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Property Law News, June 2011

Correctly exercising options for renewal of leases

Landlords have to be as careful as tenants in complying with the correct procedure to allow a tenant to exercise their option on a commercial lease

The recent case of Westpac Banking Corporation v Kurobe Holdings Pty Ltd & Karovel Nominees Pty Ltd in the Supreme Court of NSW highlights the importance of strict compliance with lease terms when exercising options for renewal of commercial leases. The lease in question was first renewed successfully in 2004 by the tenant’s agent. In 2008 the landlord’s agent notified the tenant’s agent that they would like the tenant to consider taking up the next option period. Later that month, the landlord wrote to the tenant to advise them all future notices should be sent to a different address. This letter was not addressed to the relevant leasing manager at Westpac as required under the lease, nor sent to the tenant’s agent, and as a result the tenant and the tenant’s agent were not aware of the letter or change of address.

Later in 2008 the tenant’s agent gave notice to the landlord that the tenant intended to exercise the option to renew and the landlord’s agent later acknowledged receipt of this. However, the landlords then claimed the tenant had not effectively exercised the option for renewal as the notice was not sent to the relevant address as set out in the landlord’s letter.

The Supreme Court found the tenant had exercised the option successfully as the landlord had not addressed the letter setting out the change of address for future notices correctly as required under the leasing agreement. The landlords were also unable to deny notice had been served effectively as they were aware of the tenant’s belief that serving the notice on the landlord’s agent was effective service and did not alert the tenant’s that this was not the case, preventing them from correcting the situation.

This case demonstrate the importance of properly following the terms of the lease when making changes to addresses for service and for options for renewal of commercial leases.


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