Are you a landlord looking to revitalize your commercial property in the wake of the Covid slump? Perhaps you're considering selling, renovating, or redeveloping a property that has a retail lease in place. Before you proceed with issuing a notice to vacate, there's an important factor you need to consider: the validity of any previous s28 notice.
A defective s28 notice could mean that the tenant has the right to a further lease term, potentially causing significant delays and cost implications for your plans. In this blog post, we'll delve into the consequences of an invalid s28 notice and examine a few real-life cases that emphasize the critical importance of serving a valid notice.
Case 1: Xiao v Perpetual Trustees Company Ltd [2008] VSC 412
In this case, Mr. Xiao, the tenant, operated the "Saliba Café Bar and Deli" business in Melbourne. His lease was due to expire on September 30, 2008, but he attempted to exercise an option to renew the lease on June 19, 2008. The landlord argued that the option was two weeks late, rendering it invalid and allowing them to terminate the lease. The key question here was whether the tenant's exercise of the option on June 19, 2008, was legally enforceable.
The court explored the meaning of "notify" in s28 and determined that the word did not authorize or require the notice to be served by post. Instead, "notify" was interpreted as physically supplying a written document containing the relevant information to the tenant. The court emphasized that the purpose of s28 is to provide a timely reminder to tenants with options to renew their leases and protect their business interests.
The court also questioned the adequacy of the notice provided in December 2007. If the notice was deemed to be served on either 6 or 7 December 2007, six months from those dates would be 6 or 7 June 2008, which should have been specified as the date after which the option was no longer exercisable. However, the notice incorrectly stated that the option could not be exercised after 3 June 2008.
As a result, the conclusion was drawn that the 4 December 2007 notice was fundamentally defective and did not meet the requirements of s.28 as a notice. Consequently, since the landlord failed to provide a proper notice, the lease was determined to have continued unchanged.
Case 2: S & R Toth Pty Ltd & Duxvale Pty Ltd v Australia Zhengding International Pty Ltd [2021] VCAT 1059
In this case, the landlords claimed to have provided the tenant with notice regarding the expiration of their option to renew the lease. However, the tenant denied receiving this notice. The landlords argued that the tenant continued to occupy the premises on an overholding basis clause in the lease after the lease term ended.
The landlords served a Breach Notice to the tenant in February 2021, demanding payment of rent. Later, they entered into a contract of sale for the property with vacant possession and served a Notice to Vacate to the tenant, stating that they were now a monthly tenant and had to vacate. However, the court found that the notice provided by the landlord was defective due to incorrect specification of the last date for exercising the option. Therefore, no valid notification under s28 was provided, and the lease continued.
Note: The court determined that physical supply of the notice at the premises was adequate notice
Case 3: Dylanbella Pty Ltd v Loung
In this case, the lease included two options to extend the term. The landlord claimed to have complied with s28 by sending an option letter on January 7 2016, but the tenant's director denied receiving it. The tenant remained in continuous occupation of the premises.
The court found that the option letter was likely posted to the tenant, but mere delivery or formal service does not fulfill the notification requirement of s28. The landlord must communicate the necessary information to the tenant in a way that ensures it is actually received. As there was no evidence of the tenant receiving the option letter during the specified period, the court determined that the tenant was not properly "notified" as required by s28.
The Landlord’s managing agent sent the tenant a copy of the notice in February 2018.
The court determined that the email delivering the option letter, sent after the expiration date, was out of date and did not satisfy the notification requirements of s28. As a result, the tenant was entitled to exercise the option and continue the lease.
Key Takeaways
These cases highlight the critical importance of serving a valid s28 notice as a landlord. Failing to do so can lead to the tenant's right to a further lease term, which can significantly impact your redevelopment or re-letting plans.
Here’s my suggested Action Plan:
Review, don't snooze: Don't be caught off guard—regularly review your lease terms, options, and deadlines. Stay on top of your game. If you have any leases which you believe are currently in overholding, check that the appropriate renewal notices have gone out.
Know the law: Get familiar with lease legislation like the Retail Leases Act (RLA) to know your rights and obligations.
Nail the notice: Serve that s28 notice like a boss—get it right, get it done on time. Use certified mail with requirement for a signature or tracking to make sure it's delivered and documented or delivery it personally.
Document like a pro: Keep solid records of all communications, notices, and agreements. It's your backup when things get messy.
Get expert backup: When in doubt, call in the pros. Consult a savvy legal pro who knows the ins and outs of property and tenancy law. We've got your back.
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