Consumer Information

Author : Maryna Botha – STBB
28 January 2016

RENEWING AN OPTION:  ‘I DO’ IS THE MESSAGE TO CONVEY
CLICKS RETAILERS (PTY) LTD V KILLARNEY MALL PROPERTIES (22362/2015) ZAGPPHC 841 (11 DECEMBER 2015)

When exercising an option, the prescripts of the wording of the option must be followed and a simple “I do” usually demonstrates a clear, unambiguous exercise of the option. This judgment illustrates that commencing negotiations in respect of a lease renewal option, where a clear ‘yes’ or ‘no’ was required, can fall short of conveying affirmation of the exercise of the option, with costly consequences.

SUMMARY OF JUDGMENT

FACTS
Killarney Mall Properties (KMP) let premises in its shopping complex to New Clicks South Africa (Pty) Ltd t/a Clicks (Clicks). The commencement date of the agreement was 01 April 2005 and in terms of Clause 4.1, the contract would continue for an initial period of 10 years (initial period).

Clause 4.2 made provision for a right to renew the agreement and required the tenant (Clicks) to give written notice to KMP to that effect not less than 6 (six) calendar months before the expiry of the initial period, failing which the option to renew would lapse.

Clause 4.3 stated that during the option period, the Tenant’s tenancy shall be governed by the terms and conditions of the existing lease.

A dispute arose regarding whether the option had been exercised. Clicks argued that it had exercised its option when it, in writing, on 13 June 2014 advised the managing agents of KMP of their desire to renew the lease for a further period. The letter read as follows:

“REQUEST FOR RENEWAL PROPOSAL: AGREEMENT OF LEASE BETWEEN KILLARNEY MALL INVESTMENTS (Pty) Ltd, AND NEW CLICKS SOUTH AFRICA …

Our records indicate that the existing agreement of lease for the CLICKS premises in Killarney expires on … 2015. As required in terms of the renewal option, we advise that it is our desire to renew the lease for a further period.

Kindly forward a rental proposal to … for our consideration.

Please note that all negotiations will be subject to final approval by our board.
Kind regards” 

KMP disagreed and in its counterclaim, sought an order confirming the termination of the lease and the eviction of Clicks from the premises. It argued that the heading of the letter – “REQUEST FOR RENEWAL PROPOSAL: AGREEMENT OF LEASE . .. ” and the final two paragraphs thereof which refer to a request for a “rental proposal” and concludes with a reference to the fact that “all negotiations will be subject to final approval” by Clicks’ board – indicated that Clicks sought to renegotiate the terms of a renewal period and (rather than exercising the option) simply requested KMP to provide a renewal proposal.

This, KMP argued, was not a valid exercise of the option as the initial lease agreement stipulated that tenancy during the option period would be governed by the terms and conditions of the initial lease. The original lease agreement made no provision for the renegotiation of the terms of the contract.

HELD
• An option contains an offer that is open to acceptance by the option holder. The acceptance must take place in accordance with the rules of acceptance and in accordance with the agreement.

• The acceptance of an option must be clear and unequivocal or unambiguous. In order to be effective as an exercise of the right of renewal, it must unequivocally convey to the recipient, using ordinary reason and knowledge, that it is intended to be such an exercise.

• The argument that the plain reading of the document made it clear that it was a “request for a renewal proposal” was supported by the wording in the letter which requested KMP to forward a rental proposal to Clicks. The concluding paragraph of the letter also made it plain that further negotiations were contemplated. In addition, any rental proposal would be subject to Clicks’ board’s approval.

• As such it was clear that the requirements of clause 4.2.1 of the existing lease had not been met: mere expression of a desire would not suffice or be compliant with clause 4.2.1. What was required was an unequivocal, unconditional and clear exercise of the option on the terms set out in the lease. The letter was a request for a renewal proposal.

Clicks’ application for a declaratory order was therefore dismissed and KMP’s counterapplication succeeded, the court confirming that the agreement of lease entered into was terminated

CONCLUSION
Clicks’ application for a declaratory order was therefore dismissed and KMP’s counterapplication succeeded, the court confirming that the agreement of lease entered into was terminated

The Judgmen be viewed here: