Renewal clauses in commercial leases can create pitfalls for both landlords and tenants.
Commercial tenants wishing to exercise a renewal option must generally give the landlord written notice not later than three months before the end of the lease.
If the tenant fails (or chooses not) to give the renewal notice before the deadline, the landlord may then look for a new tenant and the existing tenant may have to vacate the premises when the lease expires.
The High Court case of Van Leeuwen v Super Shine Products Ltd earlier this year illustrates that the process of renewing (or not renewing) a commercial lease is not always straightforward.
Van Leeuwen was the landlord of industrial premises in Auckland of which Super Shine was the tenant. The lease provided for a renewal option which had to be exercised by written notice to the landlord three calendar months before the lease expiry date of March 31, 2007. The tenant did not give a renewal notice to the landlord within the time limit.
In February 2007, the landlord emailed the tenant asking for confirmation of the tenant's intentions in regard to the renewal option by the end of that week. This extended the deadline for the tenant to give a renewal notice. A representative of the tenant, Mr Nadan, responded to the landlord by email and several voice mail messages.
Mr Nadan later claimed his initial voicemail message had indicated that while Super Shine would like to renew the lease, a meeting would need to be arranged with the landlord to discuss aspects of the lease before Super Shine would sign up for a further six years. Mr Nadan agreed that in a later voicemail message he had confirmed that Super Shine was intending to renew the lease and wanted to arrange a meeting with the landlord to discuss plans for the future.
Subsequent to his voicemail messages, Mr Nadan sent an email to the landlord on February 9, 2007 stating, "I left a message on your answer machine confirming our intention to renew the lease. We would like to make a time to meet with you and discuss our plans for the future."
Despite Mr Nadan's email, Super Shine ceased to pay rent and vacated the premises before the end of the lease.
The property remained untenanted until April 2009 when it was re-let at a much lower rent. The landlord then brought proceedings in the High Court against the tenant and the tenant's guarantor [Mr Nadan] for breach of the obligation to pay rent on the grounds that, taken at face value, Mr Nadan's email was effective to renew the lease.
Super Shine's lawyers argued that, viewed in the context of the earlier voicemail messages, the statements in Mr Nadan's email must be taken as being conditional on the resolution of certain issues affecting the lease and could not possibly be read as a notice to renew.
The court held that Mr Nadan's evidence regarding his earlier voicemail messages, which might have qualified the express terms of his email, was inherently lacking in credibility.
The court observed that the tenant was nearing the end of the extended deadline which the landlord had granted it for the purpose of giving a renewal notice. The court found that (given the timeframe) this was not an occasion for expression in unclear or equivocal terms. The court held that Mr Nadan's email clearly and unequivocally indicated an intention to renew the lease and the subsequent conduct of the parties was consistent with this finding. Super Shine had therefore exercised its renewal and was committed to the new lease term.
As far as tenants are concerned, this case is a reminder that communication by email can be just as binding as a formal letter and that once an intention to renew has been communicated to the landlord then it will be very difficult to avoid.
• David Smillie is a partner in the legal firm Gallaway Cook Allan.
