Commercial Landlords and Property Managers Beware – What are your obligations to your tenants about Options to Renew under the Retail Leases Act?
Are you a landlord or property manager of retail/commercial premises? If so, read on.
Anyone who is party to a lease that is governed by the Retail Leases Act 2003 (Vic) (the Act) should be aware of its obligations when a deadline for renewal of an option for a further term is approaching.
When leasing retail premises under the Act, it is now particularly important for a Landlord to be aware of the notice requirements under section 28 of the Act. The recent case of Dylanbella Pty Ltd v Loung (Building and Property)  VCAT 412 (13 April 2022) shows the importance of properly notifying a tenant of their option to renew and the consequences if notification is not done properly.
Section 28 of the Act
Section 28(1A) of the Act provides as follows:
(1A) The landlord, at least 3 months before the last date that an option to renew the lease may be exercised, must give the tenant written notice setting out—
- the date by which the option to renew the leasemay be exercised by the tenant; and
- the rent payable for the first 12 months under any renewed term of the lease; and
- the availability of an early rent review under section 28A; and
- the availability of a cooling off period under section 28B; and
- any changes to the most recent disclosure statement provided to the tenant, other than any changes in relation to rent.
Why is Dylanbella important?
The recent case of Dylanbella is important because it demonstrates VCAT’s position regarding insufficient notification by a landlord and the consequences for a landlord if notification is not sufficient.
Facts of Dylanbella
- The landlord was required to give the tenant notice that their option to renew could be exercised in accordance with the Act by no later than 14 May 2016.
- The landlord claimed a notice letter dated 7 January 2016 was issued by its managing agent (Notice Letter).
- The tenant claimed they did not receive the Notice Letter.
- The tenant remained in occupation of the leased premises.
- On 25 November 2021, the tenant received a letter from the landlord’s solicitors stating:
- the tenant was in possession on a month-to-month overholding basis;
- the term of the lease had come to an end; and
- gave notice that the lease would terminate on 1 February 2022.
- The tenant’s solicitors served a Notice of Exercise of Option in response.
Did the landlord provide sufficient notice to the tenant to exercise their option to renew?
- VCAT held – no.
- Whilst there was evidence that a Notice Letter correctly addressed to the tenant was generated by the Property Manager, there were no records of the letter being posted to or being received by the tenant.
- Although it was more likely than not that the Notice Letter was posted to the tenant, the VCAT member held that this finding did not mean that the tenant was “notified” of the date after which the option could not be exercised within the meaning of section 28 of the Act.
What was the consequence?
VCAT allowed the tenant to exercise its option to renew for the further term.
What does this mean for landlords/property managers?
A landlord and/or property manager cannot rely upon the mere posting of a notice letter to satisfy the “notify” requirement of section 28 of the Act.
If you do not properly notify a tenant of their option to renew, then they can exercise their option to renew for the further term and this will be supported in VCAT.
Implications for Landlords:
- A landlord should not seek to rely on mere posting or emailing a section 28 notice to a tenant.
- If notification is in dispute, the Landlord will need to prove that the section 28 notice was in fact delivered to the tenant and the tenant received and was aware of the communication.
- Landlords may be able to avoid potential disputes by sending the section 28 notice letters via express, tracked, registered post and also sending via tracked emails. Another way to satisfy this requirement of the Act is to provide the notice letter in person.
- In the case of Dylanbella, the landlord wished to sell the property with vacant possession but was not able to do so because the tenant was able to exercise their option for a further term some 2 years late.
Key Take Aways
- When providing notice to tenants of the section 28 notices, keep good records;
- If no response, follow the tenant up;
- Keep records of any conversations
- Ensure you receive an acknowledgement from the tenant;
- Consider using mail where delivery can be tracked;
- Consider personally serving the tenant with the notice.
If you are a commercial or retail lease landlord who needs assistance or advice in relation to satisfying your obligations under the Retail Leases Act, or if you are a commercial or retail lease tenant who wants to exercise an option to renew or believes a landlord has not properly notified you of your option to renew under an existing lease, please contact our office on (03) 9592 3356 and our Property team would be more than happy to assist you.