Summary - In our blog article "Is the Lease Option Exercise Binding?" we
wrote on the effect of a validly exercised option to renew. We
touched upon the need to ensure valid exercise of the option. In
this blog article, we stress the importance of the option being
validly exercised in more detail and note the statutory protection
that a tenant may be able to rely on in obtaining relief against
forfeiture of its option.
Option clauses constitute an irrevocable offer to renew subject
to the tenant satisfying certain pre-conditions including service
of a written notice of exercise of the option on the landlord
within a specified notice period.
Frequently, option clauses state that the tenant loses its right
to exercise the option if it has been consistently in breach of the
terms of the lease.
Such clauses should be avoided or at the very least, limited to
any breach of an essential term or to a breach that would entitle
the landlord to terminate the lease.
Again, it is preferable that any such breaches be restricted to
those subsisting as at the date of exercise of the option and
perhaps the last day of the initial term.
Care needs to be taken in the drafting, not only when there are
multiple option terms, but also where personal guarantors of the
tenant (in respect of the initial term) are no longer available or
associated with the tenant but are required to continue the
guarantee during the option period.
Besides ensuring certainty as to the terms and conditions of the
option lease, there must be a clear mechanism in the lease to
determine the initial rent for the option period if it cannot be
agreed upon between the parties. Wording such as "rent
mutually agreed between the parties" would be void for
uncertainty. Any uncertainties may, in certain circumstances,
constitute the option contract as merely an agreement to agree
which is unenforceable.
Some relief to tenants is afforded by Section 133 of the
Conveyancing Act which can prevent a landlord from forfeiting an
option to renew unless the tenant is notified of its breach of the
lease and after which the tenant can seek an order from the Court
preventing forfeiture of the option term. Before determining any
such proceeding, the Court may take into consideration the nature
of the particular breach, the extent to which the landlord was
prejudiced by the breach and the conduct of the parties.
It has long been the position that a failure by a tenant to
comply strictly with an option clause in purporting to exercise an
option to renew results in loss of the option term. Accordingly,
tenants must carefully check the clause to ensure any purported
exercise is in accordance with the clause and landlords receiving
the option to exercise notice should also review the option clause
requirements to check whether the tenant has complied.
Specific Questions relating to this article should be addressed directly to the author.