Correctly Exercising Options for
Renewal of Leases

A court case decided last year has highlighted the importance of correctly giving notices of the exercise of options for renewal of commercial leases, and complying with other terms of the lease.

In the case of Westpac Banking Corporation v Kurobe Holdings Pty Ltd & Karovel Nominees Pty Ltd, the Landlords leased premises in Sydney to Westpac in 1999. The first option for renewal was exercised by the Tenant's agent in 2004.

In August 2008 the Landlords' agent notified the Tenant's agent that they would like the Tenant to consider taking up the next option period. Later that month the Landlords wrote to the Tenant advising the Tenant to send all future notices to the Landlords at a different address. The letter written by the Landlords was not addressed to the relevant leasing manager at Westpac (which was required under the terms of the Lease), nor was a copy of that letter sent to the Tenant's agent, and as a result both the Tenant and its agent were unaware of that letter.

In October 2008 the Tenant's agent gave notice of the Tenant's exercise of the option to the Landlords' agent. A few days later the Landlords' agent acknowledged receipt of that exercise of option. However in December 2008 the Landlords claimed the Tenant had not effectively exercised the option as the notice was not sent to the new address set out in the Landlords' letter.

The Supreme Court of New South Wales found the Tenant had in fact exercised its option for renewal successfully as the Landlords' letter advising of the change of address did not comply with the terms of the Lease, and the Landlords' letter did not make the Tenant's notice of exercise of option invalid. In addition, the Landlords were estopped from denying that the notice had been served effectively as the Landlords were aware of the Tenant's belief that serving the notice on the Landlords' agent was effective service, and the Landlords did not notify the Tenant that this was not the case in time, thereby preventing the Tenant from correcting the situation.

To avoid incorrectly exercising options for renewal of leases, and any other aspect of Commercial and Retail Leases, please call to speak to our experts;

Roger Harkin 9549 0770

Anastasia Aligianis 9549 0734

Belinda McMillan 9549 0773