Interpreting Lease Options: Lessons from Willis Australia Ltd v AMP Capital Investors Ltd [2023] NSWCA 158

Key Takeaways

• Drafting Clarity: Careful attention must be given to drafting option clauses and interpreting languages in lease documents to avoid ambiguity and potential disputes;

• Tenant Compliance: Landlords must ensure that the tenant’s notice and actions strictly adhere to the lease terms;

• Judicial Interpretation: Court will interpret lease terms based on their natural and ordinary meaning; and

• Commercial Practicality: Courts aim to avoid interpretations that lead to a commercial inconvenience or requiring redrafting lease documents.

Background  

In the case of Willis Australia Ltd v AMP Capital Investors

Ltd [2023] NSWCA 158, the dispute centred on the interpretation of lease terms between Willis Australia (Willis) and AMP Capital Investors Ltd (AMP). The lease was for a term of six years with two options:

1. An option to renew the existing lease for an additional four years; and

2. An option to lease the remaining space on level 15 (expanded space) for four years.

Willis notified AMP of its intentions to exercise both options in late December 2019 but withdrew the notice for the expanded space in August 2020, claiming the option was not validly exercised due to unmet conditions. The primary judge ordered specific performance, requiring Willis to take the expanded space,  concluding that AMP had waived the unmet conditions.

Issue

The appeal focused on:

1. Whether Willis validly exercised the option by satisfying all conditions in the lease or if partial compliance was sufficient.

2. Whether the option was an irrevocable offer or a conditional contract.

Held 

The appeal judge determined that Willis had not met the conditions to validly exercise the option, and AMP could not waive these obligations. Willis was not required to take the expanded space. The decision was based on the lease’s construction rather than characterising the option as a conditional contract or irrevocable offer.  

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