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Have you properly exercised your option to renew?

A recent decision of the Queensland Court of Appeal has stressed the importance of a tenant properly exercising its option to renew a lease and the financial implications of the parties’ post-contractual conduct.

What Happened?

In Tripple A Pty Ltd v WIN Television Qld Pty Ltd [2018] QCA 246, WIN leased a commercial premises from Tripple A for a period of 5 years, with an option to renew the lease for a further 5 years. Following WIN’s purported exercise of the option the parties entered into an agreement for a further lease, however a dispute arose about the rent payable for that renewed period.

WIN argued that the market rent review process applied to the new lease, even though the landlord never gave notice setting out the reviewed market rent, as WIN had exercised its option for renewal. On the other hand, Tripple A argued that the market rent review process did not apply because the parties had agreed to a new lease at the current rate of rent. Central to this argument was the option had not been validly exercised, as WIN had given notice outside of the time limit specified in the lease.

On the understanding that WIN would continue occupying the premises, the parties exchanged various emails and letters attempting to reach an agreement on the terms of the new lease. No document was ever signed.

The Court held that the correspondence between the parties created a new lease as WIN had exercised its option out of time, but the rent was subject to the market review process.

What Does This Mean?

Why was this such a big deal? Rent appraisals showed that WIN was paying significantly higher rent in comparison to other premises of a similar nature. It is therefore understandable that the tenant wanted the market review process to apply.

Overall this case demonstrates the importance of exercising an option to renew a lease within the stipulated time frame and giving proper written notice as required by the terms of the lease, as this will help avoid any disputes or confusion arising down the track. What is also reiterated is that negotiations after the expired time for giving notice may waive rights and constitute a binding agreement.