In brief - Landlord's communication with tenant leads to
tenant being deemed to have exercised the option
In a recent case, the Queensland Supreme Court decided that an
option was deemed to be exercised by a tenant even though the
option has been exercised beyond the last date of the period
provided in the lease. The tenant was entitled to a renewal of the
existing lease, not a new lease on new commercial terms.
The effect of this decision means that a landlord who
communicates with their tenant after the last date for the exercise
of option to the effect that a renewal of the existing lease has
been granted, then this may be at the expense and detriment of the
landlord, particularly if it has other plans for the premises.
In this case the tenant did not exercise the option within the
prescribed time as provided in the lease.
Acting on the words of the landlord, the tenant sent a letter to
the landlord exercising its rights to an option for a further term.
The landlord argued that the notice of exercise of option was too
late, null and void and that the lease had expired.
The Court acknowledged that the tenant had not exercised the
option within the correct time frame and that the option had
lapsed. However, based on the actions and behaviour of the
landlord, which included the tenant sending a letter to the
landlord as suggested by the landlord and the landlord sending a
letter to the tenant accepting the valuer's assessment of the
market rent, the tenant was entitled to the lease for the further
Landlords need to make decisions about premises in advance
The lesson to learn from this is that a landlord must think
beforehand of its intentions with respect to the premises as the
lease comes up to its expiry date. If it accepts a tenant
exercising an option at a much later time, then it must be sure
that it wants to use the existing lease or to renew the lease at
Alternatively, the landlord must make it clear that the option
period has lapsed and the landlord must then advise the tenant of
its intentions, ie offer of a new lease with different commercial
terms or provide a notice of termination requiring the tenant to
vacate the premises.
Tenants must take care to diarise dates for exercise of an
Each tenant must ensure that it diarises the exact dates for
exercise of an option to prevent being caught in a situation where
the landlord has allowed it to stay in the premises but can make an
offer of a new lease with far stricter commercial terms to the
detriment of the tenant, or require the tenant to vacate.
Whilst option to purchase clauses are more in commercial properties, they are now being included in residential leases.
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