Australia: Exercise of option by email - can it be valid?

Last Updated: 7 April 2012
Article by Justin Lethlean, Michael J Hain, Robert Savage and Brian Smith

In the recent case of Kavia Holdings Pty Limited v Suntrack Holdings Pty Limited [2011] NSWSC 716, the NSW Supreme Court considered the validity of an email purporting to exercise an option to renew a lease for a further term.

The Court ultimately found that an email can, in certain circumstances, satisfy the formalities required of an option notice and can be a valid medium to serve a notice.


The tenant held a 10 year lease to operate Jordons Restaurant at Darling Harbour. The lease contained an option to renew for a further term of 20 years which had to be exercised between six to twelve months before the expiry of the lease. To exercise the option, the tenant was required to notify the landlord of its desire to take a further 20 year lease within the stipulated time.

Within the time specified to exercise the option, the tenant sent an email to the landlord stating (among other things):

"I would like to have at least another 20 years with Jordons lease and tie that in with Cohibar and Watershed so that they are a composite asset in the books of Kavia".

The email did not expressly make reference to exercising the option under the lease.

The tenant asserted that the email represented a notice exercising the option. This was disputed by the landlord.


Was the option validly exercised?

To determine whether the option was validly exercised by email, the Court considered what a reasonable person in the landlord's position would have understood the email to mean by considering the language of the email, its context, and the circumstances of its receipt. The primary question was whether, in the context, a reasonable person in the landlord's position would have understood that the tenant was giving a notice exercising the option to renew the lease for a further term.

The Court held that, at a minimum, a notice to exercise an option must:

  • satisfy the contractual requirements of the notice as set out in the lease
  • be clear and unequivocal
  • not indicate any qualification or ambiguity.

The Court ultimately found that the email did not satisfy the minimum requirements and therefore would not have been understood as being an unqualified statement of a desire to take a further lease of the premises for a further term. The Court found that the email did not clearly communicate the tenant's intention to exercise the option because it:

  • contemplated further negotiation
  • stated that the tenant wished to have "at least another 20 years" and "tie in" leases of different premises, both of which would have involved alteration of the current lease.

This was not consistent with exercising an option to renew the lease for a further term.

Is an email a valid medium to serve a notice?

The Court also considered whether an email was a valid medium to serve a notice under the lease.

The lease required the notice to be in writing and stated that it may be given or served by being left at the address specified by a party in the lease.

The Court held that an email was a valid medium for the notice under the lease. The email satisfied the primary contractual formality required by the lease, which was that the notice be in writing. In considering service of the notice, the Court found that the words "may be given or served" indicated that there was no mandatory requirement for actual physical delivery of the notice.

As to the requirement for signing, the Court held that the inclusion of the sender's name on the email amounted to "signing" for the purposes of the lease. The Court found that the purpose of signing was to identify the sender and authenticate communication, and this was sufficiently achieved in the email by setting out the sender's name together with the email address.

Of course, this does not mean that all options under all leases can be exercised by email. The decision in this case rested on the particular wording in the lease.

What you should take away from this decision

This case is a warning that to effectively exercise an option to renew under a lease, an option notice must clearly and unequivocally state the tenant's intention to exercise the option to renew.

The requirements which must be satisfied will depend (in part) on the particular wording used in each lease. Tenants must take care to ensure that the words used in the notice of exercise of option and the method of giving the notice of exercise of option satisfy the requirements of the lease and amount to a valid exercise of the option.

Middletons acted on behalf of the landlord, Suntrack Holdings Pty Limited, in these proceedings.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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