Seacrest Pty Ltd v Apriaden Pty Ltd
[2000] VSCA 75
•11 May 2000
SUPREME COURT OF VICTORIA
COURT OF APPEAL Not Restricted
No. 4222 of 1999
| SEACREST PTY. LTD. and BRATSK PTY. LTD. |
| Appellants |
| v |
| APRIADEN PTY. LTD. |
| Respondent |
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JUDGES: | BROOKING, ORMISTON and PHILLIPS, JJ.A. | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 1 May 2000 | |
DATE OF JUDGMENT: | 11 May 2000 | |
MEDIUM NEUTRAL CITATION: | [2000] VSCA 75 | |
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LANDLORD AND TENANT – Retail premises lease – Option to renew – Notice of exercise – Whether ineffectual owing to defaults – Effect of landlord's failure to give statutory notice of date after which option no longer exercisable.
Retail Tenancies Act 1986 s.14.
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APPEARANCES: | Counsel | Solicitors |
For the Appellants | M.B. Phipps, Q.C. | Fetter Gdanski |
| For the Respondent | G.H. Golvan, Q.C. M. Ridgeway | James Taylor & Co. |
BROOKING, J. A.:
The facts in this case may be stated in a simplified way, sufficient to expose the questions it raises. The appellants (“the landlords”) let a shop in a shopping plaza to the respondent (“the tenant”) by a lease which was a retail premises lease within the meaning of the Retail Tenancies Act 1986 (“the Act”). The term was to expire on 30 April 1998. Under the lease the tenant had an option to renew, which had to be exercised not less than three months before the expiration of the term. It makes no difference whether this meant that the last day for the exercise of the option was 30 or 31 January 1998, for in fact notice of exercise of the option was given on 29 January 1998. The formal validity of that notice was conceded. But the landlords contended that the purported exercise of option was ineffectual in view of the provisions of the lease requiring payment of rent, outgoings and other amounts, the events which had happened and the terms of s.14(5) of the Act, whereby:
“If a retail premises lease contains an option exercisable by the tenant to renew the lease for a further term, the only circumstances in which the option is not exercisable is (sic) if—
(a)the tenant has not remedied any default under the lease about which the landlord has given the tenant written notice; or
(b)the tenant has persistently defaulted under the lease throughout its term and the landlord has given the tenant written notice of the defaults.”
Disputes having arisen between the landlords and tenant, notice of dispute was given under s.21 of the Act and an arbitrator was appointed to determine the disputes. By his interim award, dated 22 December 1998, the arbitrator declared that the lease terminated by effluxion of time on 30 April 1998 and found that in consequence he had no jurisdiction under the Act to determine any further matter in the proceedings other than the question of costs and his own fees and expenses. He upheld the landlords’ contention that the tenant had not been entitled to exercise the option, in that the case fell within both para. (a) and para. (b) of s.14(5).
In arriving at his conclusion that the lease had terminated by effluxion of time on 30 April 1998, the arbitrator considered and rejected an argument put forward by the tenant and based on sub-ss.(3) and (4) of s.14 of the Act. It is convenient to set out not only those sub-sections but also sub-ss.(8) and (9):
“(3)If a retail premises lease contains an option exercisable by the tenant to renew the lease for a further term, the landlord must notify the tenant in writing of the date after which the option is no longer exercisable at least 3 months before that date.
(4)If a landlord fails to notify a tenant as required by sub-section (3), the retail premises lease is to be taken to provide that the date after which the option is no longer exercisable is the day that is 3 months after the landlord gives the tenant the notice required by that sub-section and, if that date is later than the date of the expiry of the term of the lease, the lease continues, subject to sub-section (9), until that date.
….
(8)The terms and conditions upon which a lease that continues by virtue of sub-section (4) … is held are the same as those upon which the lease was held immediately before it was continued.
(9)If a landlord fails to notify a tenant as required by sub-section (3) …, the tenant may, by written notice given to the landlord, determine the lease as from any day that is –
(a)not earlier than the expiry of the term of the lease; and
(b)not later than the day to which the lease would otherwise have continued by virtue of sub-section (4) … “.
The argument put forward by the tenant was founded on the fact that the notice required by sub-s.(3) was never given to it by the landlord. To simplify matters it can be assumed – since the validity of the assumption will not affect the outcome of the arbitration or the litigation – that the date after which the option was no longer exercisable was 31, not 30, January 1998. On this assumption sub-s.(3) required the landlord to give the notice mentioned in it at least three months before 31 January 1998. This was not done: in fact, as I have said, no notice was ever given under sub-s.(3). The argument put by the tenant in support of its contention that the arbitrator had jurisdiction to determine the matters which it wanted determined was that, the landlord having failed to notify the tenant as required by sub-s.(3), the effect of sub-s.(4) was to extend the term of the lease, so that it was still on foot. The arbitrator having rejected this argument, the tenant applied under s.38(4) of the Commercial Arbitration Act 1984 for leave to appeal under s.38(2) on what was said by it to be three questions of law arising out of the interim award. Leave was granted in respect of the first two questions but refused in respect of the third. The judge disposed of the appeal at the same time as the application for leave, allowing the appeal and setting aside the arbitrator’s declaration that the lease terminated by effluxion of time on 30 April 1998 and his decision that he had no jurisdiction under the Retail Tenancies Act to determine any other disputed matter save the matter of costs and fees, and remitting the proceeding to the arbitrator, to be determined according to law. Section 38(3) empowers the Court, on the determination of an appeal under sub-s.(2), to confirm, vary or set aside the award or to remit the award, together with the Court’s opinion on the question of law, to the arbitrator for reconsideration; where the award is remitted the arbitrator is required, unless the order otherwise directs, to make the award within three months. Here the order varies the award and remits “the proceeding” to the arbitrator for determination according to law. Neither the notice of appeal nor the landlords’ outline of submissions raises any question about the form of the order made by the judge. The three month period allowed by s.38(3) expired a considerable time ago.
We have before us an appeal by the landlords against the decision of the judge, given on 5 March 1999. They do not challenge that part of his Honour’s order which granted leave to appeal and directed that the appeal be heard forthwith. They do challenge those parts of the order which answered questions of law, set aside the principal operative parts of the award and remitted the proceeding to the arbitrator, to be determined according to law.
Until 1993, s.38 of the Commercial Arbitration Act 1984 provided that an appeal should not lie to the Full Court from a decision of the Supreme Court on an appeal on a question of law arising out of an award unless the Supreme Court or the Full Court granted leave and it was certified by the Supreme Court that the question of law to which its decision related either was one of general public importance or was one which for some other special reason should be considered by the Full Court. This was the provision made by the original sub-s.(7) of s.38, a sub-section repealed by s.16 of the Commercial Arbitration (Amendment) Act 1993. Since that repeal there has been no special restriction on the bringing of appeals from decisions under s.38(2) on appeals on questions of law arising out of awards. The right of appeal is conferred by s.17(2) of the Supreme Court Act 1986, in conjunction with s.10 of that Act, and that right of appeal is subject to the general requirement of leave imposed by s.17A(4)(b) where the order sought to be appealed from is an order in an interlocutory application. No objection to the competency has been taken in this case, but the Court raised with counsel for the landlords (as I shall continue to call the appellants) the question whether leave to appeal was necessary, having regard to the fact that the order of the judge remitted the proceeding to the arbitrator to be determined according to law and to the possibility that the order was to be equated with an order for a new trial, which it is well established is an interlocutory order: McKeon v. Miller[1]; Bell v. Thompson[2]; Peek v. Peek[3]; Hall v. Nominal Defendant[4]. We disposed of the question by granting leave to appeal if needed, the grant of leave not having, in the end, been opposed.
[1](1905) 22 W.N.(N.S.W.) 22
[2](1935) 8 A.L.J. 467
[3][1948] 2 All E.R. 297
[4](1966) 117 C.L.R. 423 at 443 per Windeyer, J.
The judge granted leave to appeal in respect of two questions. He refused leave in respect of a third question, or set of questions, relating to s.14(5), and nothing more need be said about that matter. The two questions in respect of which leave to appeal was granted were expressed as follows:
“1.Whether upon a proper construction of s.14(3) of the Retail Tenancies Act 1986 (‘the Act’) there was any requirement for the landlord to provide notice to the tenant in writing pursuant to s.14(3) of the Act, if the tenant has purported to exercise an option to renew the lease, which was not exercisable.
2.Whether upon a proper construction of s.14(4) of the Act, including the stipulation that the retail premises lease is to be taken to provide that the lease continues until the date that is 3 months after the landlord gives the tenant the notice as required by s.14(3) of the Act, s.14(4) has no application as soon as the tenant has purported to exercise an option to renew the lease, which was not exercisable.”
The notice of appeal treats the judge’s order as having formally answered those questions. But the formal order does not do this: the questions are dealt with only in the reasons for decision. The notice of appeal treats the first question as having been answered “yes” and the second “no”. It asks this Court to determine that the first question should be answered “no” and the second “yes”. In his reasons for decision the judge says that the two questions of law must be answered in the affirmative. Having regard to the tenor of his Honour’s reasons, this must be a slip, his Honour’s intention being to answer the first question in the affirmative but the second in the negative. Both sides accept that this is so.
The framing of the questions evidently occasioned the tenant some difficulty, the two questions in respect of which leave to appeal was given by the judge being described by him as the questions “as finally formulated”. Even as ultimately framed they might be criticised, but that would serve no good purpose.
It is convenient to set out now a passage from the statement of reasons of the arbitrator for making the award (a passage which was adopted by the landlords in support of the present appeal):
“In my view, the clear intent and operation of sub-sections 14(3) and (4) is to require, with a sanction, the tenants be notified effectively of the last date for the exercise of an option to renew. The sanction for failing to give a proper notice is provided for in sub-section 14(4), the sanction being that the lease term continues to run on and then will only terminate as a result of the giving by the landlord of the notice required under sub-section 14(3). When this notice is given the lease continues until 3 months after the required notice is given (sub-section 14(4)). Clearly the intention of these provisions is to enable a tenant to consider its position with respect to renewal, to have three months to do so and in order to accommodate this position the lease term continues. However, there is no express provision in section 14 to deal with the situation where a tenant, which has not been provided with a notice as required under sub-section 14(3), nevertheless exercises the option to renew within the time limited by the lease. In my view, it would be absurd to regard sub-sections 14(3) and (4) as continuing the lease term until a formal notice as required by sub-section 14(3) had been given regardless of the fact that the particular tenant was perfectly well aware of the last date for the exercise of the option, arranged its affairs on this basis, and ultimately did exercise the option to renew. None of the evils to which this ameliorating provision is apparently directed would arise. The lease has been renewed and, in these circumstances, there is no warrant to apply the provisions of sub-sections 14(3) and (4) for to do so achieves nothing in terms of the purpose of these provisions. Further, there is a difficulty if the exercise of the option by a tenant in the absence of a notice under sub-section 14(3) does not render these provisions superfluous. This position can be tested by considering the situation which follows the exercise of an option to renew. In general terms, the effect is to create a new lease and a new lease term commencing from the expiry date of the Lease which is being renewed (see Gerraty v. McGavin[5]; see also Commercial Tenancy Law in Australia ¶ 14.1). If it were the position that even on the exercise of an option to renew in the absence of any notice having been given as required by sub-section 14(3) of the Act sub-section 14(4) would operate to extend the lease term the result would be more than one lease term subsisting; as a result of the combined effect or operation of the exercise of the option to renew and sub-section 14(4) of the Act. For all these reasons, it follows, in my view, that once an option to renew is exercised the operation of sub-sections 14(3) and (4) is complete in the sense that they have no further work to do. Further, the actual exercise by a tenant of an option to renew, and within time, clearly indicates that the tenant does have actual knowledge of its entitlement to renew the lease under the option provision and of the time limitations on that right. The objectives of the statute have been achieved and there is nothing further to be gained, in terms of the objectives of the Act, for their operation to continue.
On the basis of the above I am of the opinion that although the Tenant did not receive a notice under sub-section 14(3) of the Act at any time there ceased to be any requirement to provide such notice, or sanction for failing to provide such notice, as soon as the Tenant exercised, or purported to exercise, the option to renew on 29 January 1998.”
[5](1914) 18 CLR 152 at 163
Two reasons are here assigned for the arbitrator’s conclusion. The first is the consideration that (as is no doubt so) the policy underlying s.14(3) is that landlords should be required to remind or inform tenants of the impending expiration of the period during which their option of renewal must be exercised lest the tenants lose the benefit of a valuable right through ignorance or inadvertence. The second basis for the arbitrator’s conclusion is the consideration that the exercise of an option of renewal will create a new term and that the creation of a new term is inconsistent with the continuance of the term of the lease by force of sub-s.(4) beyond the date on which the term would otherwise expire. In dealing with this consideration the arbitrator several times uses the word “exercise” or “exercised”, but it is clear that he is speaking of due exercise, in the sense that the exercise is valid and effectual both as a matter of manner and form and as a matter of substance, by which latter expression I mean that no unfulfilled condition stands in the way of the exercise of the option. But, having spoken of the exercise of the option in this sense, the arbitrator then, in the last paragraph of his reasons set out above, concludes that “there ceased to be any requirement to provide such notice, or sanction for failing to provide such notice, as soon as the Tenant exercised, or purported to exercise, the option to renew on 29 January 1998.” (My emphasis.) This contains, if I may respectfully say so, a logical slide, at least to the extent to which the arbitrator’s conclusion is based on the effect of the exercise of option. For the argument begins with what is clearly (although not expressly) intended to be reference to an effectual exercise of option but concludes by referring to both actual and purported exercise.
I shall return in a moment to the arbitrator’s conclusion that “there ceased to be any requirement to provide such notice, or sanction for failing to provide such notice”.
Before the judge the landlords’ argument ultimately became one (not put to us) based on the distinction between “mandatory” and “directory” requirements, the submission, as recorded by his Honour, being “that the requirement for a notice found in s.14(3) was directory only, at least once the tenant had exercised or purported to exercise the option” and that accordingly “the penalty for non-compliance contained in s.14(4) did not apply in this case”. As to this, his Honour observed that s.14(3) required the giving of a notice at least three months before the last day for the exercise of the option and that it was impossible to say that the giving of notice of exercise on 29 January 1998 absolved the landlords of their obligation to give notice by, at latest, a date that was about three months earlier. His Honour held that the meaning of s.14(3) was clear and that if a landlord failed to comply with it the consequence was the creation of “the s.14(4) statutory overholding”, which continued until three months after a notice was given by the landlord, unless the tenant previously determined it under s.14(9) or validly exercised the option.
Before us, the landlords contended that there had been no failure by them to notify the tenant as required by sub-s.(3), since at all relevant times the lease did not contain “an option exercisable by the tenant to renew the lease for a further term” within the meaning of sub-s.(3), in that the arbitrator had determined that, having regard to the covenants contained in the lease, the provisions of sub-s.(5) and the events which had happened, the tenants were not entitled to exercise the option. This argument depends on the proposition that the word “exercisable” in sub-s.(3) requires that there shall be no impediment to the exercise of the option. But in my view the phrase in sub-s.(3) introduced by the words “an option exercisable” requires no more than that the lease contain an option of renewal in favour of the tenant. The identical phrase in sub-s.(2) is undoubtedly used in this sense, as is the same phrase in sub-s.(5). Indeed, sub-s.(5) makes it clear that a lease “contains an option exercisable by the tenant” even though the option is “not exercisable” by reason of default.
A little earlier I set out the arbitrator’s conclusion that “there ceased to be any requirement to provide such notice, or sanction for failing to provide such notice, as soon as the Tenant exercised, or purported to exercise, the option to renew on 29 January 1998”. The arbitrator did not state in precise terms what implication was in his view to be made, as a matter of statutory construction, by way of limiting the operation of sub-s.(3) or sub-s.(4). It is in this case unnecessary to decide what effect, if any, there might be, as a matter of implication, on the operation of sub-ss.(3) and (4) if a tenant gave notice of exercise of option at a time when the landlord had not given notice under sub-s.(3) and at a time when the last day for the giving of such a notice by the landlord had not yet arrived. It is also unnecessary to decide whether, on that hypothesis, any distinction should be drawn between exercises of option which were good both in manner and form and in substance and exercises of option which were ineffectual for one reason or another. For the present case is not one in which any notice of exercise of option was given before the last day on which the landlords could comply with their obligation under sub-s.(3). It is clear that they did not comply with that obligation or, putting the matter another way, it is clear that the case is one in which, to use the words of the clause by which sub-s.(4) is introduced, a landlord had failed to notify a tenant as required by sub-s.(3). Those introductory words state the only express condition of the operation of sub-s.(4). In the present case, the only express condition of the operation of sub-s.(4) having been fulfilled, the sub-section is to operate according to its tenor unless it can be said that some event has occurred which, on the proper construction of the section, is by implication to have some effect that can be precisely stated by way of cutting down the operation of the sub-section: Mills v. Meeking[6]; Bermingham v. Corrective Services Commission of New South Wales[7].
[6](1990) 169 C.L.R. 214 at 235 per Dawson, J.
[7](1988) 15 N.S.W.L.R. 292 at 302 per McHugh, J.A.
Sub-section (4) operates in two ways. By what I might call its first branch, it operates, in effect, by way of varying of the provisions of the lease: the lease is to be taken to provide that the last day for the exercise of the option is the day that is three months after the landlord gives the notice required by sub-section (3). The second branch of sub-section (4) does its work, not by way of varying the provisions of the lease, but by way of providing what the operation or effect of the lease is to be: if the date which the lease is to be taken to fix as the last day for exercising the option is later than the date of the expiry of the term of the lease, the lease is to continue until that date unless the tenant determines it pursuant to sub-s.(9). As regards the first branch of sub-s.(4), I find it extremely difficult to see how it could be said that, by implication from the suggested purpose of the section, some subsequent event is to affect the reforming of the lease which has already occurred by force of sub-s.(4): the lease is to be taken to make a certain provision, and I should have thought that it must be taken to continue to make that provision notwithstanding later events. I am not sure whether the arbitrator, in speaking of the sanction for failing to give the notice required by sub-s.(3), had in mind the first branch of sub-s.(4), or the second, or both branches. As regards the second branch of sub-s.(4), what is the suggested event upon the occurrence of which the operation of sub-s.(4) is, by implication, to be affected, and in precisely what way is the operation to be affected? As to the second question (how is the operation of sub-s.(4) affected?), is the term of the lease to expire immediately upon the occurrence of the event (assuming that it would already, but for sub-s.(4), have expired)? As to the first question, what is the event which it is suggested in this case has affected the operation of sub-s.(4)? It is certainly not the effectual exercise of the option of renewal, for on the unchallenged determination of the arbitrator the purported exercise, although good in manner and form, was ineffectual by reason of breaches of covenant.
It is unnecessary for us to decide what effect the purported exercise of the option on 29 January 1998 would have had if it had been in all respects effectual, although I may say that I have little doubt that, one way or another, it would have been possible to arrive at a satisfactory resolution of the question how sub-s.(4) was to be squared with the effective exercise of the option, on the basis that Parliament must have intended that the statutory extension of the term should not stand in the way of the creation of the new term upon which the parties had agreed. But, as I say, that is not this case on the facts. All that the landlords have in this case as a supervening event is the purported exercise of option on 29 January 1998, good as to manner and form but bad as to substance. I am not persuaded that, as a matter of implication from the purpose of the legislation, on the proper construction of s.14 that event had the result that sub-s.(4) did not cause the lease to continue beyond the date of the expiry of the term. What I have called the first branch of sub-s.(4) in effect altered the lease by enlarging the time for the exercise of the option of renewal. Why should one conclude that Parliament intended that a defective exercise of option, whether bad in form or bad in substance or bad in both respects, should cause the second branch of sub-s.(4) to cease to operate? If the defect was merely one of manner or form, then a tenant could rectify the situation by giving a further notice without the defect. If the defect was one of substance, the tenant might cure that defect and then give a further notice. I do not think it can be said that Parliament intended that the consequence contended for by the present landlords was to ensue.
Some other matters should be mentioned. One concerns the effect ascribed to sub-s.(4) in certain circumstances by the tenant in the argument before us. A hypothetical case was put by inviting us to consider what the result would have been in the present case if the landlords had given the notice required by sub-s.(3) a few days after the expiration of the term, say on 4 May 1998, and on 5 May 1998 the tenant had exercised the option by an exercise effectual in all respects. How could one then, asked the tenant, reconcile the statutory extension of the term until 4 August 1998 with the presumed need to give effect at once to the effective exercise of the option? The answer, said the tenant, was to be found in the actual words of sub-s.(4). That sub-section, it was said, provided that the lease should continue until “that date”, being “the date after which the option is no longer exercisable” according to the lease as modified by the sub-section. If the option had already been effectually exercised, the option had, by virtue of its exercise, ceased to be “exercisable”, and so the statutory extension came to an end on 5 May 1998 and provided no impediment to the creation of a new term, in equity or at law, as from that date.
The soundness of this argument will not affect the outcome of this appeal. But I may say that I regard it as unsound. In my view the tenant’s submission on this point wrongly treats the sub-section as if it simply provided that the lease should continue as long as the option remained (or was) exercisable. If this were what the sub-section said, then it might be that an effectual exercise would bring the lease to an end by force of those words. But sub-s.(4) does not simply provide that the lease shall continue as long as the option remains or is exercisable. It requires the lease to be taken as providing that the last day for exercise is three months after the landlord’s notice and says that the lease shall continue until that date.
Next, it is worth mentioning that, while the arbitrator’s determination about the effect of sub-s.(5) was not in issue, we heard some discussion of the effect of that provision. The way in which it is expressed (“the only circumstances in which …”) makes it in my opinion sufficiently clear that the sub-section presupposes that the lease itself makes the tenant’s entitlement to exercise the option conditional upon the absence of default. The sub-section does not create any independent impediment to exercise.
A further question debated before us was the effect of sub-s.(9) in the present case. Without objection from the tenant, and, it must be said, not without some encouragement from the Court, the landlords advanced an argument – not put to the arbitrator or the judge – that the notice of exercise of option constituted also a determination of the lease for the purposes of sub-s.(9), which may conveniently be set out again:
“(9)If a landlord fails to notify a tenant as required by sub-section (3) …, the tenant may, by written notice given to the landlord, determine the lease as from any day that is –
(a)not earlier than the expiry of the term of the lease; and
(b)not later than the day to which the lease would otherwise have continued by virtue of sub-section (4) … “.
This is the notice given by the tenant, without its formal parts:
“We hereby like to inform you that we are excersising (sic) our right to the 5 year option on our lease after the current one expires on 30.4.1998.
We will continue to pay the rental we have been paying over the last 12 months.
Waiting for you to forward to us the appropriate documentation regarding this matter.”
The landlords say that this constituted written notice given to them by the tenant determining the lease as from 30 April 1998. I do not think that sub-s.(9) requires that the notice refer to it or even be given with knowledge of the power conferred by it. The notice must specify the day as from which the lease is to be determined, being a day within the period allowed by paras.(a) and (b). And it must “determine the lease”. It is at this point that I find myself unable, with the best will in the world, to treat this notice as falling within sub-s.(9). For a notice is not one which “determines the lease” unless it purports by its own force to do so. And the present notice does no more, in this regard, than state the givers’ belief that the current lease will expire on 30 April 1998. A notification that some circumstance other than the notification will have the result that the lease will come to an end is quite different from a notification which itself purports to bring the lease to an end. Sub-section (9) cannot assist the landlords. Mere inconsistency between some part of the contents of the notice and the continuance of the lease beyond a certain date is not enough.
It may be said that what has occurred in the present case is anomalous or unexpected or unfair, or that the tenant has had a windfall, or something of that sort. It is the fact that a tenant which gave notice of exercise in time and did not need the protection of the reminder intended to be given to tenants by the operation of sub-s.(3), and which was, in consequence of breaches and the provisions of sub-s.(5), not entitled as a matter of substance to exercise the option, now finds itself in the fortunate position of being able to say that its lease was still on foot when the disputes were referred to the arbitrator. But it does not follow that s.14 is to be read down in a way which will avoid that consequence. Any mild distaste we may feel for the result, and vigorous appeals to the “manifest purpose” of the legislation, cannot avail the landlords unless they translate into some acceptable reading of the section arrived at by a process of statutory construction. When the law of landlord and tenant depended on what the parties had chosen to agree upon, augmented by common law rules and a limited number of well understood statutory provisions, then one could say that, generally speaking, sensible results might be expected to ensue. But once far-reaching modification of the law by statute is undertaken there is always the possibility that the statute will have results in a given case which some will regard as not in contemplation and as unfair.
I think we must dismiss this appeal on the merits, although perhaps we should allow it simply for the purpose of extending the time within which the arbitrator must make his award and possibly also substituting for the order remitting the proceeding an order in terms remitting the award, together with the Supreme Court’s opinion on the questions of law, to the arbitrator for reconsideration. As to this I would hear counsel.
ORMISTON, J. A.:
In this appeal I was originally inclined to the view that it would be bizarre to require a lessor to give a lessee notice of an option where that option was no longer capable of being exercised and where the lessee obviously knows of its existence in that an attempt has been made, vainly, to exercise it. Nevertheless I would now, having read the judgment of Brooking, J.A. in draft form, conclude that Parliament intended that lessors should be under that obligation and that the appeal should be dismissed in the manner suggested by his Honour. Upon analysis the answer is not quite as bizarre as it might otherwise appear, although the provision, s.14 in the (presently relevant) Retail Tenancies Act 1986 and s.18 in the Retail Tenancies Reform Act 1998, has many anomalies.
Essentially the notice must be given three months before the last date for exercise of the option, so that in very many cases whether or not the option is incapable of exercise can only be answered finally by waiting until it is in fact exercised. The legislature clearly intended the tenant to be given warning of the time at which its right under the lease may expire. There is no reason why a lessor cannot send a letter accompanying the notice stating that in its opinion the option can no longer be exercised and that the notice is sent only in order to comply with the statutory requirement.
In addition a number of examples of strange outcomes were given which might result from the lessor's failure to give the required notice insofar as the lease may be deemed to continue for an indefinite time, pursuant to sub-s.14(4). Indeed it was suggested that, if the notice were given out of time so that the option could effectively be exercised out of time, that would ordinarily result in there being an extension of the term of the lease for such period as was necessary to allow for that exercise. It is not here necessary to answer all the questions incidentally raised but, at least up to the end of the original term, an exercise of option out of time would ordinarily be taken as resulting in a new term commencing on the day following that of the existing lease, and so the lessor's failure to give notice should then be seen as having no further consequence. If the option be exercised later, then a lessor has only itself to blame for the deemed extension. It will be told of its failure almost immediately (as the only way in which the lessee could justify its overholding) and so it can give the required notice immediately. The lessee will have, by virtue of sub-s.(4), obtained the right to stay on for three months or so, but the lessor cannot complain if that is the consequence of its failure to obey the requirements of the section.
The provisions might well be redrafted, but agents and solicitors should warn client lessors that the statute requires a notice in all cases. It cannot be for the lessor to determine finally whether or not an option is exercisable; nor does the statute allow the lessor to assume at least that the lessee knows of its rights because of some informal intimation from the lessee that it will (or will not) exercise the option on time. The lessee may well know of the option in general terms but may not know of the relevant date. (One cannot assume that all lessees can take in and understand complex option clauses drafted by skilled conveyancers.) If the lessee does exercise the option, the section will become irrelevant; if it does not exercise it, the only relevant intimation by a lessee is one which will satisfy sub-s.14(9) (now sub-s.18(7)). That much is clear, as upon proper analysis is the outcome of the present case; but a number of possible events may, unfortunately, not be so easily analysed. Those, in the absence of some redrafting of the form of the section, must await another day. For the present, subject to these observations, the appeal should be dismissed for the reasons stated by Brooking, J.A.
PHILLIPS, J.A.:
I agree with Brooking, J.A. that this appeal should be dismissed for the reasons his Honour has given.
For a time during argument I was attracted to the possibility that sub-s.(9) of s.14 met the landlords’ difficulty, but I agree now that the notice of exercise of option did not constitute notice under that subsection, determining the lease as from 30 April 1998. One particular difficulty in this instance is that on 29 January 1998, when the tenant gave its notice to the landlords, sub-s.(4) had not yet operated to effect an extension in the term; for the end of the lease was still more than three months away. If on 30 January the landlords had given to the tenant the notice required of them by sub-s.(3), the time for exercising the option would have been extended for another three months but the lease would still have expired on 30 April next, as it provided. To say in the notice of 29 January that “the current [lease] expires on 30.4.98” was probably to do no more than describe the situation still prevailing; at all events, no more can properly be ascribed to the tenant, against interest.
If I may say so, this case demonstrates that s.14 (or s.18 of the Retail Tenancies Act 1998, as it now is) is in need of urgent re-consideration by Parliament. In resolving the issue before us, the presiding judge has referred to some of the problems arising from this section and others were canvassed in argument. One example may suffice. When it is called into play by the landlord’s failing to give the notice required by sub-s.(3), sub-s.(4) extends the time for exercising the option until the day that is three months after the landlord gives the notice and, if the lease would by then have expired, extends the lease to that day. If during the period of that extension (the statutory extension of the old term) the tenant were to exercise the option and to do so duly as to both form and substance, an agreement for lease would be brought about, but from what date would the new lease commence? Would it commence from the date of the exercise of the option (the statutory extension of the old term, then necessarily giving way to the commencement of the new) or would the renewal take effect only at the end of the old term as extended by sub-s.(4) – that is, on the day which is three months after the landlord’s giving of the notice required by sub-s.(3)? As became apparent in argument there is no easy answer and such difficulties constitute more than sufficient reason to suggest that Parliament might usefully re-consider the section as a whole.
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