Do you know how to exercise your option to renew your lease?
Mar 16, 2017Commercial leases typically are for a fixed initial term of, say, 3 or 5 years, with an “option to renew” period of a further 3 or 5 years. The lease document will note the specific dates within which you must exercise your option to renew the lease. Usually the date range falls within 3 months and 6 months prior to the expiry of the initial term (e.g. for a lease expiring on 30 June, the option to renew must be exercised between 1 January and 31 March of the same year).
If you as a tenant wish to stay on at the property and renew the lease, then it is imperative that you give formal notification to the landlord between the renewal dates provided in your lease. If you give notice too early, or too late, the landlord does not have to accept your request.
In recent years, the Courts have dealt with numerous cases where the tenant did not effectively exercise the option by using the wrong type of wording in the notice, being out of time etc. And because the option was not correctly exercised, then the right to renew the lease was lost.
An example of this can be seen in the 2011 NSW Supreme Court case of Kavia Holdings Pty Limited v Suntrack Holdings Pty Limited, which involved a tenant sending an email to the landlord stating:
“I would like to have at least another 20 years with Jordons lease and tie that in with Cohibar and Watershed so that they are a composite asset in the books of Kavia.”
Were these words sufficient to be a valid exercise of the option to renew? The Court considered whether a reasonable person in the landlord’s position would have understood that the tenant was giving a notice exercising the option to renew the lease for a further term.
At the very least, the words must be clear and unequivocal and not indicate any qualification or ambiguity. In this instance, the Court held that the tenant’s intention was not clearly communicated, because it contemplated further negotiation and stated that the tenant wished to have “at least” another 20 years (which suggests that it may have wanted a lease for a shorter period than the 20 year period provided by the option) and “tie in” leases – which would have involved amending the existing lease.
Interestingly, the Court held that the email nevertheless would have been an effective form of service – the Court found that sending an email satisfied the requirement in the lease for notice “in writing” given or delivered to the landlord’s address.
Contact the Shire Legal team if you have any questions.
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