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The Option to Renew a Retail Lease: Conditions Must be Strictly Followed

Caseflash 23 June 2017

In Piazza Trevi v Cromewell BT Pty Ltd [2017] NSWSC 794, Piazza Trevi (the Lessee) failed to exercise their option to renew their retail lease by the required date specified on the lease agreement. The Lessee argued that the Disclosure Statement operated to change the deadline date for exercise of the option, that the Lessor had waived the conditions associated for valid exercise of the option and that they were entitled to relief against forfeiture of the lease. The Court ruled in favour of the Lessor reiterating the strict legal requirements for validly exercising an option to renew.

Factual Background

In September 2012, the Lessee entered into a retail lease agreement. The agreement included an option to renew the lease for a further five years and required that the option be exercised by 31 August 2016. The lease agreement also included an entire agreement clause.

Shortly after signing the agreement, a Disclosure Statement was issued and signed which included a reference to the exercise date of the option as 30 September 2016.

Whilst attempting to sell the business and negotiate a new lease, the Lessor noted that should negotiations fail, the option could still be validly exercised if it was done by 31 August 2016. However, the Lessee failed to exercise the option to renew.

The Effect of the Disclosure Statement

Whilst the Lessee argued that the Disclosure Statement had the effect of changing the stipulated deadline, the Court did not agree for three reasons. Firstly, the original agreement including an entire agreement clause which specified that “the provisions contained in the lease….comprise the whole of the agreement between the Lessor and the Lessee”. Such a clause indicated that it was the intention of the parties for the provisions of the Lease to constitute the entire agreement.

Secondly, the Retail Leases Act holds that the purpose of a disclosure statement is not to replace any contractual terms, but simply to ensure informed consent between both parties.

Thirdly, there was nothing in the Disclosure Statement which indicated that it was to have any contractual force. The contractual significance of the Disclosure Statement was further undermined by the fact that neither party observed the provision that the Disclosure Statement be provided seven days before the execution of the lease (section 11 RLA).

Thus, it was held that the Disclosure Statement did not have any binding contractual force and the relevant deadline to exercise the option was 31 August 2016.

Conditions Associated with the Option to Renew Must be Strictly Followed

The Court reiterated the strict requirements that must be complied with in order to validly exercise an option to renew a lease. The Court emphasised that a purported exercise of an option to renew must clearly and unequivocally express the fact it is intended to exercise the option. Additionally, an option will only have been validly exercised if the conditions set out in the option are strictly complied with. In the case at hand, the Lessee’s representatives only lodged a notice to exercise the option to renew on 24 February 2017. Therefore, the Court held that the Lessee’s attempt to exercise the option was invalid. It was further held that even if there was conduct that amounted to waiver, the relevant conduct took place after the deadline date and hence there was no longer any contractual right available to waive.

Lessons

  1. A Disclosure Statement is not intended to replace the terms agreed to in the actual retail lease agreement.
  2. The valid exercise of an option to renew must be done in clear, unequivocal language and must strictly comply with the conditions stipulated in the lease agreement for a valid exercise.
  3. Relief against forfeiture will not apply to remedy a forfeited lease due to the failure to exercise a renewal option.

Gary Newton, Partner
Sydney

Khushaal Vyas, Law Clerk
Sydney

Caseflash 23 June 2017
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