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Can you rely on your landlord’s promise to extend your lease?

03 May 2017

Topics

  • Business Law
  • Property

Recently, the High Court in Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd[2016] addressed the issue of verbal statements made by a landlord to a tenant.

We look at this case to find out whether a tenant can rely on past statements made by a landlord when negotiating the option to renew leases. Do these statements create a legal obligation to renew a lease?

History

In this case, Crown Melbourne (landlord) granted leases to Cosmopolitan Hotel (tenant) that were limited to a term of five years. The leases did not hold any option for renewal because Crown refused to include an option. The Court was advised that in negotiating the leases, Crown said to Cosmopolitan that they would be “looked after at renewal time”. However, at renewal time, Crown did not renew the leases.

The case

Cosmopolitan brought proceedings against Crown and argued that the statements by Crown created an obligation for them to renew the contract. The High Court found in favour of Crown and held that a reasonable person in the tenant’s situation could not have understood the statement as a contractual promise to renew the leases for a further five years.

The outcome

The effect of the decision is to confirm that commercial tenants should be careful when negotiating renewal options with their landlord. It will not be enough for tenants to simply believe they will receive an extension by solely relying on verbal statements made by their landlords if the tenant wants to enforce a right to renew a lease. It is best if tenants negotiate an enforceable agreement to avoid additional legal costs.

How can Snedden Hall & Gallop assist?

If your company needs assistance in negotiating lease agreements or enforcing lease agreements, please call our experienced Business team for advice. Please call us today on (02) 6285 8000 or by email.