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Options to renew
An option to renew confers a right to call for a further lease. Options may either be call or put options. The majority of options in commercial leases are call options.
A call option will commonly contain preconditions regarding:
- • the time and manner of exercise of the option; and
- • the effect of a breach of the lease covenants by the tenant.
The failure to strictly comply with any of the preconditions is fatal, rendering the purported exercise invalid with the consequence that the landlord is not required to grant the tenant the further term.
Special provisions apply to retail shop leases under the relevant legislation of each state and territory.
New South Wales
Under s 32 of the Retail Leases Act 1994 (NSW) (RLA), tenants with a lease containing a market rent review in the first year of the further term, are entitled to request a determination of the current market rent prior to the last day on which it is required to exercise the option, and the time to exercise the option is extended. This gives the tenant certainty as to the rent before it exercises the option (and is thereby bound to enter into the option term).
Section 133E of the Conveyancing Act provides that breaches of certain obligations and lease covenants may not preclude an option to renew except in certain specified circumstances. The section provides statutory relief to those tenants who would otherwise be refused an option to renew because they are unable to satisfy the precondition of the option which requires that they comply with the lease covenants.
Victoria
Section 27(2) of the Retail Leases Act 2003 (Vic) limits quite narrowly the circumstances in which the landlord may refuse to allow the tenant to exercise an option.
Western Australia
Section 83C of the Property Law Act 1969 (WA) gives statutory relief to a tenant, where the tenant has breached an obligation under the lease, which would otherwise preclude the tenant from exercising an option under the lease.
South Australia
Section 20B of the Retail and Commercial Leases Act 1995 (SA) (RCLA) requires that, in general, the term of a retail shop lease, including rights of renewal, must be at least 5 years. Under s 20J of the RCLA, the landlord is required to give the tenant notice at least 6 months from the end of the term of the landlord’s intentions regarding renewal of the lease. Division 3 of Pt 4A of the RCLA gives tenants under shopping centre leases preferential rights of renewal.
See Options to renew.
