Meerkin & Anor v 24 Redan Street Pty Ltd - [2007] VCAT 2182 - VCAT 2007 case summary — Zoe

VICVCAT

Meerkin & Anor v 24 Redan Street Pty Ltd

[2007] VCAT 2182

Victorian Civil and Administrative Tribunal|2007-11-16

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At a glance

AI case summary

Result

defendant. Applications for orders and declarations dismissed. Liberty to apply reserved.

Key principles

An option to renew a lease constitutes an irrevocable offer to enter into a new lease, and unless the conditions set out in the option clause are satisfied, no contract for a new...
A premature notice of exercise of an option to renew (given before the earliest date specified in the lease) does not constitute valid exercise; at best, it amounts to a...
A purported exercise of an option by a party other than the named tenant (even if potentially a misnomer) where the letter is expressed to be on behalf of a different entity,...
An assertion in correspondence that an option has been validly exercised in the past, when it was not, does not operate as a present exercise of the option; if construed as a...

Issues before the court

Whether the option to renew the lease was validly exercised
Whether the renewed lease (if it existed) would be governed by the Retail Leases Act 2003 (Vic)

Plain English Summary

The landlords (the Meerkins) leased a serviced apartment to the tenant (24 Redan Street Pty Ltd) with an option to renew. The tenant's solicitors sent a letter trying to exercise the option two weeks too early (19 July 2005 instead of after 31 July 2005) and in the name of a different company. The landlords rejected this. Months later, the tenant claimed the option was validly exercised, but the landlords initially disagreed. Eventually the landlords changed their mind and said the option was valid, but by then the tenant had changed its mind and said it wasn't. The Tribunal held that the early letter was not a valid exercise of the option—it was at best a counter-offer that needed to be accepted, but the landlords never accepted it within a reasonable time (10 months was too long). Therefore, no new lease was created. The Tribunal did not decide whether the Retail Leases Act applied because there was no valid renewal anyway.

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Judgment (65 paragraphs)

[1]

Meerkin & Anor v 24 Redan Street Pty Ltd (ACN 065 372 803) (Retail Tenancies) [2007] VCAT 2182 (16 November 2007)

[38]

The exercise of the option is different from the question of whether you accept the rental assessment provided to you.
You have rejected the offer of $550.00 per month offered by our client pursuant to the valuation it obtained from a professional valuer Mr P. Buchanan. The Assessment was done as the Lease required a market review of the rent at the beginning of a new term.
The lease provides in clause 21 that "the rent for the first twelve month period of each new term of five years shall be fixed by mutual agreement with the landlord and the tenant or in default of agreement such rental shall be determined by a sworn valuer experienced in valuing serviced apartments ...'
Since you rejected our client's assessment, both parties must abide by the lease and obtain an independent assessment by a sworn valuer agreed to by both parties and according to the lease each party is to bear the cost of the valuation equally. See Clause 21.
In relation to our client's assessment, you asserted that the rent could not be reduced. We assume you are referring to clause 11.1.5 of the Lease General Conditions which says that the "Valuer must determine a market rent at least equal to the current rent before the review".
Clause 11.1.5 or any similar clause in the Lease is void under Section 12(3) of the Retail Tenancies Reform Act which applies to the lease. The Act clearly prohibits any attempt to prevent a reduction of rent.
To achieve a fair and reasonable solution, each party must therefore agree to appoint an independent valuer to carry out a market review of the rent.
Until such an assessment has been done, our client still has rights as a tenant under the old lease and the lease continues on a monthly basis until the rent issue is resolved. Therefore no action affecting the tenant may be taken.
If this matter cannot be resolved to the satisfaction of both sides, then clause 16 of the Lease will apply and the parties must resort to mediation (see Item 21).
The letter concluded by stating that Mr Buchanan's assessment of $550.00 per month 'in addition to payment of body corporate fees is very fair'. The letter then stated that:

[60]

Mr Matthew Kennedy, Counsel for the applicant, submitted that the option to renew could validly be exercised without the parties having agreed upon a new rental. The effect of a valid exercise was to commit both parties to a new lease subject to whatever rental was produced by the rental fixation machinery to be found in the lease and its option provisions. He relied on a decision of the Court of Appeal in Antonino Guiseppina Ensabella and Sons Pty Ltd v Players on Down Under Pty Ltd [2000] VSCA 73 and Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd [1982] HCA 53; (1982) 149 CLR 600. Mr Kennedy placed reliance as had his instructing solicitors upon the letter written by the then solicitor for the tenant on 3 February 2006.
This letter seems to refer back to the letter of 19 July 2005 as the operative exercise of the option. It will be recalled that the July letter was written on behalf of a company other than the sitting tenant, 25 Redan Street Pty Ltd respondent in the present proceeding. The letter was expressed to be written on behalf of Grandstar Australia Pty Ltd which seems to be another of the companies controlled by Messrs Sha and Chong. Mr Sha who represented 25 Redan Street Pty Ltd appeared to make no point of this matter and I was not taken to any authorities on the issue of misnomer. Assuming without deciding that the reference to Grandstar was a mere misnomer which may be disregarded, treating the letter as having been written on behalf of 25 Redan Street Pty Ltd, I conclude nevertheless that in the circumstances the option to renew had not been exercised.
In B.S. Stillwell & Co Pty Ltd v Budget Rent a Car System Pty Ltd [1990] VicRp 52; [1990] VR 589 the Full Court of the Supreme Court considered the validity of a purported exercise of option to renew the lease which did not conform to the requirements of the option clause. O'Bryan J considered that the option to renew in question there constituted no more than an irrevocable offer to enter into a new lease. Unless the conditions set out in the option were satisfied by the party seeking to exercise no contract for a new lease was formed and the doctrine of waiver had no application. A 'non-conforming' exercise or purported exercise of the option according to His Honour, 'at best, amounted to a counter offer' [1990] VicRp 52; [1990] VR 589, 595. Gray J with whom Crockett J concurred said that even if the option to renew were characterised as a conditional contract rather than a mere irrevocable offer, the doctrine of waiver had no application 'if the grantee fails to perform the conditions but seeks to renew the lease, he is merely making an offer' [1990] VicRp 52; [1990] VR 589, 604. Here, as previously noted the purported exercise of the option in July was premature. It was at best a counter offer. The letter of 3 February 2006 was not according to its terms an exercise of the option to renew, rather it was an assertion that the option had been exercised in the past. Even if it could be regarded as a present attempted exercise of the option it was late, coming after the expiry of the lease. The July letter therefore was at best a counter offer. As such of course it was open to acceptance and if accepted would have led to the creation of a lease for a new five year term. The correspondence quoted above however, shows that far from being accepted the counter offer which for present purposes I assume to have been made on behalf of 25 Redan Street was not only not accepted by Mr & Mrs Meerkin but was vigorously rejected for months. It was only long after the original lease term had expired and 10 months after the July letter that in May the parties reversed themselves and the Meerkins purported to say that a new lease had been created. According to Carter on Contract:

Meerkin & Anor v 24 Redan Street Pty Ltd

At a glance

Result

Key principles

Issues before the court

Plain English Summary

Judgment (65 paragraphs)

Meerkin & Anor v 24 Redan Street Pty Ltd (ACN 065 372 803) (Retail Tenancies) [2007] VCAT 2182 (16 November 2007)

Cited legislation

Parties

Cases Cited (1)

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