In brief - Clause requiring lessor to contribute to fit out still valid in renewed lease
In a decision handed down on 19 September 2011 in Miwa Pty Ltd v Siantan Properties Pte Ltd, the NSW Supreme Court of Appeal held that a clause stipulating the payment of $45,000 at the commencement of a lease should be included in the new lease which resulted from exercising an option to renew.
Tenant obliged to redecorate every five years
Miwa Pty Ltd leased premises from Siantan Properties Pty Ltd for a period of five years, commencing in April 1996, with an option to renew for a further period of three years.
On commencement of the initial lease Miwa was entitled, by a clause in the lease, to a sum of $45,000 from Siantan as contribution to the fit out of the premises. A further clause in the lease stipulated that Miwa was obligated to keep the premises in good repair, order and condition and to redecorate the premises at intervals of not less than five years.
However, there was no clause that provided for Siantan to contribute $45,000 every five years when Miwa was required to redecorate.
New lease repeats clause requiring landlord to contribute
When the option to renew the term of the lease was exercised, the new lease also contained the clause which provided for the initial $45,000 fit out contribution.
However, Siantan refused to pay the $45,000, arguing that it should not form part of the new lease because it was only intended to form part of the initial lease.
Initial decision that landlord contribution clause should not be included
The primary judge held that according to the ordinary meaning of the particular clause, the renewed lease would include the clause.
However, he held that such a reading would lead to an absurd result and therefore the clause should not be included.
Court of Appeal rules landlord must make further payment
The Court of Appeal overturned this decision and held that on proper reading of the lease, the clause should be included in the renewed lease.
The Court of Appeal reasoned that because Miwa was obligated, among other things, to redecorate the premises at intervals of not less than five years, and because the lease was for a period of five years, this stipulation formed an express obligation on Miwa to incur expenditure at the end of the lease or by the time the option was taken up.
Furthermore, the court held that as Siantan was prepared to make a contribution to the initial fit out, it is not absurd to envisage a further repayment being made where Miwa has an obligation to repair the fit out.
Importance of a well drafted option to renew clause
This case demonstrates the importance of a well drafted option to renew clause.
It is not uncommon for option to renew clauses to stipulate that the renewed lease be on the same terms, but excluding certain clauses such as the fit out contribution, or amending certain conditions such as the next payable.
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