Motel option exercised out of time: court upholds renewal based on owner’s conduct

The manner in which the landlord conducted a market rent review was the tipping point in favour of a mining town motel tenant being allowed a new five-year term after having failed to exercise the option within time.

On 25 January 2009 – almost a month after the expiry of the period within which the option should have been exercised – the tenant emailed and faxed the landlord and its directors: “I hereby exercise our right under the terms of our lease to exercise the option to renew for a further term of five years from 1 July 2009”.

The owner engaged a valuer to perform a market rent review. But its three directors were never ad idem – one was the father of the tenant’s managing director – which possibly explains the ambiguous and guarded terms of the directors’ communications and those of the owner company.

Even the director most opposed to any renewal sent an equivocal rejection of the untimely notice of exercise, discussed rental but cautioned – as if signaling the deal would in the end be done –  “[we] could be searching for a new lessee at this present time”.

Nevertheless it was because of the way in which the rent review had been instructed to proceed – as if there had been an agreement for a further lease of five years – that allowed the Court of Appeal to have little difficulty on Friday in accepting that had ultimately been an agreement for a new term.

The court concluded that landlord’s market review of rent had proceeded on the basis that the options “be taken as having been duly exercised”.

“The parties were not lacking in commercial sophistication and one looks in vain for any indication that the rent review process related to a monthly rental” as was later contended by the landlord.

Against this background the agreement to lease for the Maraboon Motor Inn at Emerald was held to have been cemented with a notification from another director to the tenant on 1 April: “At a meeting of the directors on 18 March last a resolution was passed that the rent assessment be adopted on and from 1 July 2009 i.e. lot 2 & 52 commence at $449,500 and lot 1 $158,000 plus GST.”

Nowhere was there any written or oral statement from the landlord that it accepted the tenant for a new five-year term.

This case illustrates the value of clear and unambiguous language when considering proposals from tenants.

Weemah Park Pty Ltd v Glenlaton Investments Pty Ltd [2011] QCA 150 Muir and White JJA and Fryberg J 24/06/2011