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A reminder that timeframes are critical for exercising option to renew lease

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By Evelyn Marcou, Senior Associate, MST Lawyers

In the recent matter of JV Pub Group Pty Ltd (“the Tenant” ) v Red Carpet Real Estate Pty Ltd & Ors (“the Landlord”) [2014] QSC 232, Justice Mullins of the Supreme Court of Queensland highlighted the significance of abiding with applicable timeframes when exercising the option to renew a lease.

Background

The Tenant occupied retail premises, which contained an option for renewal by 31 August 2013. The Tenant did not exercise the option within the specified time and the option to renew the lease lapsed.

Subsequently, on 26 November 2013, the lessor gave notice under section 46 of the Retail Shop Leases Act 1994 (Qld) (the ‘Act’), that the option to renew the lease had to be now exercised by 28 February 2014.

Section 46 of the Act states that where there is an option for a Tenant to renew a lease, the Landlord must give notice to the tenant of a date for which the tenant must exercise the option to renew the lease. This notice must be given at least two months prior to the ‘option to renew date’. The Landlord failed to provide the notice to the Tenant in time, as it was given three months after the option to renew date.

On 19 December 2013 the Tenant purported to exercise the option for renewal. However, the Landlord claimed the option to renew the lease had lapsed on 31 August 2013.

Decision

Justice Mullins found that time was of the essence and the option to renew the lease had lapsed when the Tenant had failed to exercise it within the specified time.

The letter sent to the Tenant from the Lessor, suggested the Tenant had an extended option to renew the lease. This was held to be an offer to lease the premises on the same terms, as if the option had been exercised. Accordingly, the letter in response from the Tenant was held to be a letter of acceptance. The Tenant therefore obtained the benefit of a new lease.

Conclusion

An option to renew a lease must be exercised within the timeframe specified in the agreement for lease, otherwise the tenant will miss the benefit of a new lease and any subsequent options to renew.

A Landlord will not be able to waive the timeframe by which an option must be exercised. Any subsequent correspondence from the landlord suggesting to the Tenant that the option is still available will be seen as an offer for a new lease. This could result in the Tenant being provided with a new lease on the same terms and conditions as if the tenant had exercised the option to renew within the specified timeframe. Subsequently, the Landlord will be prevented from being able to negotiate a new lease on different terms and conditions.

Although this is a Queensland decision, it is a good reminder of the importance of exercising an option within the applicable timeframe. In Victoria, if a Landlord has not provided the notice to the Tenant to exercise the option for the further term, then under section 28 of the Retail Leases Act 2003, the retail premises lease is taken to provide that the date after which the option is no longer exercisable is instead 6 months after the Landlord notifies the Tenant as required.

For further information, please contact our Property & Leasing team by email property@mst.com.au or by telephone +61 8540 0200.