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Exercising an option to renew a commercial or retail lease

Property Law News | August 2012

In the recent decision of Kavia Holdings Pty Ltd v Suntrack Holdings Pty Ltd [2011] NSWSC 716, the Supreme Court of NSW considered the circumstances in which the purported exercise of an option to renew a lease via email will be validly done.

The lease in question concerned a restaurant premises, and was for a term of ten years with an option to renew for a further twenty years. Within the period specified by the lease for the exercise of the option, the tenant sent an email to the landlord which was worded as follows:

“I would like to have at least another twenty years with [the restaurant] lease and tie that in with [two separate restaurant premises leased from the landlord] so that they are a composite asset in the books of Kavia.”

At no point in the email did the tenant expressly refer to exercising the option to renew the lease. The landlord challenged the tenant’s assertion that the email represented a valid notice of exercising the option to renew the lease.

The Court found that the email was not a valid exercise of the option, holding that a reasonable person in the landlord’s position would not have understood the email to amount to a notice of exercising the option to renew because:

  1. The email contemplated further negotiation in respect of the new lease (ie. the “addition” of two further properties to the lease agreement); and
  2. The email contemplated renewal for more than twenty years and suggested the addition of two further properties, both of which represented alteration of the original lease.

The Court ultimately held that service of a notice of exercising an option to renew may be validly served via email. However, in order to be valid any such notice must be properly worded under the terms of the lease, and must be clear, unequivocal and unambiguous.

Tenants are encouraged to pay special attention to the wording of notices to landlords that are served via email. If you require any assistance with drafting and serving a notice under a retail or commercial lease, please do not hesitate to contact us today!

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