Australia: Valid exercise of option or abandonment?

What happens if a tenant exercises their option then subsequently the parties negotiate different terms and conditions? This recent Supreme Court case decided whether the lease arising out of that option had been abandoned by the tenant by negotiating the terms of a new lease (substantially different to the option lease) over a long period of time. In this case, the Court found the protracted negotiations did not mean the tenant had abandoned the option lease.

Valid exercise of option or abandonment

Mr Gupta (Tenant) brought proceedings against Fordham Laboratories Pty Ltd (Landlord) (Gupta v Fordham Laboratories Pty Ltd [2018] NSWSC 551) seeking, amongst other things, injunctive relief to restrain the Landlord from treating particular letters as valid notices to terminate his tenancy (due to breaches which are not dealt with in this article) and from taking any steps to re-enter the premises or to forfeit the Tenant's leasehold interest in the premises. The Tenant also sought specific performance of the equitable lease the Tenant claims came into existence in respect of the premises.

Just to touch on a bit of the history of this lease, right from the beginning of negotiations for the initial lease there were issues:

  • prior to entering into the lease the Tenant paid a deposit which he considered would be used on account of rent or other monies once the lease commenced, however, the Landlord considered the deposit was a payment so the Landlord would not lease the premises to another [it was held by Ward CJ that this deposit was in fact to "qualify" the Tenant];
  • the Landlord, in a letter dated May 2010, expressed the view that the dealings in relation to the proposed lease had been "excessively protracted";
  • the practice from time to time by the Tenant to make payments by direct deposit in lump sums without any reference or description; and
  • by the fact that the Landlord applied to the Department of Fair Trading for a security bond to be paid out to the Landlord in 2011, the monies so drawn down were not then treated by the Landlord as discharging the rent arrears (it was just being held by the Landlord) [Ward CJ held the release of the security bond discharged the then rent arrears and in the absence of an express obligation to reinstate the security bond if called upon by the Landlord, considered that the Tenant was not in breach of lease by failing to make any payment to reinstate the security deposit].

The dispute about the option lease, concerned whether the Landlord had validly terminated the Tenant's lease of the premises and was therefore entitled to vacant possession or whether the Tenant was entitled to specific performance of an equitable lease that came into existence following the exercise by him in March 2015 of an option to renew the lease that he then held.

The Landlord acknowledges that there was a valid exercise of option by the Tenant in March 2015. The Landlord also accepts that if there is a renewed equitable lease on foot, then the circumstances in which the Landlord can terminate is limited. The Landlord's argument was that in the course of negotiations the Tenant abandoned or relinquished his rights under the option lease with the consequence that the Tenant was thereafter occupying the premises on no more than a monthly tenancy and the Landlord was entitled and had exercised its right to terminate that monthly tenancy by giving sufficient written notice.

Pursuant to the terms of the lease, the first option to renew was required to be exercised between 29 December 2014 and 29 March 2015. Within that time period, on 12 March 2015, the Tenant exercised the option by email to the Landlord. At that time the Tenant was not in arrears nor had any alleged breach notice been issued.

The Landlord suggested (via various letters dated March 2015 to June 2015), that a "fresh lease" be entered into due to the terms that were being negotiated being substantially different to that of the option lease that the Tenant was entitled to following the exercise of his option. The terms the Tenant sought to be re-negotiated were changes to the permitted use; to exclude contributions to outgoings; to allow for a sublet area; and proposed a further 2 five year renewal options. The Landlord said it was at this point that it was open to the Tenant to either accept the offer of a fresh lease on different terms or to insist upon the execution of the Option Lease, but the Tenant continued negotiations as to the terms of a fresh lease. The Landlord's position was that the new terms, that were the subject of the negotiations, were not consistent with the Tenant's exercise of his option and the Tenant had therefore relinquished his right to the Option Lease.

On 1 September 2016, the Landlord's solicitor wrote to the Tenant's solicitor noting that the Tenant's rental arrears had not been brought up to date over a period in excess of 14 days and referred to a conversation between their respective clients to the effect that the Landlord would not grant a new lease of the premises stating "as you know, the previous lease, the option never having been exercised, terminated on 29 June 2015 and your client has remained in occupation pursuant to a monthly tenancy". By letter dated 26 September 2016, the Tenant's solicitor wrote to the Landlord's solicitor denying that the Tenant had relinquished or forfeited the option and denied that the Option was never exercised.

In support of the Landlord's contention, it was stated by the Landlord that negotiations for a new lease contemplated a lease on significantly different terms to that propounded for under the option lease but also on the fact that those negotiations involved persistent delay by the Tenant and that during the period September 2015 to March 2016, the Landlord continued to assert through its solicitors that the Tenant was occupying the premises pursuant to a monthly tenancy and at no point did the Tenant contest that position until September 2016.

The Landlord submits that the Tenant abandoned or relinquished his rights under the option lease around 21 March 2016 when there was no substantive communication from the Tenant after that date. The Landlord submits that whether the contract formed from the exercise of the option had been abandoned may be inferred from the acts and conduct of the parties. The Landlord argued that the inference of abandonment should be drawn from the length of time which had been allowed to elapse, during which neither party had attempted to perform.

Therefore, the Landlord argued that at the time of the service of notices terminating the tenancy, the Tenant's occupation was only as a monthly tenant.

Ward CJ held that during the period from March 2015 to September 2016 both parties were negotiating for different lease terms than those provided for under the lease itself on the exercise of that option but is not inconsistent with the Tenant relying on his entitlements to the option lease. That is because there is nothing to stop the parties agreeing to vary or add to the term of the lease for which the option clause in the lease provided. The fact that the parties sought to do so does not to Ward CJ, evince an unequivocal abandonment by the Tenant of the rights and obligations under the option lease. Ward CJ noted in the case of Fitzgerald v Masters (1956) 95 CLR 420; [1956] HCA 53, Fullagar J said "that the inference of abandonment will be drawn where an "inordinate" length of time has been allowed to elapse during which neither party has attempted to perform or called on the other to perform". Ward CJ noted that in the present case the lapse of time was some 18 months and during that time the parties were still in contemplation of a further lease as they were still attempting to negotiate the terms of the new lease.


It was held that the Tenant, by engaging in negotiations as to varied terms for the lease to be entered into following the exercise of the option did not abandon his entitlement to take a lease on the terms of the option lease and that as at the time of issue of the notices of termination, he occupied the premises on the terms of an equitable lease arising as a consequence of the exercise of the option.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Paul Carroll
Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions