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Are you a tenant wanting to exercise an option to renew a lease? This article unpacks what you should do to ensure you do not miss out on exercising the option. It provides a cautionary tale by way of the recent Supreme Court of NSW case, Piazza Trevi v Cromewell BT Pty Ltd [2017] NSWSC 794.

The Tenant Did Not Exercise Their Option to Renew a Lease

The tenant did not exercise their option to renew their retail lease within the time specified in the lease.

The lease included an option to renew for a further five-year term. This came with the condition that the tenant exercised this option by 31 August 2016.

However, after the tenant signed the lease, the landlord issued a disclosure statement which, contrary to the lease, stated the option exercise window ended on 30 September 2016.

The tenant was trying to sell their business in August 2016. The landlord noted that the tenant could still exercise the option to renew by 31 August 2016 should negotiations fail. However, the tenant did not exercise the option to renew by this date.

The tenant argued that the disclosure document stating the alternate time to renew had extended the deadline.

The Court Found in Favour of the Landlord

The court found in favour of the landlord and held:

  • the lease contained an entire agreement clause (a clause which states that the lease document was meant to be the full agreement and hence not affected by any discussions);
  • the purpose of the disclosure statement is to ensure informed consent by both parties under the Retail Leases Act; and
  • that the disclosure statement itself was not binding.

Additionally, the court stated that the disclosure statement should be given to the tenant seven days before executing the lease. This was not done in this case, but it did not affect the landlord’s position.

Effect of Judgment in New South Wales

This case shows that you can exercise your option to renew a lease as long as you comply with the option clause in the lease. Typically, this would include ensuring that you give the landlord notice that you are exercising the option:

  • within the option exercise window;
  • in the correct form using clear language; and
  • in accordance with the strict conditions under the lease.

The court ruled that the landlord informing the tenant about their option to renew deadline did not result in waiving the contractual right to renew. The existence of an option to renew does not give the tenant a proprietary interest in the land.

The tenant’s failure in exercising the option to renew could not be remedied by the court as they had no proprietary interest and the option exercise window had passed.

What You Should Do if You Might Want to Renew a Lease

This case can be applied to practical situations where either the landlord or tenant are nearing the end of the lease term with an option to renew. For example, a cafe owner is occupying premises under a lease which has an option to renew. They are thinking about selling their cafe, but they are not sure what they should do. The cafe owner speaks with their landlord, who tells them that if the sale falls through before a certain date, they can still exercise your option to renew.

After a little while, the cafe owner found a potential buyer and is hopeful that the sale will pull through, but the date to exercise their option is coming up quickly. The negotiations with the purchaser indicate that they are hoping to sign the sale documents after the option to renew expires.

The cafe owner has two main options. First, they can exercise their option to renew in the form set out in their lease agreement. Alternatively, the cafe owner could wait and hope that the sale of their cafe doesn’t fall through, as by this time they would have forfeited their lease.

Here, the cafe owner would have forfeited their lease even though the landlord said they could still renew. Although the landlord could still grant them a new lease, they would be under no obligation to. The cafe owner would technically have forfeited the lease.

Key Takeaways

If your option to renew a lease is coming up and you are unsure of what to do or how to do it, speak with your leasing lawyer, who can review your lease and any other relevant information and advise you on your position and next steps to take.

If you need further advice on renewing your commercial lease, call LegalVision’s leasing lawyers on 1300 544 755 or fill out the form on this page.

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