Avoid ambiguity when an option to renew is exercised
Posted on April 02, 2013
Ambiguity was at the heart of a recent Victorian ruling which considered the effectiveness – or otherwise – of a tenant’s notice to exercise an option to renew a lease.
Background
Prior to the expiry of a retail shop lease, the tenant wrote to the landlord’s agent, stating:
“We write to advise you of our intention to exercise our Lease option for a further 6 year period”.
In response, the landlord’s agent wrote:
“On behalf of the Lessor … we acknowledge that the option has been exercised in accordance with the Lease agreement”.
A number of disputes subsequently arose, an important one being whether or not the tenant had validly exercised its option to renew. In this instance, it was held that the tenant had not properly exercised its option.
“Clearly and unequivocally”
Reference was made to an earlier court ruling that said a critical factor was whether the notice clearly and unequivocally expressed the fact that the tenant exercised its option.
In this instance, the tenant’s notice amounted only to an “intention” to exercise, not an “actual” exercise, with the result that the tenant’s notice was ineffective.
Consequences for Landlords
Agents for landlords must be aware of correspondence referring to an “intention” to exercise an option. If such correspondence is received, the agent should seek written confirmation from the tenant that the tenant has actually exercised its option.
Consequences for Tenants
Tenants and agents acting for tenants should avoid ambiguous language which could result in a failure to exercise their option. Otherwise, they run the risk of compromising their security of tenure, as an ineffective exercise may inadvertently give to rise to a holding over rather than an extension.