23 Nov 2014

A recent Western Australian case looked at the issue of whether the tenant’s notice to exercise the option to renew in its lease was effective and found that the tenant had not exercised the option without qualification.

 

An option for a further term of 5 years came before the WA Supreme Court in Astor Theatre WA Pty Ltd v Zimmerman Investments Pty Ltd [2014] WASC 329. The tenant delivered a notice to the landlord a day or two before the date 3 months before the expiry of the lease which was entitled “ Notice of exercise of Option to Renew”, stating:

 

“Take notice that pursuant to clause 5(15)(a) of the Lease, and subject to and conditional upon acceptance by the Lessor that Mr Robert Denman shall not be continuing as Guarantor for the obligations of the Lessee for the First Extended Term, or any subsequent extension of the Lease, the Lessee hereby exercises its option to renew the Lease and requests an extension of the Term of the Lease for the First Extended Term, being a further period of five (5) years commencing on 2 September 2014”

 

The court held that the request for the extension, which is required to be made in order to comply with the option to renew clause in the lease, is a request for an extension of the term on the basis of the same covenants and provisos as are in the lease.

 

If it is a request for something different, as the request in this case was, then it did not fall within the option to renew clause in the lease. For this reason the court held the notice was not effective.

 

Before you exercise your lease option

 

The loss of a tenant’s right to renew its lease can be severely detrimental to its business.

 

Too often tenants don’t take the time consider the terms of the option to renew clause in their business premises lease or how carefully the document exercising the option must be drafted.

 

Checklist

 

When it is intended to exercise an option for renewal the following checklist may assist:

 

ü  Locate a signed copy of your lease document (s)

 

ü  Review your lease and determine what clause in your lease gives you the right to renew the term of the lease

 

ü  Determine what are the time periods for the valid exercise of the option

 

ü  Calculate when the time periods begin and end to exercise the option

 

ü  Check that you are within the time periods

 

ü  Then consider the requirements in the lease clause for exercise of the option for renewal

 

ü  This may include considering if any breaches of the lease have occurred which may have the effect of you losing the right to renew your lease, including but not limited to considering:

 

ü  Has the tenant punctually paid rent and other moneys due on time

 

ü  Has the tenant observed the covenants in the lease

 

ü  Are there any subsisting breaches of any lease covenants by the tenant

 

 

ü  Consider the form of the notice of exercise which the lease requires

 

ü  Does the notice have to be in writing

 

ü  What specific words must used in the notice of exercise

 

ü  Prepare the notice of exercise with the specific words of exercise and no other and sign and date the notice

 

ü   Complete the covering letter forwarding the notice of exercise

 

ü  Locate the clause in the lease which sets out how notices given under the lease must be delivered/ served on the landlord and its agent (if any)

 

ü  Consider the mode of service specified in the lease for the service of the notice of exercise

 

ü  Adopt the mode of service for the service of the covering letter and notice of exercise. This may require the covering letter and notice of exercise being prepared with multiple original signed copies for service on multiple addresses

 

ü  Consider also sending an original signed copy of the covering letter and signed dated notice of exercise to the landlord’s lawyer as and by way of information

 

ü  Follow  up the landlord once the notice has been delivered to confirm that the landlord agrees that the notice of exercise is valid and effective

 

ü  If the lease provides for one, then ask the landlord to arrange for a deed of renewal of lease to be prepared for signing.

      This is general information only, and does not constitute specific legal advice. If you would like further information in relation to this matter or other legal matters please contact our office on Freecall 1800 609 945 or email us now.

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