In the recent matter of JV Pub Group Pty Ltd v Red Carpet Real Estate Pty Ltd & Ors [2014] QSC 232, Justice Mullins of the Supreme Court of Queensland highlighted the significance of abiding with applicable timeframes when exercising the option to renew a lease.

Background

JV Pub Group Pty Ltd (the ‘Tenant’) occupied a shop under a retail shop lease, which contained an option for renewal by 31 August 2013. The Tenant did not exercise the option within the specified time and option to renew the lease lapsed.

Subsequently, on the 26 November 2013, the lessor gave notice under section 46 of the Retail Shop Leases Act 1994 (Qld) (the ‘Act’), that the option to renew the lease had to be now exercised by 28 February 2014.

Section 46 of the Act states that where there is an option for a tenant to renew a lease, the landlord must give notice to the tenant of a date for which the tenant must exercise the option to renew the lease. This notice must be given at least 2 months prior to the ‘option to renew date’. The Red Carpet Real Estate Pty Ltd (the ‘Landlord’) clearly didn’t give notice to the Tenant in time, as it was given 3 months after the option to renew date.

On the 19 December 2013 the Tenant purported to exercise the option for renewal. However, the Landlord claimed the option to renew the lease had lapsed on the 31 August 2013.

Held

Justice MUllins, found that time was of the essence and the option to renew the lease had lapsed when the Tenant had failed to exercise it within the specified time.

The letter sent to the Tenant from the Lessor, suggested the Tenant had an extended option to renew the lease. This was held to be an offer to lease the premises on the same terms, as if the option had been exercised. Accordingly, the letter in response from the Tenant was held to be a letter of acceptance. The Tenant therefore obtained the benefit of a new lease

Conclusion

An option to renew a lease must be exercised within the timeframe specified in the agreement for lease, otherwise the tenant will miss the benefit of a new lease and any subsequent options to renew.

A landlord will not be able to waive the timeframe by which an option must be exercised. Any correspondence thereafter from the landlord suggesting to the tenant that the option is still available will be seen as an offer for a new lease. This could result in the tenant being provided with a new lease on the same terms and conditions as if the applicant had exercised the option to renew within the specified timeframe. Subsequently, the landlord will be prevented from being able to negotiate a new lease on different terms and conditions.