The recent decision handed down in the Victorian Civil and Administrative Tribunal (VCAT) in Pagica Pty Ltd atf the Oscinah Trust v Inlet Property Pty Ltd [2024] VCAT 830 serves as a reminder of the specific requirements and careful attention required when serving a notice under Section 28 of the Retail Leases Act 2003 (Vic) (The Act).

Section 28 of the Retail Leases Act

Where a tenant of a retail premises lease has an option to renew the lease for a further term, the landlord must serve a valid notice pursuant to section 28 of the Act (Section 28 Notice). A Section 28 Notice is deemed valid when it is served at least three months before the last date of exercise and it includes:

• the date by which the option to renew the lease may be exercised; and
• the rent payable for the first 12 months under the renewed term of the lease; and
• the availability of an early rent review under section 28A; and
• the availability of a cooling off period under section 28B; and
• any changes to the most recent disclosure statement provided to the tenant, other than any changes in relation to rent.

The consequence of the landlord not serving a Section 28 Notice is that the date by which the option to renew the lease is extended to the date that is three months after the landlord notifies the tenant as required.

Pagica Pty Ltd atf the Oscinah Trust v Inlet Property Pty Ltd [2024] VCAT 830

In this case, the tenant had an option to review the lease and VCAT considered a purported Section 28 Notice served on the tenant. The Section 28 Notice recorded a fixed rent amount as at the commencement date of the further option whilst also stating that an early rent review was available to the Tenant pursuant to section 28A of the Act.

The Section 28 Notice recorded a proposed fixed rent amount to apply at the commencement date of the option whilst also stating that an early rent review was available to the tenant pursuant to section 28A of the Act.

The tenant argued that the Section 28 Notice was not valid given there was to be a market rent review at the start of the renewed term, however, the Section 28 Notice specified the fixed rental sum as the rent for first year of the new term.

The landlord sought to end the lease on the basis that the tenant did not exercise its option to renew within the specified timeframe. The tenant argued that the Section 28 Notice was not valid and therefore the tenant had not breached the required timeframe.

The landlord’s Section 28 Notice was held to be invalid.

Key findings

The key findings in this case were:

1. The critical error made by the landlord in this case is that the Section 28 Notice recorded the rental amount as follows: “the commencement rent for the further term will be: $110,000.00 per annum + GST”. This statement was found to be ‘clearly incorrect and misleading’ as the ‘commencing rent had not been agreed by the parties, and was not the product of a market rent review’.

The Tribunal found that the statement did not comply with the requirements as set out in section 28 of the Act and was found invalid on this basis. The effect of this error was that the tenant had not actually received a valid Section 28 Notice and was not in breach of the timeframe to respond.

2. The tenant argued that the one-line reference to an early rent review was not adequate, however this argument was not accepted. Rather, it was the inconsistency between stating a fixed rent amount as the commencing rent and then a reference to the tenant being entitled to an early rent review which VCAT considered rendering the Section 28 Notice invalid.

3. The option to renew cannot be exercised until a valid Section 28 Notice is served.

If the Section 28 Notice is invalid and, as a consequence, the tenant cannot yet exercise its option to renew the lease, the tenant’s interest in the premises is protected until the tenant receives a valid Section 28 Notice.

Key takeaways

The Pagica Pty Ltd case is a reminder to landlords to issue clear and compliant notices to safeguard both tenants and landlords against costs and delays that may arise if not prepared correctly.

Relevantly:

• It is important that the Section 28 Notice states the proposed rent for the new term and affirming that the right to an early market rent review, if the rent for the new term is a market rent.
• Landlords must issue valid notices to avoid unintentional extended lease periods. This also serves as a reminder for agents and lawyers to carefully draft the Section 28 Notice to ensure compliance with section 28 of the Act and avoid ambiguity and delays.