A Mackay shopping centre owner stood to gain more than $400,000 by denying the validity of a tenant’s exercise of option notice sent by email more than six months before the renewal date as required.

Fortunately for the footwear & clothing outfitter tenant, confirmation of the exercise was also sent – as the only means specified in the lease – by post to the landlord’s solicitors.

And although strictly an erroneous “assertion that the option had been exercised” by way of the previous day’s e-mail, the court reasoned the correspondence was incapable of being reasonably interpreted other than as an unequivocal exercise of the option.

But our tenant “Rivers” – who operates a clearance outlet at the Gregory St store – was  also confronted with other challenges to the option.

Two months before the 1 June 2008 renewal date, the landlord for the first time claimed electricity charges for air-conditioning to the premises for the entire preceding five years.

Surprised by this bolt out of the blue – they charges totalled $122,000 – the outfitter’s solicitors naturally enough sought some clarification.

Not to be argued down, the landlord issued a tax invoice and then followed a notice to remedy breach of covenant.

Negotiations ensued but the charges remained unpaid to the landlord as at the renewal date.

Despite subsequent agreement and satisfactory payment, the landlord relied on non-payment at renewal date to assert that the tenant should be denied any further lease – and the benefit of a below market rental – because non compliance with the option condition precedent requiring the tenant not to be in breach.

Rivers filed an originating application in May 2008 seeking a declaration from the Supreme Court that the option had been validly exercised. The parties faced-off in a two-day trial that culminated in last week’s judgment.

In the absence of pleaded reliance on Property Law Act s 128 (which allows a lessee relief against the effect of such a breach) in respect of which the court refused a from-the-bar-table leave to amend request, it ruled that the tenant’s attempts to clarify its power charge liability, were nevertheless reasonable.

Thus it was not in breach at the relevant time: “the defendant failed to prove the breach upon which it says the tenant became disentitled to a further lease”.

Had the court ruled otherwise and because tenant remained in occupation throughout, the landlord would have recovered rent from the renewal date at market, which was perhaps “too conservatively”, assessed by a court-appointed valuer at $400,000 higher than the option determined rent actually paid during that period.

Rivers (Australia) Pty Ltd v Mainscar Pty Ltd [2012] QSC 063 Brisb McMurdo J 29/03/2012


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