In today’s competitive rental market it is incredibly important for both landlords and tenants to ensure they know their obligations when it comes to options in a lease.

If a lease is a retail lease, the provisions of the Retail Leases Act (Vic) (2003) will govern the exercise of option process.  At least 3 months prior to the expiry of the lease, a landlord must give a tenant a notice that sets out:

  • the last date the tenant has to exercise an option;
  • the rent payable for the first 12 months of the renewed term;
  • the availability of an early rent review – where the tenant can request a specialist retail valuer to determine the current market rent before it exercises the option, provided it gives the landlord notice within 28 days after receiving a notice from the landlord;
  • the availability of a cooling-off period – in circumstances where the tenant has exercised the option after receiving a landlord’s notice and has not requested an early rent review, the tenant may give the landlord notice within 14 days after receiving a landlord’s notice that it no longer wishes to exercise the option; and
  • any changes to the most recent disclosure statement provided to the tenant (other than changes that relate to rent).

In either scenario referred to in paragraphs (c ) or (d) the effect and intention is that the tenant will have details of the rent payable at the commencement of the further lease term before committing to a new lease.

If a landlord does not comply with this obligation, the time in which the tenant has to exercise its option will extend to be 3 months after the date that the landlord does give the notice.  This can extend to a date that is after the expiry date of the lease, in which the tenant is permitted to remain in the premises on the same rent as before the expiry date unless agreed otherwise.

If the lease is not a retail lease, then it is the terms of the lease itself which govern the process.  In this instance, it is extremely important for the tenant to ensure that it complies with the terms of the lease and exercises its option before the last date.

We recommend regardless of whether a lease is retail or not, that when exercising an option, the tenant provide written notice to all addresses it has for the landlord (email and postal addresses, including registered addresses listed in ASIC searches) and to also include an acknowledgment in the notice to be signed and returned by the landlord.

If you have any questions in relation to exercising options, please contact Jill de Beer or a member of our Property Law Team.

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