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VIC Breach of 'Principal Agreement' for Commercial Lease?

Discussion in 'Commercial Law Forum' started by Replica, 22 December 2016.

  1. Replica

    Replica Member

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    In 2012, I started a 3-year commercial lease on a small office in Melbourne CBD. When that ended, the agent emailed to ask if I would like to take up the next 3-year option outlined in the lease, and although I emailed to indicate I would like to take that up, and he emailed that the solicitors where advised to prepare documents, we never signed a new lease.

    We now want to move offices (with ~15 months still in the current 3 years) but the agent says we have a 'principal agreement' and so we would be breaking the lease if we did that.

    I don't agree - we didn't sign a new lease which they indicated we would need to in order to formalise the situation.

    Who is right? Why?

    Also, they have taken 21 days to advise us of this (after nagging), time in which we could have found new tenants, or changed our moving plans. Pretty frustrating!

    Appreciate any help on all this.



    The email thread is like this (edited for privacy), from January to March 2015:

    Agent: Your lease term expires on **/**/2015. Do you have intention on taking up the further 3 year term?

    Me: Hi Agent, yes at this stage we intend on taking up the next term.
    However, I would also like to look at our other options before committing.

    Me (later): Hi Agent, do we need to sign a new lease to start the next 3 year term?

    Agent: We have advised the owners solicitor who will prepare the relevant lease documents.

    In regards to the rent review, it is set to "market value" for * ** 2015. The owner has proposed to increase it by 4%, keeping in line with the fixed annual percentage increases, as well as 4% yearly increase for the 2nd term, in line with the 1st.

    The solicitor acting on behalf of the Lessor is: ***

    This was the end of that discussion, and we never heard anything more about it from anyone, until now.
     
  2. Iamthelaw

    Iamthelaw Well-Known Member

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    It's difficult to give a definitive answer without seeing all the paper work - However, I will say that there is very little that one could do to 'progress' the lease renewal until such time as the rent is agreed between the parties at a commercial level. I don't see an agreement based on the brief facts you've provided.
     
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  3. Rod

    Rod Well-Known Member

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    Agree, it is hard to work out on limited information. Even with all the information it may then be a 50/50 proposition and may simply depend on the judge on the day if it goes to court.

    If I was the other party I'd be saying the lease agreement exists as you exercised an option to renew on the current lease. The indication that the landlord was using the pricing increases from the existing lease tends to support this view, as does the fact you stayed on in the premises, and this statement by the agent:

     
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  4. Iamthelaw

    Iamthelaw Well-Known Member

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    To qualify my previous answer:

    Intention does not amount to an exercise of an option.

    If that is all that was said, and that is exactly how it was said, the landlord would have a very difficult time arguing that the option was exercised.

    The key case in point that was decided a couple of years ago is South Yarra Colonnade Pty Ltd v Designbuilt Industries Pty Ltd.

    In that case, the tenant's statement of: “We write to advise you of our intention to exercise our lease option for a further 6 year period”. Was held not to be a valid exercise of the further term. [para 18]

    This was decided even based on a response from the landlord of: “We are in receipt of your letter dated 12 October 2005 wherein you have exercised your option for a further term of 6 years from 1 February 2006. On behalf of the lessor…we acknowledge that the option has been exercised in accordance with the Lease agreement” [para 19]

    My comments pertaining to the paperwork still stand in that one would need to examine all terms, especially relating to further options eg, automatic right to renewal?
     
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  5. Replica

    Replica Member

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    I really appreciate the perspectives and information you guys have provided, thank you!

    I don't see anything moving on this over the break, but I'll post again if things happen, as much keep the forum up to date for future readers, as to seek further views.
     
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