 of the Act if it requires or receives payment for the provision of the Bond Replacement Product or the Bond Reversal Product, unless there is some separate conduct for or in relation to such payment within the meaning of section 32.
The Defendant is the Commissioner for Fair Trading, Department of Customer Service (‘Commissioner’). The Commissioner opposes the application for declaratory relief.
By way of summary, I have concluded that the declarations should not be made for the following reasons:
the construction of section 23 of the Act that is advanced by ZeroBonds is rejected;
the issue of the Bond Replacement Product would offend section 23 of the Act as properly construed;
even if the construction of section 23 of the Act advanced by ZeroBonds was correct, the issue of the Bond Replacement Product would offend section 23 of the Act as so construed;
the issue of the Bond Reversal Product would, or at least could, offend section 32 of the Act; and
the variety of circumstances in which the Bond Replacement Product and the Bond Reversal Product could be issued is so wide that the matter does not lend itself to declaratory relief.
The Bond Replacement Product is intended to be used by tenants and landlords instead of a traditional rental bond. By way of a high-level summary, the product would operate as follows: instead of paying a rental bond equivalent to 4 weeks rent, a tenant will pay ZeroBonds a non-refundable amount equivalent to 14.5% of 4 weeks rent. ZeroBonds promises to pay the landlord up to 6 weeks of rental payments in the event of a breach of the terms of residential tenancy agreement. Thus, instead of a bond equivalent to 4 weeks rent, the landlord has a promise from ZeroBonds to pay up to the equivalent of 6 weeks rent.
ZeroBonds tendered a detailed set of terms and conditions that would govern the product. It is appropriate that I provide a little detail of those terms and conditions. Most relevantly:
A prospective tenant pays to ZeroBonds a $49.00 non-refundable fee for assessment of an application to be approved for the product (clause 10 and the definition of "application fee"). If ZeroBonds decides to offer the product to the applicant, the applicant then becomes an “Approved Applicant”. The approval is valid for six-months.
Although not expressly provided for, it is clear that what is intended is that an Approved Applicant will have the ability to offer to a prospective landlord the opportunity to make use of the product as an alternative to a traditional rental bond. If the landlord agrees, it seems that the prospective tenant applies to ZeroBonds to use the product in respect of the proposed residential lease. Once approved, the prospective tenant must immediately pay to ZeroBonds a further amount of 14.5% of the value of 4 weeks total rent for the property (clause 11). The tenant gives ZeroBonds authority to deduct that amount from a credit card (clause 36). The prospective tenant and the landlord, or the landlord’s agent, will note on the residential lease agreement that a bond will not be provided.
The landlord is not a party to the terms and conditions between ZeroBonds and the prospective tenant but there is a clause that provides that the agreement is executed by the tenant as a deed poll for the benefit of the landlord (clause 64). ZeroBonds may provide a "certificate" to the prospective landlord or their agent which represents the tenant’s agreement to the terms and conditions (clause 14).
Subject to various conditions, in the event of a breach of the residential tenancy agreement, ZeroBonds will be liable to the landlord for an amount up to 6 weeks rent. The tenant will be liable to ZeroBonds for an amount up to 4 weeks rent (clause 24).
There are various other terms that largely operate to provide protections to ZeroBonds.
ZeroBonds contends that this product will serve to remove a barrier to entry for prospective tenants. Instead of being required to provide a traditional bond of 4 weeks rent at the commencement of a residential lease, prospective tenants will only have to make a (non-refundable) upfront payment that is a fraction of the amount of the bond that they would otherwise be required to post. It emphasises that the product will only be taken up if the tenant and landlord agree to its use.
(1) A person must not require or receive from a tenant, before or when the tenant enters into the residential tenancy agreement, a payment other than the following –
(a) holding fee,
(b) rent,
(c) a rental bond,
(d) an amount for the fee, if any, payable for registration of a residential tenancy agreement under the Real Property Act 1900.
Maximum penalty – 20 penalty units.
(2) Without limiting this section, a person must not require or receive from a tenant an amount for –
(a) the preparation of a written residential tenancy agreement, or
(b) the conduct of a background check.
Maximum penalty – 20 penalty units.
(3) To avoid doubt, this section applies in relation to a tenant whether or not the tenant –
(a) applies for tenancy of the residential premises, or
(b) enters into a residential tenancy agreement for the residential premises.
There is a note to the section which provides that: “A tenant is defined in this Act as including a prospective tenant”. That definition is found in section 3.
The Bond Reversal Product is to be made available to tenants who have previously given a bond pursuant to a residential tenancy agreement. The product would be subject to the same standard terms and conditions as the Bond Replacement Product. The only difference would be that it is proposed that the tenant will be able to recover a bond prior to the end of the term of the lease and instead the landlord will have the benefit of the Bond Reversal Product.
The second main issue in the proceedings is whether the issue of the Bond Reversal Product would offend section 32 of the Act. That section provides as follows:
A person must not require or receive from a tenant any payment for or in relation to renewing, extending or continuing a residential tenancy agreement, other than the following –
(a) rent,
(b) a rental bond,
(c) any other amounts or fees prescribed by the regulations.
Maximum penalty–20 penalty units.
ZeroBonds submits that the words “before or when” in section 23 could carry two different meanings, giving rise to a constructional choice. The relevant words in their immediate context are: “A person must not require or receive from a tenant, before or when the tenant enters into the residential tenancy agreement, a payment other than the following…”
ZeroBonds submits that the words could carry a temporal meaning, identifying the times when the relevant payments cannot be required or received. It submits that this reading would produce absurd outcomes. For example, it was suggested that Harvey Norman would be in breach of the section when it required or received payment from a person who was a prospective tenant at the time that person purchased a dining table to furnish his or her apartment. It was also suggested that a Hoyts operator would find itself in breach at the time it required or received payment from a prospective tenant to purchase a movie ticket the day before entry into a residential tenancy agreement.
ZeroBonds submits that an alternative construction, that does not result in absurdity, is to read the words “before or when” as imposing a condition. That is, the section prohibits a person from requiring or receiving from a tenant, as a condition of entering into a residential tenancy agreement, a payment other than one of the permitted payments. ZeroBonds contends that this is the correct construction.
The Commissioner submits that the words “before or when” carry a temporal meaning. It submits that the absurd outcomes are avoided because the prohibition is directed at payments “from a tenant”, and these words indicate that there must be a “direct connection” between the payment and the proposed residential tenancy agreement.
For the reasons set out below, I have concluded that section 23 is properly construed with the words “before or when” carrying a temporal meaning. However, that is not the only work that the words perform.
As to timing, the section prohibits payments being required or received at any time before the tenant (who will usually be a prospective tenant) enters into the residential tenancy agreement and also prohibits payments being required or received at the time when the tenant enters into the residential tenancy agreement. The general prohibition as to payments is then subject to exceptions by reference to particular kinds of payments.
The language of the section prohibits payments being required or received “from a tenant” at a time “before or when the tenant enters into the residential tenancy agreement”. In my view, this language indicates that the prohibition operates in respect of payments that are required or received by a person because the other person is a tenant (including a prospective tenant) who desires or is proposing to enter into a residential tenancy agreement. That is, the words “before or when the tenant enters into the residential tenancy agreement” serve to inform not merely the question of timing; they also serve to inform the relevant circumstances that are engaged by the section.
I do not think that it is of assistance to use the word “condition” to give meaning to the words “before or when”. To read those words as indicating that the section is only engaged when the payment is required or received as a condition of entry into a residential lease goes too far. The words “before or when”, when read with the surrounding words, serve to direct attention to the circumstances in which the payment is required or received.
Nor do I accept the Commissioner’s submission that it is appropriate to introduce the concept of a “direct connection” into the section. Although superficially a straightforward concept, in my view it would be a mistake to introduce into the section a test that is not found in the words of the section, which could give rise to complexity and would tend to divert from the language of the section. It is unnecessary to import this concept to avoid absurdity.
The following paragraphs expand on how and why I have come to this conclusion about the proper construction of section 23.
There was no debate in this case about the applicable principles of statutory construction. They are well-known and I do not need to set them out at length.
The meaning of section 23 is to be ascertained by construing the text of the statute while, at the same time, having regard to its context and purpose: see SZTAL v Minister for Immigration and Border Protection (2017) 262 CLR 362 at [14] (Kiefel CJ, Nettle and Gordon JJ).
As to context, it is to be regarded in its widest sense and is to be considered at the first stage of inquiry. It is not to be considered only in the case of ambiguity: see CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 408 (Brennan CJ, Dawson, Toohey and Gummow JJ). The context includes the “mischief” that was intended to be remedied.
As to purpose, section 33 of the Interpretation Act 1987 (NSW) provides:
In the interpretation of a provision of an Act or statutory rule, a construction that would promote the purpose or object underlying the Act or statutory rule (whether or not that purpose or object is expressly stated in the Act or statutory rule or, in the case of a statutory rule, in the Act under which the rule was made) shall be preferred to a construction that would not promote that purpose or object.
If the purpose of section 23 is clear, the Court may be justified in giving it a strained construction, provided it is neither unreasonable nor unnatural: see Newcastle City Council v GIO General Ltd (1997) 191 CLR 85 at 113 (McHugh J). ZeroBonds submitted that given the position taken by the Commissioner, it is important to emphasise the importance of the purpose of the provision.
ZeroBonds stressed the principle that an interpretation that leads to inconvenience or improbability of result may assist the Court in preferring an alternative construction to a literal one, if that construction is reasonably open and more closely conforms to the legislative intent: see CIC Insurance v Bankstown Football Club at 408. Further, a construction that appears irrational or unjust is to be avoided: see Uelese v Minister for Immigration and Border Protection (2015) 256 CLR 203 at [45] (French CJ, Kiefel, Bell and Keane JJ).
Section 23 is a penal provision. As a last resort and in the case of ambiguity, it is to be construed strictly: see Aubrey v The Queen (2017) 260 CLR 305 at [39] (Kiefel CJ, Keane, Nettle and Edelman JJ).
When section 23 is read naturally and seeking to give words their plain meaning, the words “before or when” bear a temporal meaning. The section reads most naturally as prohibiting relevant payments either at a time before the tenant enters into the residential tenancy agreement, or at the time when the tenant enters into the residential tenancy agreement.
The parties pointed to various matters arising from the text of the statute.
ZeroBonds contends that the words “before” and “when” can both be used in a conditional sense.
ZeroBonds points out that one of the definitions of the word “before” in the Macquarie Dictionary (9th edition, 2023) is “as a condition under which” (for example: “students must achieve an exam result of at least 80 per cent before they will be considered for entry into the program”). An example of the use of the word “when” in a conditional sense is found in the insurance contract that was considered by Mitchelmore JA in Ali v Insurance Australia Limited [2022] NSWCA 174 at [49]-[51]. That clause relevantly provided: “We cover your home or contents when certain things happen – for example, fire, theft, storm and earthquake…”
But there is no doubt that the words “before” and “when” can also have a temporal meaning. An example of the use of the word “before” where it obviously carries a temporal meaning is found in section 6 of the Act, which provides (emphasis added):
This Act applies to residential tenancy agreements in respect of residential premises whether made before or after the commencement of this section.
An example of the word “when” being used in a temporal sense is provided by section 51(3)(b) of the Act, which provides (emphasis added): …
(3) On giving vacant possession of the residential premises, the tenant must do the following — …
(b) leave the residential premises as nearly as possible in the same condition, fair wear and tear excepted, and, if there is a condition report, as set out in the condition report applicable to the premises when the agreement was entered into…
All this really serves to demonstrate that, depending on context, the words “before” and “when” can carry a temporal meaning or a conditional meaning.
When used in a temporal sense, the words “before” and “when” mean different things. When used in a conditional sense, they will usually mean the same thing. If the words have a conditional meaning in section 23, it is not obvious why both words were used. While the presumption against surplusage is a valuable guide to ascertaining the legal meaning of statutes (see Taheri v Vitek (2014) 87 NSWLR 403 at [121] per Leeming JA), I do not regard it as of much assistance in this case. Tautology is not uncommon in statutes. For example, section 18 of the Australian Consumer Law in Schedule 2 of the Competition and Consumer Act 2010 (Cth) forbids conduct that is “misleading or deceptive”, which is an indulgence into tautology: see Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 198 per Gibbs CJ.
It does seem to me, however, that the use of the words “before” and “when” together as “before or when” serves to promote a natural reading which gives both words a temporal meaning.
Section 23 prohibits any payments other than one of the four kinds set out at section 23(1)(a) to (d). It is instructive to consider the four kinds of permitted payments.
The first kind of permitted payment is a “holding fee”. A holding fee is defined in section 3 to mean “an amount paid or required to be paid to a person for not letting premises pending the making of a residential tenancy agreement”. Section 24 contains highly prescriptive provisions as to the payment of holding fees. This section provides, for example, that a holding fee cannot exceed one week’s rent of the residential premises. Section 25 gives the Civil and Administrative Tribunal jurisdiction to make orders in respect of disputes about holding fees.
A holding fee is not, or is not usually, a payment that is required or received as a condition of entry into a residential tenancy agreement. Rather, it is a fee paid to secure a promise not to let premises to another person. This tends against the ZeroBond’s construction. That is because one would expect that the permitted payments, including holding fees, would be of a kind that would otherwise fall within the general prohibition. There would be no need to expressly permit holding fees if they were not otherwise caught by the general prohibition. Conversely, holding fees are typically payments that are required or received because the person making the payment desires to enter into a residential tenancy agreement. This supports the alternative construction that I have concluded is the correct construction.
The second kind of permitted payment is “rent”. The word “rent” is defined in section 3 to mean “an amount payable by a tenant under a residential tenancy agreement for the right to occupy premises for a period of the agreement”. Division 2 of Part 3 of the Act contains various provisions controlling matters pertaining to rent, including the manner of payment (section 35), rent increases (section 41), rent reductions (section 43) and a tenant’s remedies for excessive rent (section 44). Once again, the Civil and Administrative Tribunal has jurisdiction to make various orders concerning rent.
The third kind of permitted payment is a “rental bond”. The term “rental bond” is defined in section 157 to mean “an amount of money paid or payable by the tenant or another person as security against any failure by a tenant to comply with the terms of a residential tenancy agreement”. Part 8 of the Act is concerned with rental bonds and tightly regulates the payment and release of rental bonds as well as other matters concerning rental bonds. For instance, section 159(1) provides that “a landlord, landlord’s agent or any other person must not require or receive from a tenant or another person a rental bond of an amount exceeding 4 weeks rent under the residential tenancy agreement for which the bond was paid…” The Civil and Administrative Tribunal has broad jurisdiction to deal with disputes about rental bonds.
The words “before or when” are used elsewhere in the Act apart from section 23.
Section 27 relevantly provides (emphasis added):
(1) A landlord must give the tenant written notice of the following matters before or when the tenant enters into the residential tenancy agreement or include the following matters in the agreement—
(a) the name and telephone number or other contact details of the landlord…
It is difficult to see how the words in this context could carry anything other than a temporal meaning.
(1) The landlord or landlord’s agent must give the tenant a copy of the residential tenancy agreement before or when the tenant gives the signed copy of the agreement to the landlord or landlord’s agent.
(2) If that copy is not signed by the landlord, the landlord or landlord’s agent must give the tenant a copy of the residential tenancy agreement signed by both the landlord and tenant, as soon as practicable after it is so signed.
Maximum penalty—20 penalty units.
Once again, the words here seem clearly to have a temporal meaning.
(1) A condition report relating to the condition of residential premises on a day specified in the report must be completed by or on behalf of a landlord before or when the residential tenancy agreement is given to the tenant for signing.
(2) The landlord or landlord’s agent must, before or at the time the tenant signs the residential tenancy agreement, give to the tenant 2 copies, or one electronic copy, of the completed condition report.
Maximum penalty—20 penalty units.
When used in subsection (1), the words again seem to carry an obvious temporal meaning. However, I also note that in subsection (2) the words “before or at the time” are used. When used in a temporal sense, the word “when” would ordinarily mean “at the time”. It is not obvious why the word “when” is used in subsection (1) while the words “at the time” are used in subsection (2). The use of different words would often suggest a difference in meaning. But the words need to be read in context, and I do not think that this points away from the words “before or when” bearing a temporal meaning.
(2) Without limiting this section, a person must not require or receive from a tenant an amount for—
(a) the preparation of a written residential tenancy agreement, or…
ZeroBonds submits that this section is evidently directed to a situation where a landlord, agent or other person requires or receives an additional payment from a prospective tenant for the costs of the preparation of a written residential agreement and that it cannot apply to a solicitor acting on behalf of the prospective tenant who is engaged by the tenant to prepare a written residential tenancy agreement.
There are two difficulties with this submission. The first is that I do not understand how this, even if correct, bears upon the constructional choice. The meaning of the words “before or when” is foreign to the prohibition found in section 23(2)(a). The second is that I am not satisfied that the submission is correct. While it does seem to me to be a strange outcome that the Act would prohibit a solicitor from charging a prospective tenant for preparing a residential tenancy agreement, it is difficult to read section 23(2)(a) in any other way.
There are other provisions in the Act that impose obligations on a landlord in relation to a written residential tenancy agreement (see sections 14 and 28) and the Act contemplates standard form residential tenancy agreements. The Act appears to contemplate that tenants will not be proffering the form of a residential tenancy agreement to a prospective landlord. I would not read section 23 as prohibiting a solicitor, who is acting for a tenant, requiring or receiving payment from that tenant for advising them about the terms of a residential tenancy agreement that was proffered by a prospective landlord, or for engaging in the negotiation of the terms of such an agreement.
If anything, the apparent breadth of section 23(2)(a) supports a broader reading of section 23(1) rather than a narrower one.
It would be absurd if section 23 rendered illegal any payment required or received from a person who happened to be prospective tenant. The Harvey Norman and Hoyts examples that were put forward by ZeroBonds vividly illustrate that absurdity. The Commissioner did not suggest to the contrary.
In the examples propounded by ZeroBonds, neither Harvey Norman nor the Hoyts operator receives the payment because the person is a tenant who is contemplating entering into a residential tenancy agreement; so far as Harvey Norman and the Hoyts operator are concerned, it is pure happenstance that the person is a tenant. The fact that a residential tenancy agreement is in contemplation by the individual is not the reason that Harvey Norman or the Hoyts operator has occasion to require or receive the payment.
There has to be some link between the prohibited act of requiring or receiving the payment and the prospective residential tenancy agreement. ZeroBonds contends the link is achieved by reading the words “before or when” as meaning conditional upon the residential tenancy agreement. The Commissioner contends that the words “from a tenant” indicate that there must be a “direct connection” between the payment and the residential tenancy agreement.
I agree that a link can be taken from the words of the section, but I would not put it in terms of a “direct connection”. The prohibition in section 23 is against requiring or receiving money “from a tenant” and the time that the payment cannot be required or received is “before or when the tenant enters into the residential tenancy agreement”. As I have stated above at [20], this language indicates that the prohibition operates in respect of payments that are required or received because the person is a tenant (including a prospective tenant) who desires or proposes to enter into a residential tenancy agreement. That is, the prospect of a residential tenancy agreement must be the occasion for the payment being required or received.
When one focusses just on the words “before or when” in section 23, they are serving a temporal function. However, when those words are read with the balance of the words in section 23(1), they assist to serve a more general function. The words in their context indicate that the section is engaged when a payment is required or received because the tenant desires or proposes to enter into a residential tenancy agreement. The section is not concerned with any payment made by a person who happens to be a tenant, or a prospective tenant, who is going to enter into a residential tenancy agreement.
A person shall not require or receive from a tenant or prospective tenant any monetary consideration for or in relation to entering into, renewing, extending or continuing a residential tenancy agreement other than:
(a) rent,
(b) a rental bond, and
(c) such fees or other amounts as may be prescribed.
Section 37 of the 1987 Act covered territory that is now addressed by both sections 23 and 32 of the Act. Section 37 used the language “for or in relation to”, which is still found in section 32 of the Act, but is not used in section 23.
Section 37 was considered by Loveday J in Blanning v Clark and Residential Tenancies Tribunal of New South Wales (unreported, Supreme Court of NSW 30 November 1990). That case concerned a tenancy agreement relating to a lot in a caravan park. The agreement included a clause which imposed an obligation on tenants “to take out and keep, a public risk insurance policy covering liability for injury and property damage arising from the tenants”. Loveday J concluded that this clause did not contravene section 37, and said as follows:
The requirement in CL31.2 of the subject agreement is not a requirement by the landlord of any monetary consideration for or in relation to entering into, extending or continuing a residential tenancy agreement. It is a requirement that the tenant take out an insurance policy. No doubt this will require the payment of a premium but it cannot be said that it is a requirement that the tenant shall pay money in the sense described in s37. The insurance policy will benefit the tenant. It may also benefit the proprietor of the caravan park, the landlord, and presumably the latter is the reason for the insertion of the clause. S37 would appear to be directed to direct monetary benefits of the landlord and not to the type of situation envisaged in CL31.2.
ZeroBonds seeks to draw support from these observations.
I do not consider that these observations provide assistance in construing section 23 of the Act. The wording of the old section 37 is different to that of section 23, including, in particular, the use in section 37 of the expression “monetary consideration”, which is absent in section 23 (and section 32) of the Act. That case was also dealing with different facts. It also seems to me that the observations of Loveday J proceed on the basis that section 37 is directed to monetary consideration to a landlord, whereas section 37 was concerned with monetary consideration that is required or received by any person. There is no dispute that the prohibition in section 23 is directed at any person, and not merely to landlords (including prospective landlords).
ZeroBonds and the Commissioner both seek to draw something from the fact that the words “for or in relation to”, which were used in section 37 of the 1987 Act, are found in section 32 of the Act but not in section 23. ZeroBonds contends that the construction of section 23 advanced by the Commissioner effectively reinstates those words into section 23 when Parliament plainly intended a departure from those words when section 23 was enacted. The Commissioner contends that the departure indicates that Parliament contemplated that section 23 would operate more expansively than the old section 37, and ZeroBonds’ construction would only serve to narrow the scope of section 23.
There is some force in the contentions by both parties. The construction of section 23 that I think is the correct construction charts a course that addresses the contentions. The language of section 23 seems to me to point to the conclusion that it is concerned with payments that are required or received because the person is a tenant (including a prospective tenant) and the reason that the person has occasion to either require or receive the payment is that a residential tenancy agreement is in contemplation by the tenant (or prospective tenant). In the end, this construction may result in an outcome that is similar to the outcome that would pertain if the words “for or in relation to” were used in section 23. But I do not see that as presenting a difficulty. The words “for or in relation to” work less well when no residential tenancy agreement has been made but one is in contemplation. That is a reasonable basis for the use of different language in sections 23 and 32.
Notwithstanding the absence of explanatory material, it is clear from the text of s 23 (and its predecessors) that it is intended to operate to protect tenants. The “mischief” to which ss 23 and 32 and their predecessors are directed is the payment of premiums, or hidden fees, by tenants in order to secure a lease. That is, they are directed to prohibiting an additional benefit, or hidden fee, being paid (generally to a landlord or their agent but sometimes to outgoing tenants) to secure a lease in much the same way that s 14 of the Retail Leases Act 1994 (NSW) expressly prohibits the payment of “key money”. [1]
ZeroBonds also submits that a requirement by a landlord or an outgoing tenant that a prospective tenant make a payment of key money, or some other side payment, as a condition of entry into the lease is precisely what the provision is directed towards. It submits that section 23 is plainly not designed to prevent a payment made by a tenant that confers them with a benefit that they wish to obtain. It submits that a tenant who chooses to use the Bond Replacement Product, rather than posting a traditional rental bond, is choosing to use a product that they consider to be beneficial.
I reject these submissions.
It seems to me to be evident that section 23 is intended to protect tenants by providing that in the time before or when they enter into a residential tenancy agreement, they can only be required to make any one of the four (but relevantly three) kinds of payments. Those payments are highly regulated. No other kinds of payments are permitted. I have no doubt that key money is a form of payment that is prohibited by section 23, but it is not the only kind of payment that is prohibited.
I find no assistance in the concept of a “hidden fee” as advanced by ZeroBonds. Thus, key money would often not be hidden in any relevant sense, but it is caught by section 23. Nor am I assisted by the notion of a benefit that a tenant wishes to obtain. Again, an amount payable as key money may be an amount that a tenant is very willing to pay in order to secure a lease. But to require or receive key money is still illegal. Nor is it relevant that a tenant may choose to use the Bond Replacement Product instead of posting a traditional rental bond. That strikes me as irrelevant. Thus, a landlord who gave a tenant a choice of paying a traditional rental bond or key money before entering into a lease would contravene section 23 if the tenant opted to pay key money rather than post a traditional rental bond.
In practice, it is possible that some landlords would find the Bond Replacement Product to be highly attractive and insist that if a prospective tenant wishes to enter into a lease, he or she must use that product rather than post a traditional rental bond. ZeroBonds’ assumption that tenants will always have a choice and will be able to choose the Bond Replacement Product only if they prefer it seems to me to be an unsafe one. It is possible that the product could be used to exploit tenants, including prospective tenants.
In the case of a rental bond, if a dispute arises a tenant may have recourse to the Civil and Administrative Tribunal. That is one of the protections afforded by the Act. On the other hand, if a dispute arises in respect of a Bond Replacement Product, the tenant has no special statutory protections.
Section 23 seeks to protect tenants in a blunt way. It prohibits all payments except the four permitted types of payments. It makes no effort to accommodate other kinds of payments that, in particular cases, landlords and tenants may find mutually acceptable or beneficial.
The Tribunal also considers the purpose of section 23 of the Act. The mischief which is meant to be cured by the prohibition upon the landlord in relation to payments required or received prior to entering into a residential tenancy agreement is the demand for ‘key money’ or for the payment of a premium by the tenant in order to secure the agreement. The application of section 23 of the Act to situations such as this would be an unacceptable extension of the provision.
No reasons were given to explain why the demand for key money is “the” mischief intended to be cured by the prohibition. I am willing to accept that the demand for key money is a mischief that was intended to be cured, but I cannot accept that it was the only mischief. Nor do I understand that ZeroBonds would go that far. I do not consider this decision provides any assistance to me.
The parties agreed that there was nothing in the explanatory material to the Act that is of assistance on the question of the proper construction of section 23.
ZeroBonds submitted that its construction of section 23 was supported by the Second Reading Speeches made in respect of the Residential Tenancies Amendment Bill 2024, on 15 and 24 October 2024. Section 23 of the Act was amended by the Residential Tenancies Amendment Act 2024 (NSW), although there was no change to the wording of section 23(1). The amendments to section 23 were to add the reference to the conduct of a background check in section 23(2) and the addition of section 23(3).
The thrust of ZeroBond’s submission was that this material made it plain that the purpose of section 23 is to protect tenants from paying extra fees to secure a lease. The argument was that the Bond Replacement Product is not an additional fee, rather it is a product that operates as an alternative to a traditional rental bond and is something that is available at the choice of a tenant.
I do not accept this submission. The Second Reading Speeches are not as plain as ZeroBonds contends them to be. I do not find it a rewarding exercise to parse parliamentary speeches delivered in 2024 to determine the meaning of words first introduced into the section in 2010. The speeches do not support the proposition that the section is relevantly only concerned with extra fees; the speeches covered fees, but they did not make it clear that such fees were the only target of section 23. In any event, the fees associated with the Bond Replacement Product are “extra” in the sense that they are not fees that are expressly permitted by section 23.
Even if I am wrong about the proper construction of section 23, and ZeroBonds’ construction is correct, in my view the Bond Replacement Product would violate the section.
ZeroBonds submitted as follows:
Section 23 is plainly not designed to prevent a payment made by a tenant that confers them with a benefit that they wish to obtain. The Bond Replacement Product is not a condition of entry into a residential tenancy agreement. A tenant can enter into the agreement without using the Bond Replacement Product and paying a traditional bond, but they have the ability to choose to use that product instead. No person is saying “the prospective tenant cannot enter into this agreement unless they make this payment”.
ZeroBonds further submitted that the tenant “is simply choosing to use a product that they consider beneficial”. There are two problems with these submissions.
The first problem is that supposing that a prospective tenant does consider the Bond Replacement Product to be a more desirable facility than a traditional bond, and freely chooses the product over paying a bond, the fact remains that having committed to the Bond Replacement Product, the tenant becomes obliged to pay money to ZeroBonds as a condition of entry into the residential tenancy agreement. Once the tenant commits to the terms of the Bond Replacement Product in respect of a proposed residential tenancy agreement, that tenant becomes legally obligated to make a payment to ZeroBonds and is obliged to make the payment before or when entering into the residential tenancy agreement. The tenant is obliged to pay money to ZeroBonds and absent the payment, or the obligation to pay, it will not be able to enter into the residential tenancy agreement.
It follows that even if ZeroBonds is correct as to the proper construction of section 23, it seems to me that it is an inherent characteristic of the Bond Replacement Product that a tenant will be required to pay ZeroBonds a fee as a condition of entry into the relevant residential tenancy agreement. The product would inevitably offend section 23, even if ZeroBonds is correct about the proper construction of section 23.
The second problem is that it cannot be supposed that on all occasions the tenant will have the ability to choose between a traditional bond and the Bond Replacement Product. It may be that a landlord with bargaining power, who finds the Bond Replacement Product to be financially desirable, will insist that if a prospective tenant wishes to secure a property, he or she must take up that product and use it rather than posting a traditional rental bond.
It was against this second possibility that ZeroBonds advanced the alternative declaration that I have set out in [2(2)(a)] above. I do not think that adding the qualifying words “unless it requires or receives such payment as a condition of entry into a residential tenancy agreement” would be a solution. I would be disinclined to make a declaration that ZeroBonds would not contravene section 23, even though on the facts there would be a contravention by a landlord.
This throws up a more general problem. As French J observed in Australian Gas Light Co v ACCC (No 2) [2003] FCA 1229 at [39]: “it is well established that a declaration can be made to the effect that a proposed course of conduct will not be unlawful” (see Commonwealth v Sterling Nicholas Duty Free Pty Ltd (1972) 126 CLR 297 at 305 (Barwick CJ) and Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334 at 356 (Gleeson CJ, Gaudron, McHugh, Gummow, Hayne and Callinan JJ)). However, this case, unlike Australian Gas Light Co v ACCC (No 2), did not involve a particular transaction. It concerned the issue of a product that could be issued in the future in circumstances that could vary enormously. The “proposed course of conduct” in this case picks up such a variety of different and unknown possibilities that the case does not lend itself to declaratory relief.
I have set out the terms of section 32 above at [12].
ZeroBonds accepts that there is a causal relationship between the Bond Reversal Product and the continuation of the residential tenancy agreement, because the Bond Reversal Product is premised on the continuation of the agreement. It submits that a mere causal connection between the Bond Reversal Product and the continuation of the agreement is insufficient to engage the section. It submits that the continuation of the agreement is not conditional upon the use of the Bond Reversal Product and there is no sense in which a payment made to ZeroBonds is in the nature of a premium to secure the agreement. It follows, ZeroBonds submits, that the Bond Reversal Product does not offend section 32.
In broad terms, the Commissioner submits that section 32 is engaged by the Bond Reversal Product in so far as it is causally connected to a continuation of a residential tenancy agreement and, depending on the circumstances of the case, the Bond Reversal Product may involve ZeroBonds requiring or receiving from a tenant a payment for or in relation to renewing or extending a residential tenancy agreement. The Commissioner submits that for these reasons, the Court should not make a declaration in respect of the Bond Reversal Product. I agree.
In a typical case, the Bond Reversal Product is premised on the landlord being willing to allow the tenant to recover the amount posted as a traditional rental bond and instead to take the benefit of the Bond Reversal Product. If a Bond Reversal Product is accepted in lieu of the traditional rental bond, ZeroBonds will require and receive from a tenant a payment that will have to be paid if the residential tenancy agreement is to continue. That is sufficient for the payment to be properly described as one that is required or received for or in relation to continuing a residential tenancy agreement. The absence of a condition or a “premium” does not mean that there is not a sufficient connection between the payment and the continuation of the residential tenancy agreement.
Nor can it be ruled out that in a given case a landlord will not insist that a residential tenancy agreement will only be renewed or extended if the tenant uses the Bond Reversal Product. If that is what occurs, then ZeroBonds will require and receive from that tenant a payment for or in relation to renewing or extending a residential tenancy agreement.
Thus, even if the Bond Reversal Product did not involve a payment for or in relation to continuing a residential tenancy agreement, I would not declare that the provision by ZeroBonds of the Bond Reversal Product does not contravene section 32 of the Act because it is conceivable that in some instances, even if not in all cases, the provision of the Bond Reversal Product will contravene section 32.
I understand that ZeroBonds’ alternative form of declaration, which I have set out in [2(2)(b)], is intended to address this possibility. I do not think that is does. The proposed declaration is vague and it does not draw a clear and definite distinction between the lawful and unlawful deployment of the product (assuming that it can ever be deployed in a lawful way). Once again, this demonstrates the general unsuitability of declaratory relief in the present case.
I decline to make any declarations.
ZeroBonds might be right in submitting that the Bond Replacement Product and the Bond Reversal Product are innovative products that would serve to provide significant benefit to tenants. That raises policy questions that are not for the Court to answer. They are questions for Parliament. If the products are to be introduced, there would first need to be legislative change.
Neither party suggested that there would be any reason for any departure from the usual position as to costs.
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“Key money” is defined in s 3 of the Retail Leases Act 1994 (NSW) as “any money paid to or at the direction of a lessor or lessor’s agent, by way of a premium, non-repayable bond or otherwise, or any benefit that is conferred on or at the direction of a lessor or lessor’s agent, in connection with the granting, renewal, extension or assignment of a lease (and a reference in this Act to the payment of key-money includes a reference to the conferral of any such benefit)”.
ZeroBonds Residential Pty Ltd
Commissioner for Fair Trading [2025] NSWSC 265
(2017) 260 CLR 305
(1999) 198 CLR 334
(1997) 187 CLR 384
(1972) 126 CLR 297
(1997) 191 CLR 85
(1982) 149 CLR 191
(2017) 262 CLR 362
(2014) 87 NSWLR 403
(2015) 256 CLR 203
The Commissioner submits that the product would have the effect of eroding the careful and fundamental protections for tenants in the Act, including the peace and enjoyment of their homes, the costs and liabilities of the tenancy and their ability to readily obtain assistance and, if necessary, remedies in the NSW Civil and Administrative Tribunal.
The first main issue that arises for consideration is whether the issue of the Bond Replacement Product would fall foul of section 23 of the Act. That section provides as follows:
The fourth kind of permitted payment is of no consequence because there are no fees of the kind referred to in section 23(1)(d).
Section 23 operates by prohibiting a person from requiring or receiving payments other than, relevantly, three kinds of payments. That is, there is a general prohibition that is subject to specific exceptions. As to the three relevant exceptions, the Act has detailed provisions that closely regulate those kinds of payments and gives the Civil and Administrative Tribunal jurisdiction to deal with disputes about those kinds of payments. It is apparent that the Act does not leave holding fees, rent or rental bonds entirely to the ravages of the free market; there are controls as to how landlords and tenants are permitted to organise themselves as to these types of payments.
It is obvious that a significant purpose of the Act is to protect tenants against exploitation. It does that by closely regulating the types of payments that may be demanded from a tenant and the manner in which those payments are to be made.
Given that the types of payments that are permitted by section 23 are subject to tight legislative control, it would be reasonable to expect the general prohibition to be read widely so as to capture a broad range of payments from a tenant. It would be anomalous if the general prohibition were read narrowly, because that could have the consequence that many kinds of payments by a tenant were left unregulated when the obvious intent of the Act is to make detailed provisions for payments by tenants, including prospective tenants.
ZeroBonds’ construction of section 23 gives the general prohibition a narrow operation. I find this construction impossible to reconcile with the obvious intent of the Act to regulate the payments to be made by tenants, including prospective tenants. Conversely, the construction that I have accepted is consistent with that obvious intent.
ZeroBonds relies on the single decision that appears to have considered section 23, which is that of Fabian Barbaro and Belinda Barbaro v Neil Hayter-Burgess and Katie Hayter-Burgess [2014] NSWCATCD 188. That case concerned a payment prior to entering a residential tenancy agreement. The Tribunal dismissed the application as it was not satisfied that there was a direct connection between entering into the residential tenancy agreement and the payment made. General Member Lennard observed as follows at [29]: