OPTIONS IN CARETAKING AND LETTING AGREEMENTS—CAN THE AGREEMENTS BE ENDED?

Most committees are surprised to learn that renewal options in caretaking and letting agreements aren’t just a formality—they can be used to end an agreement. While it might seem like the caretaker or letting agent simply has a right to extend the agreement, it’s often not that simple. There are conditions that need to be met, and if they’re not, the committee may have more control than expected. Understanding how options work is key when renewal time comes around.

Exercising An Option: It’s A Right—But Not a Guarantee

An option to renew is a contractual right for a caretaker or letting agent to extend the agreement for a further fixed term where specified conditions are satisfied. The further extension of the agreement given by the option is usually not (although it can be depending on the drafting of each agreement) an automatic right for a caretaker or letting agent.

These conditions typically include:

• the notice must be in writing;
• giving that notice to the correct party, at the correct address, in the correct way, and within a defined period;
• preconditions at both the time of exercising the option and the end date of the agreement.

While there is some flexibility that decision-makers apply when assessing whether these conditions have been satisfied based on the specific circumstances of each case, the starting position is whether strict compliance with the conditions can be established.

A technically defective notice, whether because of timing, method, or address, can render the option invalid and bring the agreement to an end.

Put it in writing—and make it clear

If an agreement requires the notice exercising the option to be given in writing, it is not enough for the caretaker or letting agent to verbally mention at a committee meeting or general meeting, or in passing with a committee member.

The notice must be in a written form, such as a letter or other piece of paper, or an email or other electronic form of communication. Where an electronic form of communication is used by the caretaker or letting agent, the issue will be whether it was given in the correct way.

The written notice must also be clear in what it is doing—that is, whether the option in both a caretaking and letting agreement is being exercised, or only one of those agreements. The body corporate is not expected to speculate as to which agreement is the subject of the notice.

Who, where and how: Getting notice delivery right

The agreement will usually nominate who the notice must be given to—usually the body corporate directly. That is different to the body corporate manager, the body corporate’s solicitor or a committee member. If the notice is given to the wrong party, the caretaker or letting agent would need to show that the other party was an agent for the body corporate or that the notice ultimately came to the body corporate’s attention in a way that satisfies the requirements of the agreement.

The address for the giving of notices is usually set out in the agreement or otherwise notified in writing during the term of the agreements. Where no address is given (or it is unclear), there are steps that the caretaker or letting agent will need to take to ensure the notice is properly given.

The agreements will typically list ways the notice may be given, such as by certified pre-paid post or facsimile (yes—these still exist!). Most agreements do not expressly provide that a notice may be given by email or other electronic means, and it will depend on the way the agreements are interpreted as to whether email is an acceptable form of giving the notice.

There is usually a window of time within which a notice must be given, and at a minimum, such notice must be provided before the current term of the agreement ends.

Pre-conditions

A common prerequisite for a caretaker or letting agent exercising an option is that there must be no breach of the relevant agreement at the time of exercising the option or at the end of the current term. This prerequisite can have various nuances depending on its drafting, but all those nuances require a degree of compliance with the duties under the agreement.

Are Renewal Options an Avenue to End Agreements?

Options are not only a right for the caretaker or letting agent. They are also a control mechanism for the committee. If the committee has concerns about the performance of the caretaker or letting agent, the option process provides an opportunity to negotiate (and potentially end) an agreement.

For that reason, it is critical for committees to understand whether the option has been exercised correctly. If the exercise of the option does not comply with the contractual requirements, the committee may be able to refuse renewal and negotiate new terms or appoint a new contractor.

Caretaking and letting agreements can also contain cross-default clauses. These clauses tie caretaking and letting agreements together where those agreements are in separate documents, so that if one agreement ends, so does the other.

Summary

Renewal options in caretaking and letting agreements require strict compliance with contractual conditions, including proper written notice to the correct party—usually the body corporate itself. Committees must understand these nuances to protect their rights, as defective notices or missed deadlines can affect whether an agreement is validly renewed or ended.

We have been (and currently are) involved in many cases leading up to, and at the time, an option is exercised under an agreement and have achieved successful outcomes for those bodies corporate.

Article Contributed by Brendan Pitman, Partner at Grace Lawyers QLD.

If your Committee is approaching a renewal date for caretaking or letting agreements, contact our Grace Lawyers QLD team on 1300 144 436 or www.gracelawyers.com.au for practical advice on your rights, obligations and options for moving forward.