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Renewing your lease - option?  What option?

Warren Wackerling – 25 November 2014

Introduction

Exercising an option to renew a lease can seem simple.  Timing is essential but even moreso, how communication transpires between landlord and tenant.  Pleasantries and formalities are important, but so too is the timing.  In September this year, the Surpeme Court threw a tenant a lifeline in circumstances which could have went horribly wrong.

Facts

The lease for a retail shop premises at Southport was for four years, expiring on 28 February 2014.  The lease included one option to renew for five years, to be exercised no later than six months before 28 February 2014, ie. 31 August 2013.  The tenant did not exercise the option prior to that time.  The landlord subsequently gave the obligatory notice to the tenant under section 46 of the Retail Shop Leases Act 1994 including reference to the option to renew the lease. 

This letter was given in November 2013, after the time had expired for the tenant to exercise the option to renew the lease.  Further, the letter was given after the required period notice under section 46.

The tenant accepted the ‘offer’ to renew the lease which the landlord subsequently sought to deny any offer was made and took the view that the tenant failed to exercise the option to renew and no further term was to be granted.

In looking at the steps taken by both parties, the Court’s view was that neither the letter from the landlord pursuant to section 46, nor the attempt by the tenant to exercise the option subsequent to that letter, amounted to an exercise of an option to renew. 

The Court took the view that the letter pursuant to section 46 amounted to an ‘offer’ to enter into a new lease on terms as if the option to renew was exercised, which the tenant had accepted.  The landlord was bound to grant to the tenant a new lease for the term of five years.

What do I need to be careful about?

The tenant in this case missed the timeframe for it to exercise the option to renew.   The steps taken by the landlord then muddied the clear right to require the tenant to vacate.  Simple?  Not so in practice. 

Communications need to be precise and consistent with what the true position is, whether that be to keep the tenancy ongoing, or that it be at an end when the lease expires.

Download the decision here.

This article is for general information only and should not be relied upon as a substitute for specific legal advice.