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Most commercial landlords don't give much thought to what their tenants sell. You've signed a lease, the rent is coming in, and what happens inside the shop isn't really your concern . That assumption is becoming increasingly difficult to maintain. In NSW, a sweeping crackdown on illicit tobacco and illicit vaping products has put commercial landlords firmly in the regulatory spotlight, and the legal and financial consequences of having the wrong tenant are more significant than most property owners realise.
If you lease commercial premises to a retailer of any kind, this is worth understanding, even if you have no reason to suspect anything is amiss right now.
What are illicit tobacco and illicit vaping goods? Tobacco, cigarettes, and vaping products sold without the correct licence, or outside the regulated supply chain - a growing enforcement priority across NSW.
Why does it matter to landlords? NSW legislation allows government authorities to close your premises for up to 12 months, and legislation introduced in late 2025 makes it a criminal offence for landlords who knowingly permit tenants to sell illicit products.
Key insight: The commercial and insurance consequences of a tenant conducting illegal activity from your property extend well beyond the tenant's own liability - they can affect your insurance coverage, your rental income, and your ability to re-let.
Why professional guidance helps: The interaction between lease terms, insurance obligations, and the new legislative framework requires careful navigation, particularly once you have any awareness that something may be wrong.
A few practical steps are worth taking regardless of whether you have an existing concern. Ask retailers who handle tobacco or vaping products for evidence of their current licence under the NSW Tobacco Licensing Scheme .
Review your lease to understand whether you have clear termination rights if a closure order is issued.
Speak with your insurance broker to make sure you understand exactly what your policy says about illegal activity exclusions, particularly in relation to loss of rent.
Keep records of your inspections and any communications with tenants about their business operations.
The NSW Government has moved aggressively against illicit tobacco and illicit vaping products in recent years, and the legislative framework is now substantial. What started as enforcement action against sellers has evolved into a scheme that increasingly draws landlords into scope.
There are two distinct sets of tools available to authorities. The first is the licensing regime: all retailers of tobacco and non-tobacco smoking products in NSW must hold a valid licence under the NSW Tobacco Licensing Scheme. This replaced a simpler registration system and introduced stricter requirements, including criminal background checks. Selling tobacco or vaping products without a valid licence is itself an offence, and the penalties for businesses are significant.
The second tool is closure orders. NSW Health has the power to issue short-term closure orders of up to 90 days for premises found to be selling illicit tobacco, illicit vaping goods, or tobacco products without a valid licence. For more serious or persistent offending, authorities can apply to the Local Court for a long-term closure order of up to 12 months. Once a closure order is in effect, no one can enter the premises and no products can be sold - not just tobacco or vaping products, but anything at all. The shop closes, and it stays closed for the duration of the order.
The final layer is the one most landlords are still catching up with. The Public Health (Tobacco) Amendment (Landlord Offences) Bill 2025, introduced in late 2025, will, once enacted, create a specific criminal offence targeting commercial landlords who knowingly permit their premises to be used by tenants for the sale of illicit tobacco or illicit vaping goods. The maximum penalty is one year's imprisonment, a fine of $165,000, or both.
The legislation targets landlords who are aware of what their tenants are doing and choose not to notify authorities or take steps to end the tenancy. Most landlords operating in good faith are not who the government has in its sights. But the consequences of being found to have knowingly permitted this activity are serious, and the line between not knowing and being wilfully blind is one worth understanding clearly.
The new offence requires actual knowledge, not merely suspicion. Authorities are not targeting landlords who had no idea their tenant's business had shifted into illegal territory. But once a landlord is put on notice - through a complaint, a conversation, information from another tenant, or contact from authorities - the position changes materially.
Most commercial leases include provisions requiring tenants to use the premises lawfully and comply with all applicable laws. If a tenant is selling illicit tobacco and the landlord has been told about it, even informally, the legal framework now gives that knowledge real consequences.
There is also a practical question about what action is expected once a landlord becomes aware. The legislation contemplates notifying authorities or taking steps to end the tenancy, but it does not specify a precise process or timeline. This matters because taking informal steps without the right legal backing, or waiting too long before acting formally, can create its own complications - particularly if you later need to demonstrate that you responded appropriately.
One protection the legislation does offer landlords is a meaningful right to exit. If your premises are subject to a closure order, you can terminate a retail shop lease with just 28 days' notice, and that termination is treated as repudiation by the tenant rather than a unilateral landlord decision. Tenants lose access to mediation and compensation rights they would ordinarily have under retail lease legislation in NSW. That is a significant shift in the usual power balance between commercial landlord and tenant, but it only protects you if you exercise it correctly and with proper documentation.
For landlords with tenants who operate in adjacent categories (like convenience stores, confectionery retailers, newsagencies) it is also worth thinking about what your lease currently says about lawful use and compliance with licensing requirements. Leases that were drafted before the current tobacco licensing regime was introduced may not contemplate these obligations clearly.
This is where the financial exposure becomes particularly difficult, and where the consequences of tenant illegal activity are least well understood.
Most standard commercial landlord insurance policies include exclusions for illegal activity on the premises. The exact wording varies between insurers, but the underlying principle is consistent: if illegal activities are occurring on the property, the insurer may deny claims that arise from or are connected to that activity. In some cases, discovery of ongoing illegal activity can result in the policy being treated as avoided, meaning coverage is effectively unwound as if it never existed.
For loss of rent claims specifically, the risk is real. If your property is subject to a closure order and you cannot collect rent from your tenant, you might reasonably assume your loss of rent cover will respond. But if the closure is a direct result of illegal activity on the premises, your insurer may take the position that the loss falls within an excluded category. Insurers can and do argue that they would not have underwritten the policy had they known illegal activity was taking place, and that the claim should therefore be refused.
The situation becomes more complicated where a landlord had some awareness of a problem and did not notify their insurer. Most policies impose a duty of disclosure, and if you became aware of circumstances that might give rise to a claim and did not inform your insurer, that non-disclosure can itself be grounds for denial.
None of this means landlords are automatically uninsured every time a tenant does something wrong. But it does mean that once you have any reason to suspect illegal activity, what you do next - and how promptly - has direct implications for your insurance position, not just your legal exposure.
A landlord owns a strip retail property in a busy suburban location. One of her tenants, a convenience store, has been operating for several years. In mid-2025 she receives a complaint from an adjacent tenant about unusual activity, and later notices the store has extended its trading hours. She assumes it's probably fine and does not raise it with the tenant or with her insurer.
When NSW Health subsequently issues a closure order, access to the entire premises is restricted and all tenants are affected. She lodges a loss of rent claim. Her insurer, in the course of assessing the claim, obtains information suggesting she had been notified of concerns before the closure order was issued and had not taken any action. The claim is denied.
Her position in relation to the new landlord offence provisions also needs to be assessed - not because she was necessarily involved, but because the question of what she knew and when she knew it is now directly relevant.
The issue is not that she caused the problem. It is that once she was put on notice, her inaction created consequences that extended well beyond the tenancy itself.
I work with commercial landlords at two stages: before an issue arises, and when something has already been identified.
For landlords reviewing or preparing commercial property leases, I help make sure the lease terms give you workable protection including provisions around lawful use, compliance with licensing requirements, and clear termination rights if a closure order is issued. Getting this right in the lease is significantly more straightforward than trying to rely on implied terms or standard provisions later.
Where a landlord is already aware of a concern, I help work through the appropriate response including the practical steps involved in documenting your position, understanding your obligations under the new legislation, and managing the tenancy in a way that protects your interests without creating new exposure.
The interaction between the new criminal offence, your lease terms, and your insurance obligations is genuinely complex, and the right approach depends on your specific circumstances. Get in touch to discuss your situation - I'm happy to talk through where things stand.
Professional guidance is particularly valuable in a few specific situations: if you have a tenant who sells tobacco, vaping products, or related goods and you have not recently reviewed your lease against current licensing requirements; if you have received any complaints or information about a tenant's trading practices; if your premises have been the subject of any contact from NSW Health; or if you are currently negotiating or renewing a lease with a tenant in the retail or convenience sector. Acting early is considerably less costly than managing the consequences after a closure order has been issued.
Published by Jackie Atchison, Principal | LexAlia Property & Commercial LawNorthern Beaches, Sydney | Serving NSW for property matters | Australia-wide for business law
A clause requiring lawful use and compliance with licensing requirements strengthens your position considerably, but it's not a complete answer. If you're already aware that illegal activity is occurring and take no further steps, a lease clause does not remove your exposure under the new landlord offence legislation.
The NSW Tobacco Licensing Scheme has been mandatory since mid-2025. Selling without a valid licence is an offence. Asking your tenant to provide evidence of their current licence is a reasonable, practical step and one that is easy to document. If they cannot or will not provide that evidence, that is worth taking seriously.
You gain a statutory right to terminate the lease with 28 days' notice, treated as repudiation by the tenant. This removes tenants' usual protections under NSW retail lease legislation they cannot access mediation or seek compensation. The right needs to be exercised correctly and with proper documentation, so take legal advice before issuing a notice.
Potentially, depending on your policy wording. Most insurers focus on whether the landlord was or should have been aware of the activity. If you had no reason to suspect anything and can demonstrate regular inspections and appropriate due diligence, your position is considerably stronger. Keeping records of inspections and tenant communications is practical protection.
Get legal advice immediately. The steps you take - and how quickly you take them - can significantly affect your position under both the landlord offence provisions and your insurance policy. This is not a situation where a wait-and-see approach is appropriate, given the new legislation places real weight on what a landlord does once they are on notice.
