The recent case in the Victorian Civil and Administrative Tribunal, Westgate Battery Company Pty Ltd v G.C.A. Pty Ltd (2005) VCAT 2080 answered a number of questions. While each case must, obviously, turn on its facts, it is of useful guidance in a number of areas.
G.C.A. Pty Ltd (GCA) leased the premises to Messrs Fung and Lay for three years commencing 30 September 2002. The tenants transferred the lease to Felicks Nominees Pty Ltd from 18 November 2002 and Felicks transferred the lease to Westgate Battery Company Pty Ltd (Westgate) on 14 November 2003.
Westgate gave GCA a notice intending to exercise the option of renewal contained in the lease and did so within time and in an appropriate form. Westgate claimed that it had renewed the lease for a further term of three years commencing 30 September 2005. GCA said that it was not obliged to renew the lease because the tenant had:
persistently failed to pay the rent in advance as it was required to do under the lease, and
failed to pay or reimburse charges for insurance as it was obliged to do, and
failed to pay and maintain a security deposit of $2,000.
GCA also asserted that the alleged breaches were a repudiation of the lease and that it had given Westgate notice of the alleged breaches.
The first issue to decide was whether the right to renew was governed by the Retail Tenancies Reform Act 1998 (the 1998 Act) or the Retail Leases Act 2003 (the 2003 Act).
The Tribunal determined that the procedure for the renewal of the lease was governed by the terms of the lease and the common law. The 2003 Act only applies as soon as the lease is renewed and does not apply until the renewal is successful. The 1998 Act did not apply because it had been repealed by the 2003 Act.
The Tribunal also confirmed that the lease constituted an irrevocable offer by the landlord to the tenant for which strict compliance is required, rather than a conditional contract where the right of forfeiture can be waived. That may not have been the case had the lease been governed by the 1998 or 2003 Acts because the relevant sections of those Acts set out the only circumstances in which an option is not exercisable.
The lease itself closely followed the wording of the Acts and required that there be no unremedied breaches of which the tenant had been given notice and that the tenant had not persistently committed breaches of the lease of which notice had been given.
In relation to the alleged failure to pay rent the Tribunal held that the breaches which had been notified to the tenant in writing had been remedied by the date upon which the tenant gave the landlord notice to renew the lease. The landlord could not therefore rely on those breaches to refuse to renew the lease as they did not make the intended exercise of the option to renew ineffective.
In relation to the payment of the insurance premium the obligation under the lease was for the tenant to reimburse the sum to the landlord. The Tribunal held that it was necessary for the landlord to pay insurance in order to be ‘reimbursed’ and if there was no evidence that the landlord had paid the insurance, there would have been no obligation for the tenant to reimburse the sum. There was evidence, but the landlord had given no estimate of outgoings as required by the 1998 Act. Accordingly the Tribunal held that because there had been no estimate of outgoings regarding insurance charges for the financial year commencing 1 July 2004 the tenant was not obliged to pay those charges and therefore there had been no breach of the obligation to pay.
The landlord had made no written demand for the $2,000 deposit to be restored and because of the lack of a written notice the failure to restore the security deposit was not a breach which prevented the tenant from exercising the option.
However, the tenant had repeatedly failed to pay rent on time. The delays over a period of 22 months were on average 25 days per month. The Tribunal held that this constituted a persistent failure to pay the rent. It further held that the landlord was not obliged to give written notice of each default. The Tribunal decided that at 29 June 2005 there was a persistent breach of the lease by the tenant to pay rent, of which the landlord had given the tenant notice. Therefore the tenant was not entitled to exercise the option to renew the lease on 29 June 2005 and had failed to do so effectively. The landlord was not obliged to renew the lease.
This case provides a useful reminder of the issues to consider when tenants are wishing to renew, and landlords are considering whether to renew an existing retail lease.
This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.
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Whilst option to purchase clauses are more in commercial properties, they are now being included in residential leases.
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