Relief against forfeiture of an option to renew not available to a tenant

issue of whether it is possible for a tenant to obtain relief against forfeiture of an option for a further term is often raised in circumstances where the tenant was in breach of the lease when the option was exercised. In Lontav Pty Ltd v Pineross Custodial Services [2011] VSC 485 Dixon J rejected a submission that relief against forfeiture of an option was available to the tenant.

His Honour said [at 109] that:

"an option clause will usually be properly characterised as an irrevocable offer, which the offeree (the tenant) may accept, provided it has performed any condition precedent. Once in breach of a condition precedent, a tenant’s purported exercise of the option amounts, at best, to a counter offer by the tenant to extend the lease, subject to acceptance by the landlord. In the context of this lease the condition precedent is in these terms. The tenant is not entitled to exercise an option to renew so long as there is at the date of serving the written notice of exercise of the option ‘any existing breach of non-observance of any of the conditions, covenants, agreements and provisos on the part of the Lessee herein contained’."

Even if the forfeiture, or right of forfeiture, has been waived the tenant is not able to exercise the option.

While His Honour noted that in Beamer Pty Ltd v Star Lodge Supported Residential Services Pty Ltd [2005] VSC 236 Hollingworth J had assumed that an option if forfeited could be the subject of relief against forfeiture, His Honour said [at [114]] that:

"the authorities show that the nature of a contractual right to a further term to be an irrevocable offer by the landlord that is not a proprietary right. The loss of such a contractual right will not involve unconscionable or inequitable conduct by a landlord in taking a benefit, by exercising strict legal rights, which might attract an equity to relief against forfeiture."

It is submitted the same reasoning will apply where a tenant fails to exercise an option by the date specified in the lease: that is the landlord’s irrevocable offer cannot be accepted because there is a non-observance of a condition precedent to its exercise.