Col Myers, Small Myers Hughes
There have been many articles written about how critical it is that you exercise any option in your Caretaking and Letting Agreements strictly in accordance with the terms of the agreements.
The courts have consistently held that option exercise dates are “drop dead dates”. In other words, if you miss the exercise period – even by a single day – you lose your right to extend the Agreements and they will come to an end. If you have more than one option and miss the exercise date under the first option, the agreements come to an end at the conclusion of the then current term and all subsequent options are lost.
Three are three main types of options that we regularly see in Caretaking and Letting Agreements:
Open options: Where it states that you must exercise the option by written notice to the Owners Corporation at least three months prior to expiry of the current term. If you have an open option, it is a good idea to exercise all of the option periods now, rather than risk forgetting later. Let’s face it, you are never going to not exercise an option.
Window period options: Where it states that you must exercise the option by written notice to the Owners Corporation not more than six months and not less than three months prior to expiry of the current term. Window options are a bit trickier and your must have a fail-safe reminder system to ensure you exercise the option within the window period allowed under your Agreements. When deciding how to remind yourself of your “drop dead dates” window period, always have a back up plan. You may not be sitting your office at your computer when the date comes up due to holidays, sickness or other commitments. Also ensure your reminders come up well beforehand so you have plenty of time to exercise your option.
Automatic exercising options: Where the agreements state that they are automatically extended for the option period, unless you are in default or you advise the body corporate/owners corporation in writing of your intention not to extend the agreements.
Whichever type of option you have in your agreements, it is important that you comply strictly with the wording contained in the agreements in relation to the form of notice and its delivery. Your solicitor can assist you to exercise the option validly if you are in any doubt of what is required.
It is also advisable to document the extension of the term of your agreements by way of a Deed of Extension. By doing this, there cannot be any dispute down the track that the option was validly exercised. This is particularly important when the time comes to sell your management rights business. Buyers’ lawyers want to see a “chain of title”.
Do yourself a big favour and take a moment now to look at your agreements and check what kind of options you have, and when the last date is for exercising the option(s). Then put in place a system to ensure you do not miss this “drop dead date”.
Over the years, I have seen a number of very sad situations where managers have missed their option exercise dates (only by only 24 hours) and eventually had to walk away from their business with next to nothing.
Disclaimer: This article is provided for information purposes only and should not be regarded as legal advice.