A retail premises lease provides terms for a particular period of occupancy, and may include an option to renew.

This is something the landlord and tenant will negotiate before entering into a lease.

Landlord obligations to renew a lease

The landlord must renew a lease if the lease contains an option to renew, and the tenant has validly exercised the option.

If there is no option to renew, the only circumstance where a landlord is required to renew the lease is:

  • where the tenant has been in continuous possession of the premises for less than five years;
  • the tenant has not obtained a certificate waiving the tenant’s right to a lease of five years (as per section 21 of the Act).

See Five-Year Waiver Certificates for more information.

If a lease contains no options the landlord is not obliged to renew the lease – even if the tenant has developed substantial goodwill in the premises.

This is made clear in section 79(b) of the Retail Leases Act 2003 (the Act), which specifies that failing to renew the lease does not amount to unconscionable conduct.

In this case, the landlord is required to provide the tenant with notice of the landlord’s intentions as to whether they wish to renew the lease or not.

Notices and timing when there is an option to renew

When the lease contains an option for the tenant to renew the lease for a further term, the Act specifies that:

  • The landlord must notify the tenant in writing reminding the tenant of the date after which the option is no longer exercisable, which will be specified in the lease. Section 28 of the Act specifies the relevant time requirements for this notice.
  • This notice must be given at least six months, but no more than 12 months, before the date after which the option is no longer exercisable. (Section 28(1).)
  • If the tenant exercises the option before the tenant receives the notice from the landlord, the landlord is not required to provide the notice.

If the landlord fails to give the notice in the time specified by section 28(1), the date after which the option is no longer exercisable is given a statutory extension of six months after the landlord eventually gives the notice to the tenant.

Where the extended date is after the expiry date in the lease, the lease continues until that date on the same terms and conditions as applied immediately before the expiry date.

However, if the tenant does not wish for the lease to be extended beyond the expiry date, the tenant can give the landlord a written notice terminating the lease (providing the lease is not terminated any earlier than the date of expiry specified in the lease). See section 28(2) and (3).

Irrespective of the statutory extension, once the option is eventually exercised, the new term will commence the day after the expiry date of the previous lease (see section 28(4)).

Notices and timing

When the lease does not contain any options to renew the lease for a further term, the Retail Leases Act 2003 specifies that the landlord must give a written notice to the tenant setting out the landlord’s intentions concerning renewal. Section 64 specifies that the notice must either:

  • offer the tenant a renewal of the lease (on the terms specified in the notice); or
  • inform the tenant that the landlord does not propose to offer the tenant a renewal of the lease.

The time period in which the landlord must provide the option to renew a lease or not is at least six months, but no more than 12 months, before the expiry date.

If the landlord fails to give the notice in the time specified, the lease is extended by six months after the date on which the landlord eventually gives the notice to the tenant.

For example:

  • If a lease expires on 31 December 2016, the landlord must give the notice at any time between the dates of 31 December 2015 and 30 June 2016.
  • If the landlord fails to give the notice between these dates, and eventually gives the notice to the tenant on 30 September 2016, the lease is extended by six months from that date.
  • This means the lease will expire on 31 March 2017, on the same terms and conditions as applied immediately before the expiry date.

However, if the tenant does not wish for the lease to be extended beyond the expiry date because of the landlord’s failure to provide the notice, the tenant can give the landlord a written notice to terminate the lease (providing the lease is not terminated any earlier than the date of expiry specified in the lease).

VCAT rulings

The Victorian Civil and Administrative Tribunal (VCAT) has handed down a number of decisions regarding options and renewals. These include:

Testimonials

Client testimonials

×