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.

This is commentary published by Colin Biggers & Paisley for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories. © Colin Biggers & Paisley, Australia 2023.

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