Deren Hassan, Partner in Russell Kennedy's Dispute Resolution team has authored an article titled “Option for renewal” in the Shopping Centre News Vol. 44 edition.
In his Shopping Centre News feature, Partner Deren Hassan explores a critical and often misunderstood leasing question: can a tenant validly exercise an option to renew a lease if the tenant is in breach of the lease at the time of attempting to exercise the option?
Deren explains that while options to renew are common in retail and commercial leases, the conditions prescribed for exercising the option require strict adherence. To exercise an option successfully, tenants must precisely comply with the procedural requirements for exercise of the option set out in the lease — including giving notice in the prescribed timeframe and, critically, being free of unremedied breaches at the time the option is exercised, if the lease makes this a requirement which it often does. Courts have consistently held that even minor deviations from these requirements will result in the loss of a right to exercise an option for renewal.
The article examines the recent Queensland Court of Appeal decision in Replay Australia Pty Ltd v NightOwl Properties Pty Ltd, where a tenant attempted to renew its lease while in rent arrears arising during the COVID‑19 period. Although the tenant later rectified the breach, it did so after the lease had expired, and the Court ultimately held that the option had not been validly exercised. Importantly, the Court overturned an earlier decision granting equitable relief, reinforcing that strict compliance with option conditions is critical, and that an expired lease leaves no proprietary or equitable interest capable of revival.
Deren concludes that a tenant cannot validly exercise an option to renew while in breach of the lease if the conditions require that there be no unremedied breach at the time of exercising the option, and that both landlords and tenants must be acutely aware of how option clauses are triggered — and lost. The article serves as a timely reminder of the significant financial and operational consequences that can arise from overlooking lease compliance at renewal time.
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