A lessee was refused exercise of option after it was deemed to have breached lease terms and conditions. An Appeal Court overturned an earlier decision after considering issues of unauthorized underletting, failure to keep the premises clear of termites, CPI rent adjustments, proper exercise of option, etc.
This matter highlights:
• Lease terms and conditions that clearly articulate obligations of both parties
• Compliance of those terms and conditions by both parties up to lease expiry, not just option renewal notification
The lessor had carried on the business of scrap metal dealing for 16 years in Mareeba before selling their business to, and leasing part of their land to the lessee. The lessor remained living in an adjoining residential house on land that did not form part of the lease. The lease was for a period of 3 years with an option for an additional 3 years.
Disputes arose concerning proper exercise of option and breaches of lease.
The lower Court concluded the breaches had not occurred before the option was exercised and the right to the option to renew could not be refused.
On appeal there was considerable reliance by both parties as to the application of Section 128(4) of the Property Law Act 1974 which seeks to preserve a lessee’s right to exercise an option to renew in circumstances where the landlord alleges breaches of the lease to deny the tenant the right to the option.
After comprehensive consideration of case law including other State jurisdictions, the Appeal Court found that the lessor was not required to give the prescribed notice under section 128(4) as it only applied to breaches occurring before service of the option notice. It concluded that because the breaches of the lease were after the notice of exercise was served but before the expiry of the lease, the pre-condition for the exercise of the option was not met and the lessor was therefore not required to grant a new lease.
The lessor appeal was successful on only two of eight breaches claimed but that was sufficient to refuse the lessee’s exercise of option and be granted an order that the lessee vacate forthwith.
Grepo & Anor v Jam-Cal Bundaberg Pty Ltd  QCA 131