Mossop v Carpet Call (Vic) Pty Ltd - [2009] SADC 89

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
MOSSOP & OTHERS v CARPET CALL (VIC) PTY LTD
[2009] SADC 89
Judgment of His Honour Judge Rice
21 August 2009
LANDLORD AND TENANT - LEASES AND TENANCY AGREEMENTS
Lease between the parties provided for two options to renew, each of three years - First right of renewal exercised within period provided - Lease renewal signed by both parties - Second right of renewal purported to be exercised outside the period provided but in exactly the same terms as the first - Both parties acted on the basis that it was intended to be a valid exercise of the second right of renewal - Documentation for the lease renewal prepared but, by oversight, not signed - Lessee later claimed to be a monthly tenant only - Lessee disputes a valid exercise of the second right of renewal - Terminates.
Held: Lessee bound by the second right of renewal - Valid agreement to lease in any event - Damages to the lessor for rent and outgoings.
Elizabeth City Centre Pty Ltd v Corralyn Pty Ltd (1994) 63 SASR 235 at 236-7; United Scientific Holdings Limited v Burnley Borough Council [1978] AC 904; Hare v Nicoll [1966] 2 QB 130; Traywinds Pty Ltd v Cooper [1989] 1 Qd R 223; Gilber J McCaul (Aust) Pty Ltd v Pitt Club Ltd (1959) 59 SR (NSW) 122; Abjornson v Urban Newspapers Pty Ltd [1989] WAR 191; Re Copperart Pty Ltd (1995) 16 ACSR 351 at 357; Duncan Properties Pty Ltd v Hunter (1991) 1 Qd R 101 at 106; Prudential Assurance Co Ltd v Health Minders Pty Ltd (1987) 9 NSWLR 673 at 677; Walton Stores (Interstate) Limited v Maher and Another (1987-1988) 164 CLR 387; Re Eastdoro Pty Ltd [1989] 2 Qd R 182 at 184, considered.

MOSSOP & OTHERS v CARPET CALL (VIC) PTY LTD
[2009] SADC 89
Introduction

This is a dispute as to whether the lease of warehouse premises was renewed for a second time pursuant to a Memorandum of Lease. The lessor plaintiffs say it was renewed and seek damages for rent, outgoings and repairs for the period from when the premises were vacated until they were re-let. The lessee defendant says there was no second renewal, that it was a tenant on a monthly basis and has no liability in damages. This case is different than the usual run of cases in this area where a lessee is seeking to enforce an alleged renewal against a lessor.
The background facts need to be considered in some detail. As will be referred to below, the defendant was permitted to make a “no case” submission without electing. The plaintiffs then responded to that submission. Without ruling on the submission, I called upon the defendant to elect. The defendant elected to call no evidence. I then took final submissions and reserved my decision.
The only oral evidence given in the case was by Mr N. Mossop on behalf of all plaintiffs. Mr N. Mossop had the dealings with the lessee company. A book of agreed documents was tendered as exhibit P1. Two other documents relating to quantum were also tendered (exhibits P2 and P3). During the trial quantum was all but agreed. This is referred to later.
Background circumstances
The lessor plaintiffs are the owners of a warehouse property referred to as Units 1 and 2, 9 Cord Street, Dudley Park, Adelaide (“the lease property”).
The defendant lessee company, Carpet Call (Vic) Pty Ltd, dealt in the sale of floor coverings. The Memorandum of Lease entered into between the parties referred to the permitted use as “wholesale, retail and distribution of floor coverings and associated products.”
The lessors and lessee entered into a Memorandum of Lease dated 24 September 1997. The lease was prepared by a business that specialised in the preparation of commercial leases called “The Lease Bureau”. The initial term of the lease was 1 July 1997 to 31 January 2000 (the latter date being agreed despite a typing error in the lease itself). The lease in its Schedule allowed for “Further Terms” expressed as “Two periods of Three Years”. The means of any extension of the lease was dealt with in the Memorandum. As much of the case centres upon this clause, the relevant portion is reproduced in full:
5.3 Right of Renewal
If the Schedule hereto provides for a Further Term or Terms and the Lessee:-
•is not in breach of the payment of moneys due under this lease;
•has complied substantially with the conditions and covenants contained or implied in this lease;
•has not regularly committed any breach or breaches of this lease and there is no subsisting breach at the time of the giving of notice;
then the Lessee shall have the right to renew this lease exercisable by notice in writing to the Lessor given not less than two (2) months and not more than six (6) months prior to the date on which the then current Term but for exercise of this Right of Renewal would otherwise expire and time shall be of the essence of this clause:-
• for the further period or periods specified in the Schedule hereto;
•at a Rent determined in accordance with the provisions set out in clause 2/4 and the schedule hereof;
•upon the same covenants and conditions as have applied during the Term immediately preceding
PROVIDED HOWEVER that upon the exercise of the final right of renewal the covenants and conditions contained herein shall be varied by deleting any reference to this right of renewal....
There was also a holding over clause whereby the tenant could hold the premises on a monthly basis subject to the covenants and conditions contained in the Memorandum. On that basis, the tenancy could be terminated on not less than one calendar month’s prior notice in writing. The tenancy ceased absolutely upon the expiration of six months from the date of expiry of the previous term.
The Memorandum also provided for annual rent reviews, the dates of those reviews being on 1 February 1998 to 2005 (inclusive). The lease was duly stamped and registered with the number 8428003.
First right of renewal
Although the dispute in this case relates to the supposed exercise of the second right of renewal, the plaintiffs place some reliance upon the circumstances of the exercise of the first right of renewal. Essentially it is put by the plaintiffs that the circumstances of the exercise of the second right of renewal take some of their meaning from the exercise of the first right of renewal. In short, that the circumstances were repeated.
On 1 October 1999, the lessor plaintiffs received a reminder from The Lease Bureau that the lessee company had a right of renewal from 1 February 2000 for three years. Amongst the steps it suggested was to obtain a letter from the lessee company that it intended to exercise its right of renewal. Mr Mossop was not sure whether he made contact with the lessee company or simply awaited its letter.
By letter dated 12 November 1999, the lessee company wrote to the lessor plaintiffs in these terms:
Lease Renewal – Dudley Park Warehouse
We hereby advise that we wish to negotiate the renewal of the above lease for a further period of three years.
Can you please contact me on 8342 1366 to arrange a suitable time for discussing the renewal.
The letterhead showed it to have come from the Dudley Park address itself and was signed by Erich Kaiser, Administration Manager. It should be noted that the letter of 12 November 1999 was within the window referred to in clause 5.3 quoted above. The last day for a clause 5.3 notice was 30 November 1999.
Mr Mossop gave evidence, which I accept, that he had a meeting with Mr Kaiser to discuss the appropriate terms to extend the lease for the renewal period. A letter from Mr Mossop to the defendant lessee of 13 December 1999 records that meeting to have taken place on 9 December 1999.
The letter of 13 December enclosed for the defendant lessee’s approval and signature, an instruction sheet to The Lease Bureau for an “Extension of Lease”. The letter also dealt with adjustments to outgoings and documentation relating to the introduction of GST.
The instruction sheet to The Lease Bureau was not signed by either party until 4 February 2000 and it was sent to The Lease Bureau on 7 February 2000. The delay seems to have been occasioned by the completion of office alterations within the lease property that were undertaken by the lessor for the lessee, the cost of which was to be amortised over the next three year lease period. The instruction sheet was headed “Extension of Lease”, being lease registered number 8428003, the period of the extended term being three years from 1 February 2000. As mentioned, these instructions were signed by both parties.
A Memorandum of Extension of Lease No 8428003 was prepared by The Lease Bureau, but was not sent to the lessor plaintiffs until 11 April 2000. The lessor plaintiffs returned the signed extension to The Lease Bureau on 5 June 2000. Again, the completion of office repairs seems to have occasioned delay in the lessor plaintiffs signing the extension. A copy of the extension as signed by the lessee company, probably signed on 23 June 2000, was not returned by The Lease Bureau to the lessor plaintiffs until 5 July 2000.
As it transpired, the extension was unable to be registered in the Lands Titles Office. In that eventuality the lessee company was at risk and lodged a caveat to protect its interests. The lessee company gave those instructions to The Lease Bureau relying upon the original lease and the Extension of Lease dated 23 June 2000.
Before leaving the history of this first right of renewal, a number of matters need to be noted.
First, the period of the extension was 1 February 2000 to 31 January 2003, that is, a period of three years immediately following the initial term even though the renewal was not signed until about 23 June 2000.
Secondly, the extension included this variation:
Clause 5.3 of the Original Lease which provides for this Right of Renewal shall hereby be deleted.
Clause 5.3 is reproduced above.
Thirdly, when The Lease Bureau, on 11 April 2000, sent the lessor plaintiffs the extension for signature, it also included an invoice for its professional fees and disbursements, being for the lessors’ half share. The lessor plaintiffs duly paid their share. Although there is no evidence on the point, I assume the lessee company also paid its half share. The lessee company was a very good tenant and paid rent and outgoings as agreed. The evidence did not disclose any breach or non-compliance with conditions.
Second right of renewal?
As has been previously mentioned, the real contest in this case is whether there ever was a further renewal or even a right to renew.
The Lease Bureau issued reminders to the lessor plaintiffs for rent reviews in December 2001 and 2002. Those reviews were undertaken and the lessee company was notified and paid accordingly.
By letter dated 3 December 2002, The Lease Bureau sent a reminder to the lessor plaintiffs that the present term of the lease expires shortly (that is, 1 February 2003) and that the lessee company had a right of renewal for a further period of three years. The suggested steps for the lessor plaintiffs were essentially the same as for its previous reminder on 1 October, 1999.
By letter dated 14 January 2003, the lessee company wrote to the lessor plaintiffs in the following terms:
Lease Renewal – Dudley Park Warehouse
We hereby advise that we wish to negotiate the renewal of the above lease for a further period of three years.
Can you please contact me on 8342 1366 to arrange a suitable time for discussing the renewal.
Three matters should be noted at this stage. First, the terms of this letter are a word-for-word repetition of the letter of 12 November 1999. Leaving to one side for the moment the precise terms of the previous letter, there is no doubt in my mind that both parties looked upon it and acted upon it as a notification to exercise the second right of renewal provided for in clause 5.3.
Secondly, the letter on this occasion was not within the four month window referred to in clause 5.3. In making that observation, I have not lost sight of the submission by the lessee company that clause 5.3 had effectively been deleted by the variation to the extension of the lease and therefore there was no window (or even a further right of renewal). That is considered below.
Thirdly, if the variation on its proper construction serves only to delete the right to the first right of renewal (so it cannot be used again and thereby leaving only one further renewal period), then time is stated to be of the essence. If clause 5.3 is deleted in its entirety, then time is not stated to be of the essence.
Mr Mossop said in his evidence that, upon receipt of the letter, he rang Mr Kaiser to arrange a meeting at the Dudley Park premises “to discuss the extension of the lease” (TP25).
Such a meeting took place before the end of January at which Mr Kaiser was present and, for some of the time, also Mr O’Kelly, State Manager of the lessee company and author of the letter of 14 January 2003. Mr Mossop said this concerning that meeting (TP25-26):
A.....Eric and I then talked about his letter of 14 January where I agreed that we were happy to see the lease be extended for a further three years, and that it would be based around the original lease agreement where the rental would be increased by CPI and that it would be the last period within the lease, because it was the last extension, and that the outgoings once again would be adjusted at June 30 to suit the next period of financial years.
Q.Did you say that to somebody.
A.I said that to Eric, which he basically agreed with.
Q.How did he basically agree with that. Did he say words to you which suggested to you he agreed with that, and, if so, can you remember what those words were.
A.I can’t remember exactly the words he used, but he agreed that they were all in accordance with the lease and that they would be reasonable conditions, and that to proceed.
Q.When he said ‘to proceed’, what did you understand he was referring to, or did he explain what he was asking you to proceed with.
A.They were going to proceed with the next three years extension.
There also seems no doubt that there were discussions on that occasion, and at later times, concerning ways in which the available storage of the warehouse might be increased. Initially, there was a suggestion that some of the customer parking might be enclosed to provide “secure parking” that could be used as storage. This proposal required the involvement of the lessors’ architect but, after some months, came to nought because the local council indicated, in April 2003, that it would not support it.
After that time other options were discussed to increase the size of the warehouse. Those discussions also came to nought because of the likely council attitude given its previous response. Further, Mr Mossop said the storage problems of the lessee company were being alleviated by two sea containers placed on site.
Mr Mossop also said that once those other possibilities were no longer being pursued, it was agreed that the lease extension would be prepared and sent to the lessee company. He said that documentation had not been sent during the period that the possibility of building alterations were under discussion because the additional costs associated with such alterations would need to be resolved (TP31).
However, I add this observation. There is nothing expressly stated in Mr Mossop’s evidence that he said or explained to the lessee company that that was the reason the lease extension documentation had not been sent. On the other hand, the general tenor of his evidence was that both parties knew that that was the reason why the documentation had not been forthcoming. Certainly, Mr Mossop’s conduct reinforces the view that he believed the preparation of the lease extension documentation was on hold while the possibility and cost of additional storage facilities was explored and, if undertaken, the cost built into the rent.
On 10 June 2003, Mr Mossop gave instructions to The Lease Bureau to prepare an extension of the lease for a period of three years. His instructions referred back to the existing (original) lease of 24 September 1997 and the extension was to date from 1 February 2003, being the expiration date of the first renewal.
Those instructions included a request that the extension be prepared by 3.00 p.m. that day as a meeting with the client had been arranged for 3.30 p.m. (that day). The meeting was to be with Mr Kaiser, and Mr Mossop attended with various items of documentation.
First, there was the Memorandum of Extension of Lease for the period from 1 February 2003 to 31 January 2006, it being stated to be an extension of the lease dated 24 September 1997 between the lessor (plaintiffs) and lessee (company). One of the accompanying letters from the lessor company was in these terms:
Re: LEASE EXTENSION
Further to your letter of the 14 January 2003 we have had the attached Memorandum of Extension of Lease prepared on your behalf.
We ask that you arrange to have this signed in the appropriate marked spots and then have it returned to our office for signing and stamping.
We also attach The Lease Bureau’s account for your cost associated with this extension and ask that you arrange to have this paid direct to them.
Another of the letters from the lessor company explained the rental increase due to CPI from 1 February 2003 for the next twelve months in accord with clause 2.4 of the agreement. The letter also enclosed budget adjustments and certain revised outgoings, which had their genesis in the first renewal period. Mr Mossop’s evidence was that these various documents were explained and provided to Mr Kaiser who said he would arrange to have them signed and returned. Mr Mossop said that, thereafter, the increased rent was paid (TP33-35), that is, the rent as referred to in the letters accompanying the Extension of Lease.
As events transpired, the Memorandum of Extension of Lease was not signed by either party. Mr Mossop said that he did not realise the lease had not been signed and returned until later in the next year when the question arose as to the lease expiry date.
Amongst the documentation given to Mr Kaiser by Mr Mossop on 10 June 2003 was an invoice addressed to the lessee company for its half share for costs associated with the Extension of Lease and stamp duty payable. That amount was paid by the lessee company (exhibit P1, page 111).
By memorandum dated 17 June 2003, Mr Kaiser sent an internal note to Mr Barry Cook (who had signed the original lease as the secretary of the lessee company). Importantly, part of the memorandum is as follows:
Re Lease Extension – Dudley Park SA – Warehouse
Enclosed are 2 copies of the lease extension for the period 1 February 2003 to 31 January 2006 – effectively another 2½ years occupancy.
The bulk of the note related to what Mr Kaiser considered to be an unresolved possibility of gaining additional warehouse space by building what was termed a “garage” on site. Although the lessee company was exploring the possibility of extra storage, I find that, on the evidence, there was never any suggestion that any renewal of the lease was dependent upon that storage actually being provided. The note concluded with this paragraph:
Also enclosed is the invoice for the lease costs and details of lease rental review and outgoings adjustments. We checked their calculations and the outgoings levy in regard to the office alterations that were done 3 years ago and which is no longer applicable.

Based upon the evidence and exhibits, I find that the lessee company was proceeding on the basis that the second option to renew the lease existed and that it intended to exercise that option. The letter of 14 January 2003 quoted above reflected such an intention. The conduct of the lessee company, through its employees, also reflected such an intention. The heading and opening sentence of Mr Kaiser’s memorandum of 17 June 2003 supports and confirms that view.
The memorandum of 17 June 2003 also contains two handwritten notations, the author of which is not disclosed in the evidence:
Lease ‘NOT SIGNED’
Mth to Mth as we are looking for larger premises.
and
DO NOT RETURN TO SA.
It was never conveyed to Mr Mossop that the lease was on a month-by-month basis. No documentation was received by him reflecting that position (TP37).
As mentioned, the lessor plaintiffs proceeded in ignorance of the extension of lease not being signed. By letter dated 10 October 2003 it sent to the lessee company an adjustment to the 2002-2003 Financial Year Outgoings (Budget to Actual Cost) and 2003-2004 Financial Year Budgeted Outgoings. There was also an invoice detailing those adjustments up to October 2003 rental period.
In accord with previous practice, The Lease Bureau, by letter dated 18 December 2003, sent a reminder to the lessor plaintiffs that a rent review fell due on 1 February 2004. It also was proceeding upon the basis that the extension had been executed.
Questions arise as to the lease expiry date
By email dated 14 January 2004 to the lessor plaintiffs, the lessee company said it was rapidly outgrowing its current warehouse facility at Dudley Park and was enquiring whether the lessor plaintiffs had, or were able to build, a suitable facility. Mr Mossop said he had a number of meetings with Mr Kaiser and/or Mr O’Kelly as to their requirements, but that any agreement would be based upon a transfer of the lease from the existing premises to the new premises. Neither apparently responded to such a condition of moving premises. However, neither denied the existence of an operative lease.
Mr Mossop said that, in January, February and March, a number of buildings and sites were under active consideration but the new rent was prohibitive and the proposal was dropped. Thereafter, Mr Mossop said rent bills were sent and paid; it was business as usual (TP38).
Then, on 23 August 2004, Mr O’Kelly rang Mr Mossop to enquire as to the lease expiry date. The terms of this enquiry do not suggest a holding over or a monthly tenancy or a tenancy at will. Mr Mossop sent a facsimile that day saying:
...this is the 31st January 2006 as this was extended on the 14th January 2003.
Mr Cook, then described as the Finance Director for the lessee company, by facsimile of 6 September 2004, said:
Our records do not agree with this.
Please provide a copy of the signed lease with the completion date you have quoted.
Then, by letter dated 19 October 2004, Mr Cook, for the lessee company, responded:
We refer to our previous correspondence wherein we did not agree with you that we had a lease with the expiry date referred to your fax dated August 23, 2004.
Our records show we have been on a month to month basis from the time we began having discussions with you regarding extensions to the Cord Street site as well as the discussions we had on the costs of a new site you may have been able to provide. The problem of space at Cord Street started this whole process.
Please be advised we will be terminating our month to month arrangement on November 30, 2004. Rent will be paid to that date and the premises will be handed back to you on that day.
By way of response by letter dated 21 October 2004, Mr Mossop disagreed with that lease expiry date, quoted clause 5.3 Right of Renewal (referred to earlier), referred to the lessee’s letter of 14 January 2003 (also above) and asserted that was an exercise of the right to extend for a further three year period, and said it was all formalised in the Memorandum of Extension of Lease sent on 10 June 2003.
Finally, by letter dated 21 October 2004, the lessee company noted the extension was unsigned, asserted it was holding on a month-to-month basis (which it could only do for six months after January, 2003), confirmed termination of that arrangement and that the premises would be handed over on 30 November 2004.
Damages
On the assumption that the lessee company is found to have been in breach of the lease, the parties were able to agree most of the damages, namely, rent in the sum of $42,500 (inclusive of GST) and outgoings of $6,176.06 (inclusive of GST). There remains a further amount of $2,500 claimed by the lessor plaintiffs pursuant to the obligation to make good under the lease, that is, works that return it to its original leased state and bring it to a state to be re-leased (TP47-8). That claim needs consideration only if the lessor plaintiffs succeed.
Submission by the lessee company of “no case to answer”
At the close of the case for the lessor plaintiffs, I heard a submission on behalf of the defendant lessee company that it had no case to answer, the basis of which is referred to below. I initially entertained the submission without requiring the defendant to elect. Having heard submissions and reflecting upon them, I called on the defendant to elect without ruling on the submission. The defendant elected to call no evidence (TP99).
Whether the defendant is put to an election is a matter for the discretion of the trial Judge. It was submitted on behalf of the defendant that it was not necessary for the Court to undertake a substantial examination of the evidence in order to deal with the application and hence there was no need for the defendant to be put to an election. Further, it was submitted, there was an evidentiary hiatus and, in those circumstances, the defendant should not be required to elect.
In short, the defendant submitted that the letter of 14 January 2003 did not operate as a valid exercise of any renewal option contained in clause 5.3 of the lease. In my view, whether that letter operated as the valid exercise of a second right of renewal cannot be determined in isolation and without detailed reference to the circumstances both before and after that letter. For that reason I declined to rule on the submission and called upon the defendant to elect.
Although I did not rule upon the submission, the arguments in support of it still require consideration and form the basis of the defendant’s overall submission that the claim should be dismissed.
Was there a valid exercise of the first right of renewal?
Although the pleadings and most of the trial were conduced on the basis that there was a valid exercise of the first right of renewal, there was an eleventh hour submission that challenged the correctness of that approach (TP80-1).
The first point to note is that paragraph 1 of the Defence admits the allegations in paragraph 5 of the Statement of Claim. Paragraph 5 is in these terms:
5.The defendant exercised its option to extend the Lease for the first extended term and by Extension of Lease dated 23rd June 2000, the Lease was formally extended with the first extended period to expire on 31st January 2003.
There was no application to amend the pleadings.
The second point, already noted, is that the notice of exercise of this first right of renewal was within the four months window of opportunity as provided in clause 5.3.
The third point is that the letter of 12 November 1999 shows that the lessee company was seeking to renew the lease for a further period of three years (emphasis added). I have not overlooked the statement “...we wish to negotiate the renewal...” to which reference will be made later.
In my view, the terminology used and accepted by both parties evinced an intention to exercise the first right of renewal as provided in clause 5.3. Indeed, the lease extension variation picked up on this very clause. The variation is as follows:
Clause 5.3 of the Original Lease which provides for this Right of Renewal shall hereby be deleted. (Emphasis added)
The effect of this variation is discussed below.
Quite apart from my findings as to this first right of renewal, the defendant is bound by its pleadings which remain unamended.
What is the effect of the variation?
As reproduced in the preceding paragraph, the variation, on one interpretation, deletes clause 5.3 of the Original Lease such that, in January 2003, there was no second option capable of exercise or renewal. The interpretation of the wording of the variation is aided by portion of the wording in clause 5.3 itself.
As reproduced above, clause 5.3 included the proviso “...that upon the exercise of the final right of renewal the covenants and conditions contained herein shall be varied by deleting any reference to this right of renewal.”
Although the Lease Schedule referred to “Further Terms – Two periods of Three years”, the proviso in clause 5.3 is putting beyond doubt that, pursuant to the Original Lease, there could only be two valid exercises of the right of renewal pursuant to the clause.
The variation, not altogether ideally framed, did no more than delete the first right of renewal such that there remained only but one more right of renewal. It was not intended and did not serve to completely delete clause 5.3 as at the execution of the extension and variation.
Was there a valid exercise of the second right of renewal?
As outlined earlier, by letter dated 14 January 2003, the lessee company wrote to the lessor plaintiffs in exactly the same terms as it had done in November 1999, that is, seeking to “...negotiate the renewal of the above lease for a further period of three years.”
The lessor plaintiffs allege that this was a valid exercise of the second right of renewal. The lessee company submits that, by 14 January 2003, there was no right of renewal to exercise and, even if there was, the terms of the letter did not amount to a valid notice to exercise that option.
The question necessarily arises as to the status of the second right of renewal once the lessee company failed to exercise it within the four months window provided in clause 5.3. As decided above, the second right of renewal continued to exist such that it was open to the lessee company to exercise it for a second time.
The lessee company argues that, once the four months window expires without the option having been validly exercised, then it lapses and is no longer capable of being exercised. Necessarily subsumed within that submission is that the option was not revived by the letter of 14 January 2003 or time waived by the lessor plaintiffs by their subsequent conduct and the negotiations.
The effect of the case put by the lessee company is that the letter of 14 January 2003 was an invitation to treat with the defendant concerning the possibility of a new lease for another three years. The parties then negotiated the terms of, and agreed upon the terms of, such a new lease but failed to have it executed by the defendant lessee company.
Did the second right of renewal lapse because there was a failure to give the notice within the period provided?
There seems little doubt on the authorities that the exercise of the option, if valid, enures for the benefit of the lessee company: Elizabeth City Centre Pty Ltd v Corralyn Pty Ltd (1994) 63 SASR 235 at 236-7 (per King CJ, Perry J concurring). Where time is stipulated to be of the essence of the clause (as here), the general rule is that there must be strict compliance with the timetable provided: United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904.
The defendant lessee company relies upon a number of authorities to the effect that it was required to exercise the option according to its terms, particularly as to time. (Having decided earlier that the variation had a limited meaning and purpose and that clause 5.3 endured, time remained the essence of the clause). It was further submitted that those authorities support the position that a failure to exercise within time leads to a lapse of the option.
In my view, the authorities are not consistent in their approach to this problem. Not surprisingly, each depends on the facts as found by the trial Judge.
In the case of Hare v Nicoll [1966] 2 QB 130, the person to whom the option to buy shares was granted was required by the terms of the option to pay by a certain date. When no payment was received by that date, the optionee was unable to force the optioner to sell. Willmer LJ went further (at 142) by saying that the offer lapsed. Danckwerts LJ also accepted the proposition that the option must be exercised within the time limited for that purpose, or the option lapses (at 145). In that case, there does not appear to have been any other conduct between the parties that may bear upon their contractual relationship.
A similar scenario to the case at bar is to be found in Traywinds Pty Ltd v Cooper [1989] 1 Qd R 223. The lessees had an option to renew for a further three years provided written notice was given to the lessor not more than ninety days and not less than sixty days before the expiration of the original term. The original term was due to expire on 14 January 2005. By letter dated 20 December 2004, the lessees indicated an intention to exercise the option. The written notice was not within the window provided for in the lease. The lessor’s solicitors prepared an extension of the lease and no point was taken about the late exercise of the option. The lessees paid rent for three months following the expiration of the original term, but then vacated the premises without the deed of extension having been signed. I note, however, that rent was paid in accord with the deed of extension. The lessors sued successfully for loss of rent.
The appeal was dismissed, the Court taking the view, as did the trial Judge, that the lessor, by conduct, waived the stipulation as to the time for the giving of notice or, alternatively, varied the period for the giving of notice by conduct.
The conduct of the parties here, particularly that of the lessor plaintiffs, as evidenced by Mr N. Mossop’s evidence, points to either waiver or variation. The parties entered into discussions about the renewal of the lease; instructions, signed by both parties, were given to The Lease Bureau for an Extension of Lease; the parties shared equally the expenses associated with the preparation of that documentation; the lessee paid rent and expenses at the new rate; the lessee did not demur when given the lease extension to sign; and Mr Kaiser’s memorandum to Mr Cook of 17th June 2003 reflects an acceptance of a lease extension.
Traywinds’ case is inconsistent with other authority. The judgment itself of Kelly SPJ refers to Gilber J McCaul (Aust) Pty Ltd v Pitt Club Ltd (1959) 59 SR (NSW) 122 where the view was expressed that “[a] purported acceptance without performance of the prescribed conditions would not and could not be an acceptance of the offer. It would, in reality, be a counter offer by the original offeree requiring acceptance by the original offeror if an agreement were to result.”
The Court also took the view in the Traywinds’ case that, no matter which legal view was taken, the result would be the same, that is, be it a waiver or counter-offer, the appellant remained bound by the terms of a binding agreement.
Much the same view as that expressed in McCaul’s case is to be found in Abjornson v Urban Newspapers Pty Ltd [1989] WAR 191. In that case, there was a failure to exercise the option within the window provided in the original lease agreement and when given it was verbally accepted by the respondent lessor. It was held that the purported exercise of the option was a counter-offer orally accepted by the respondents giving rise to an agreement for a lease.
A similar approach was adopted in Re Copperart Pty Ltd (1995) 16 ACSR 351 (at 357) and Duncan Properties Pty Ltd v Hunter (1991) 1 Qd R 101 (at 106).
It appears from those and other authorities that the trend of judicial views is towards the approach that a purported exercise of an option out of time amounts to a counter-offer. However, the position is by no means certain and the weight of authority does not seem to go so far as saying that the option lapses. Furthermore, the authorities emphasise that much will depend on the individual facts, particularly the relationship between the parties.
In my view, resolution of the nature of the contractual relationship between the parties is necessarily bound with the next question, namely, the effect of the letter to the plaintiffs of 14 January 2003.
Was there a valid exercise of the option by the letter to the lessor plaintiffs of 14 January 2003?
The lessor plaintiffs contend that, against the background of their previous dealings with the lessee company, that letter was, and was intended to be, an exercise of the second option allowed for under the original lease.
The defendant lessee company contends that the letter was not a valid exercise of the option (even assuming it existed by that stage). The defendant contends that the language in the letter does not constitute an unequivocal exercise of the option in any event.
For my purposes, I rely upon the principles governing the construction of such letters enumerated by Kirby P in Prudential Assurance Co Ltd v Health Minders Pty Ltd (1987) 9 NSWLR 673 at 677:
1.     The primary rule is that the purported exercise of the option must express clearly and unequivocally the fact that this is what is intended: see Dixon CJ in Ballas v Theophilos (No 2) (ibid at 196): see also R Fox, ‘Options’ (1950) 24 ALJ 7 at 11. However because clarity and lack of equivocation are matters of opinion and impression, because inflexible insistence on form could lead to plain injustice and because fact situations vary almost infinitely a number of elaborations of this primary rule have been developed by the courts.
2.     It is not necessary, for example, for the effective exercise of an option, that terminology conforming precisely to the terms of the option should be used: see Williams J in Ballas v Theophilos (No 2) (ibid at 205); cf Gower-Chapman v Morris [1987] NSW Conv R No 55-341.
3.     The appropriate question to be asked is what anybody who received the letter, subsequently said to amount to the exercise of the option, would fairly have understood to be the meaning of it, in all the circumstances of its receipt; cf Carter v Hyde (1923) 33 CLR 115 at 126; adapting Romer J in Jones v Daniel [1894] 2 Ch 332 at 335. The addition by Isaacs J of the phrase ‘in the circumstances of its receipt’, adds instruction that the consideration which will govern the meaning to be ascribed to the letter is not to be judged in isolation, weighing only the words used. It is to be judged against the background of the dealings between the parties: cf Braham v Walker (1961) 104 CLR 366 at 376 and Lamont v Heron (1970) 126 CLR 239. The parties did not dispute that this Court could look to those dealings, at least up to the time for the exercise of the option had expired.
4.     ...
5.     Nonetheless, every case depends ultimately upon its own facts and the proper construction of the document which is in dispute. Accordingly care must be observed in laying down general rules suggested to be of inflexible operation: see Gibbs J in Quadling v Robinson (ibid at 201) and cf Hope J in Johnson v Bones (at 37).
A little later, Kirby P reduced the relevant question to this (at 678):
What is in issue is whether, objectively, a reasonable person receiving that letter and reading all of it against the background of the dealings between the parties would, objectively speaking, draw the conclusion that the option was being exercised or not.
Were the letter of 14 January 2003 to stand alone, then I would be inclined to accept its submission that this was not a valid unequivocal exercise of the option. However, as is plain from the history of the matter referred to above, that letter does not stand alone. As was emphasised in the paragraph numbered three above, the letter needs “...to be judged against the background of the dealings between the parties.”

As has already been noted, the letter of 14 January 2003 is in exactly the same terms as the letter of 12 November 1999. The letter of 12 November 1999 was within the window and, importantly, was treated by both parties as an exercise of the first option. All of their dealings that followed and all of the documentation that was generated reveal that there was an extension of the lease brought about by the exercise of that first option.
Although the letter of 14 January 2003 was not within the window, in my view, considering it was in the same terms as that of 12 November 1999, it was intended by the lessee company to be an exercise of the second option. The use of the words in the letter “...we wish to negotiate...” need to be understood in the light of the previous dealings between the parties and are not determinative of the matter. On all the material and my findings, neither party considered the second option to have lapsed.
For their part, the lessor plaintiffs impliedly waived the failure to give notice within the time window, the right of renewal having been granted for the benefit of the defendant lessee. They were treating the letter of 14 January 2003 as they had done previously, namely, notification of the exercise of the second option. Thereafter, on the evidence, the parties dealt with each other on that basis. Again, documentation was prepared and given to the lessee company reflecting an extension of the lease for the period 1 February 2003 to 31 January 2006. Not only did the representatives of the lessee company not demur when given those documents, but an internal memorandum of the lessee company dated 17 June 2003 did not challenge such a position. Quite clearly in my view, based upon the evidence of Mr N. Mossop in conjunction with the documentation, the lessee company, by its conduct, allowed the lessor plaintiffs to understand, as was intended, that the second option was to be exercised for the second three year period.
The penultimate paragraph of the internal memorandum of 17 June 2003 is consistent with the lessee company remaining at the premises for some considerable time. The tenor of the whole memorandum suggests security of tenure which is inconsistent with a monthly tenancy.
Having regard to the history of the dealings between the parties, the conduct of the lessee company, its failure to demur when provided with the lease for the second renewal, the discussions between Mr Mossop and Mr Kaiser and its internal memorandum, it is estopped from denying that it was bound by the lease renewal: Walton Stores (Interstate) Limited v Maher and Another (1987-1988) 164 CLR 387.
At the end of the day, it appears very strongly that the lessee company came to realise the second extension was unsigned and used that fact as a means of avoiding the balance of the tenancy. Mr Cook’s letter of 19 October 2004 and his undated letter received on 6 September 2004 are quite disingenuous bearing in mind the internal memorandum to him of 17 June, 2003, enclosing the lease extension for signature.
The conclusion to which I have come is that the letter of 14 January 2003 is a valid and effective written notice of the exercise of the second option of renewal. The lessee company is in breach of its obligations under the lease even though it remained unsigned. It should be made plain that, in any event, as a consequence of the discussions between Mr Mossop and Mr Kaiser, there was clear agreement to lease on the same terms and conditions as previously existed. There was an enforceable agreement for a lease between them: Re Eastdoro Pty Ltd [1989] 2 Qd R 182 at 184. Accordingly, the plaintiffs are entitled to succeed in damages.
As noted, most of the damages have been agreed, namely, rent in the sum of $42,500 (inclusive of GST) and outgoings of $6,176.06 (inclusive of GST).
There remains one additional monetary claim, namely, the amount expended by the lessor plaintiffs to make good under the lease and bring the premises to a state to be re-leased. The plaintiffs claim the nominal sum of $2,500. Having considered Mr N. Mossop’s evidence on this point and the list of work to be carried out, the nominal amount claimed of $2,500 seems very reasonable.
Orders
There will be judgment for the plaintiffs in the sum of $51,176.06 plus a lump sum fixed in lieu of interest of $12,026. That amount was arrived at in this fashion. The premises were re-let to a new tenant on 1 October 2005. I have used a rate of interest of six per cent. Interest on the damages of $51,176.06 at six per cent is $3,070. There have been almost four years since that time.
The judgment for the plaintiffs total $63,202.06
I will hear the parties on the question of costs.