What notices are required of the landlord when the tenant has an option to renew?
When the lease contains an option for the tenant to renew the lease for a further term, the Retail Leases Act 2003 specifies that the landlord must give a notice to the tenant reminding the tenant of the date after which the option is no longer exercisable, as specified in the lease.  Section 28 of the Retail Leases Act 2003 specifies the relevant time requirements for this notice. 

Section 28(1) provides that this notice must be given at least 6 months, but no more than 12 months, before that date after which the option is no longer exercisable.  However if the tenant exercises the option before the tenant receives the notice from the landlord, the landlord is not required to provide the notice.
 
For example, the lease specifies that the tenant must exercise the option no later than 6 months prior to the expiry of the lease.  The lease expires on 31 December 2009.  As the last date to exercise the option is 30 June 2009 (being, in this case, 6 months prior to the expiry date), the landlord would have to have given the notice at any time between the dates of 30 June 2008 and 31 December 2008, effectively giving the tenant at least 6 months (but no more than 12 months) to consider whether to exercise the option.  Note, if the tenant exercised the option on 30 September 2008, and the landlord had not yet given the notice, the landlord is not required to give 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 6 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)).

What notices are required of the landlord when there are no options to renew?

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 by which the landlord must provide the notice is at least 6 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 6 months after the date on which the landlord eventually gives the notice to the tenant.

For example, if a lease expires on 31 December 2009, the landlord must give the notice at any time between the dates of 31 December 2008 and 30 June 2009.  If the landlord fails to give the notice between these dates, and eventually gives the notice to the tenant on 30 September 2009, the lease is extended by 6 months from that date, and will expire on 31 March 2010, 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 to 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).

Does my landlord have to renew my lease?

The landlord will have to renew a lease if the lease contains an option to renew, and the tenant has validly exercised the option (see above).

Where 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 Lease Act 2003 which specifies that failing to renew the lease does not amount to unconscionable conduct.  

The landlord is, however, required to provide the tenant with notice of the landlord's intentions as to whether the landlord wishes to renew the lease or not (see above). 

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 5 years and the tenant has not obtained a certificate waiving the tenant's right to a lease of 5 years (as per section 21 of the Act).

Note that for some leases, for example, hotel leases, it is common for the landlord to ask the tenant to pay a premium to the landlord for the renewal of the lease, or the granting of an option.  This is permitted by the Act, providing that the payment is considered "good consideration" for the benefit received, that is, the value of the renewal of the lease or the granting of the option.  However, if the payment is not in proportion to the benefit received it will be considered void and the tenant can seek to recover from the landlord the money paid for the premium. See sections 23 and 3, definition of "key money".

If you have further queries about options & renewals, contact the VSBC on (03) 9651 9316.