I'm no lawyer, but I have plenty of experience with the NSW RTA. (The experts will correct me if I'm wrong.)
Short answer:
Both the phrases you have highlighted have literal meanings (ie; exactly as worded).
The focus of the first phrase is the word "uninhabitable", while the focus of the second phrase is the word "lawfully".
Long answer:
Interpretation of legislation should nearly always be literal, with attention given to the purpose and intent of the legislation. In this case, the Residential Tenancies Act (RTA) relates to "Residential Premises" and "Residential Tenancy Agreements", so you need to keep that in mind when interpreting the wording.
"Wholly or partly uninhabitable" therefore relates to the property not being suitable for use as a residence under a Residential Tenancy Agreement. An example of this would be flood damage. The property becomes "uninhabitable" due to the health risks involved with continuing to live in the residence if it has water damage (floors, carpets, walls, etc). "Wholly" and "partly" have straight forward literal meanings - "wholly" meaning the whole property and "partly" meaning any area (no matter how large or small) that is uninhabital for any reason.
"Cease to be lawfully usable as a residence" also has a literal meaning. This relates to the property not being able to be used as a residence due to the impact of a law, whether that be the RTA itself, other legislation, or a Statutory Instrument such as a Regulation, Ordinance or By-law. The following examples show how a property can "cease to be lawfully usable as a residence" under both the RTA and some other law.
Example 1 (RTA):
You have a block of land with a caravan on it. Under the definitions in the RTA, "premises" includes "a moveable dwelling within the meaning of the Local Government Act 1993", which includes caravans. The property is therefore within the definition of "residential premises" as given by the RTA and the property can be lawfully used as a residence.
If you remove the caravan, you are left with a vacant block of land with no dwelling or other residence on it. At this point, the property has "ceased to be lawfully usable as a residence" due to the definition of "residential premises" in the RTA and it's accompanying note, which is as follows:
residential premises means any premises or part of premises (including any land occupied with the premises) used or intended to be used as a residence
Note. Land on which there is no residence cannot be subject to a tenancy or other provisions under this Act.
The definition provides that a property must be "used or intended to be used as a residence" for the RTA to be applicable. The note then expands on this by clarifying that the RTA can not apply to any land without a residence. This essentially means that the property must be capable of being used as a residence before the RTA can apply.
With the caravan, the property was capable of being used as a residence, but without the caravan, it isn't. Under the RTA, the property therefore ceased to be lawfully usable as a residence due to the definitions in the RTA itself.
Example 2 (Other laws):
You have a property with a house on it which is zoned as residential. The area is rezoned under some other law and the result is that the property is no longer zoned as residential. The rezoning therefore prohibits the property from being used as a residence, even though the property itself is within the definition of a "residential premises" under the RTA. So while the property is still capable of being used as a residence, it can no longer lawfully be used as a residence due to the rezoning.
In both examples, the property ceased to be lawfully usable as a residence due to the impact of a law, even though it happened in very different ways. In both cases, the RTA no longer applies and any existing Residential Tenancy Agreement would likely become unenforceable. Existing agreements can therefore be terminated on those grounds by either the Landlord or the Tenant.
If a dispute arises in these circumstances and the matter is referred to the Tribunal, then regardless of any other order(s) made, the Tribunal would have no option but to include an order to terminate the tenancy. This is because with the RTA no longer applicable, a valid Residential Tenancy Agreement can no longer exist under that Act.
