Option not exercised because of default

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In Computer & Parts Land Pty Ltd v Property Sunrise Pty Ltd [2012] VCAT 1522 the Tribunal was asked to determine whether an option contained in a lease was not exercisable by the tenant because of breaches of the lease that enlivened s.27(2) of the Retail Leases Act 2003 .  Section 27(2) provides that the "only circumstances" in which an option is not exercisable is if the "tenant has not remedied any defaults under the lease about which the landlord has given the tenant written notice" (s.27(2)(a)) or " the tenant has persistently defaulted under the lease throughout its term and the landlord has given the tenant written notice of the defaults" (s.27(2)(b)). Section 27(2)(b) is ambiguous: what is meant by "persistently", what is meant by "throughout its term", does a landlord have to give notice of each default or is one notice that describes all the defaults adequate? There have been a number of cases concerning s.27(2) all of which have avoided giving any definitive answers to these questions. 

See: for example, Westgate Battery  Company Pty Ltd v GCA Pty Ltd [2005] VCAT 2080 and Westside Real Estate Investments Pty Ltd [2011] VCAT 1830. In this case the term of  the lease was four years with two options for four year terms. The landlord relied on s.27(2)(a) and (b) in alleging that the option had not been exercised because at the time of the purported exercise the tenant had not remedied a default and the tenant had persistently defaulted under the lease throughout the four year term of the first option period. Firstly, the  Tribunal held that s.27(2) prevailed over the provisions contained in the lease concerning the exercise of the option.  

There had been nine occasions “over two stretches” when the rent was not paid on time and the rent had never been more than five weeks’ late. The Tribunal held that in those circumstances it was not “persuaded that the late payments could be described as ‘persistent’ (in the sense of ‘persevering’ or ‘constantly repeated’)" and that the late repayments had not occurred “throughout” the term of the lease.  Nevertheless, the Tribunal held that the option had not been exercised because when the tenant exercised the option it had failed to provide a bank guarantee as required by the lease and the landlord had given written notice of the default  (s. 27(2)(a)).  Rectification of the default after the purported exercise of the option did not alter the position.

The tenant sought relief against forfeiture of the option. The Tribunal followed the decision of Dixon J in Lontav Pty Ltd v Pineross Custodial Services Pty Ltd (No. 2) [2011] VSC 485 in  holding that VCAT had no power to grant relief against forfeiture of an option.

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Author: Robert Hays Barrister subject to copyright under DMCA.

Section 52 - when is the lease "entered into"?

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Section 52 of the Retail Leases Act 2003  is proving to be a difficult provision to apply. Section 52 implies into a retail premises lease a term that:

"The landlord is responsible for maintaining in a condition consistent with the condition of the premises when the retail premises lease was entered into -

(a)     the structures of, and fixtures in, the retail premises lease; and

(b)     plant and equipment at the retail premises; and

....." (s.52(2))

When is the lease "entered into"?   If the tenant occupies premises for 5 years and exercises an option for a further 5 years what is the date at which the "condition of the premises" is assessed; at the commencement of the first term of 5 years or at the commencement of the second term of 5 years? 

In Ross-Hunt Pty Ltd v Cianjan Pty Ltd [2009] VCAT 829 Deputy President Macnamara held that the relevant date was the date that the new term commenced following the exercise of an option.  The lesson for tenants is that a thorough assessment of the state of the premises should be undertaken when the tenant first occupies the premises; regular reviews of the state of the premises should also be undertaken during the term; and the landlord should be requested to undertake repairs during the term.

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