Notices of Option to Renew: Landlord Obligations

When providing an option to a retail tenant to renew a lease, landlords can reduce the risk of a dispute arising by confirming the notice is sent, delivered and acknowledged.

Introduction

Stricter burdens were imposed on landlords under the Retail Leases Act in regard to notifying tenants of their option to renew their lease for a further term. The changes are applicable to both new leases and existing leases dated from September 2020 onwards where the last date to exercise a further option falls after 1 January 2021.

Notice Requirements

If the retail premises lease contains an option for the tenant to renew the lease for a further term, the landlord must comply with the requirements listed under section 28(1A) of the Retail Leases Act. This section requires the landlord to provide the tenant with a written notice at least three (3) months prior to the last date that the tenant has to exercise the option. The notice must set out the following:

  • The date by which the option to renew the lease may be exercised by the tenant;
  • The rent payable for the first 12 months under any renewed lease term;
  • The availability of an early rent review (as per section 28A);
  • The availability of a cooling off period (as per section 28B); and
  • Any changes to the most recent disclosure statement provided to the tenant, other than any changes relating to rent.

Failure to provide notice

If the landlord fails to provide a tenant with all of the information required or does not provide the notice within the required time frame, section 28(2)(a) states that the date after which the option is no longer exercisable is instead three (3) months after the date when the landlord correctly notified the tenant as required. This may automatically extend the lease beyond the term of the lease. In such circumstances, the lease will continue on the same terms and conditions as applied before the lease term ends, unless agreed otherwise between the landlord and tenant.

If the tenant then exercises its option to renew after the term of the lease ends, the new term is taken to commence on the expiry of the previous lease, disregarding the period when it was automatically extended.

The tenant must receive the notice

In 2022, VCAT further obligated landlords to ensure the notice is received by a tenant to ensure they are “notified” in DylanbellaPty Ltd v Loung (Building and Property) [2022] VCAT 412 (13 April 2022).

Situation

The lease in this case was for an initial five (5) years and included two options to renew the lease, each for a further five (5) years. The landlord was required to give notice to the tenant of their option to renew the lease prior to the end of the first term. The landlord said that it posted a notice letter by post to the tenant six (6) months before the end of the lease term. However, the tenant claimed that they never received the letter and the landlord had no record of the letter being posted.

Following the last day of the lease, the tenant remained in occupation of the premises on a month-to-month overholding for years before the landlord gave the tenant a notice that the lease would terminate. The dispute arose when the tenant then served a notice to the landlord to exercise a further option in response to the termination.

Decision

VCAT held that the letter was most likely posted to the tenant despite there being no evidence. However, this was not a finding that the tenant had been appropriately “notified”, as is required by section 28, because there was no evidence that the tenant received the letter.

Accordingly, the tenant was not deemed to be “notified” and was therefore allowed to exercise its option to renew for a further term. This was particularly problematic for the landlord who had sold the property with vacant possession and was subsequently unable to provide this.

This case consequently requires a landlord to be able to prove that a notice under section 28 is firstly, provided to the tenant, and secondly, received by the tenant.

Tips to sufficiently notify a tenant

  • Send the notice letter by tracked post and require a signature from the recipient at the time of delivery.
  • Send the notice by tracked email.
  • Keep records that the notice letter has been sent and received.
  • Request acknowledgment from the tenant that they have received the notice letter and follow up with the tenant if they do not provide this acknowledgement.  
  • Provide the notice letter to the tenant in person.

How Sharrock Pitman Legal can assist

As Accredited Specialists in Property Law, our lawyers have extensive experience advising landlords of their obligations under retail lease agreements. Additionally, our Property Law team can also advise landlords on tenant-related issues.

Please do not hesitate to contact our Property Law Team on 1300 250 506 or via email at property@sharrockpitman.com.au

 

The information contained in this article is intended to be of general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.

Liability limited by a scheme approved under Professional Standards Legislation.

For further information contact  
Andre Ong

Andre is a Principal of Sharrock Pitman Legal.

He heads our Property Law Group and is an Accredited Specialist in Property Law (accredited by the Law Institute of Victoria).  He also deals with Commercial Law. For further information, contact Andre Ong on his direct line (03) 8561 3317.

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