How easy is it for your landlord to deny your right to exercise an option?

Andrew Grima

Many of my franchisor and franchisee clients conduct their businesses through a particular premises. In fact, a big portion of the value of their businesses relate to goodwill, which is in turn affected by securing that premises. This can occur through an initial term or a series of terms (granted through options to renew), to obtain that security of tenure.

What does it mean to exercise an option?

Simply put, if a lease contains an option to exercise this means that the tenant can ask to extend the lease. If the lease has no option to exercise when it finishes, then at the conclusion of the lease, the relationship usually becomes a month-to-month lease if the tenant doesn’t move out. This means that either the tenant or the landlord can end or change the lease with one month’s notice.

So what happens when a landlord denies your exercise of option? 

The leases that I read will usually say that a tenant’s right to exercise an option to renew is conditional upon them not being in breach of their lease – at either the date of exercise of option or in some cases throughout the term of the lease. Landlords sometimes rely on such provisions to deny otherwise valid exercises of option in order to deny a tenant their rights.

Tenants, don’t panic – the law may preserve your rights!

In such cases, you may be able to rely on the Conveyancing Act (in NSW), to prevent the landlord from denying your right to exercise an option in the event of a supposed breach of lease.

Here is how the Conveyancing Act operates to protect you where you are in breach of lease:

Make your exercise of option bulletproof 

Don’t give your landlord an extra excuse to deny your right to exercise an option. Even if you aren’t in breach of your lease, your landlord can deny you your right of exercise of option if you haven’t:

Your starting point when contemplating an exercise of option should always be a review of the option provisions in your lease – what does your lease say about when and how to exercise? What do the service of notice provisions in your lease say about what is considered to be sufficient service of a notice – is it your landlord’s responsibility or can it be their lawyer or agent? There are a number of cases which discuss this point where parties have failed to serve a notice correctly.

If you encounter a difficult landlord who is denying you your rights or if you need assistance when it comes time for you to exercise your option please contact: 

Andrew Grima, Principal
Phone: +61 2 9895 9271
Email: agrima@colemangreig.com.au