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Western Australia Supreme Court of Appeal

A limitation has been placed on the ability to remove options from a deed of assignment through severance. The Western Australian case of Mackinlay v Derry Dew Pty Ltd has provided a much more restricted scope to severing an option.

In this instance, a lease was granted for 20 years. While there was existing legislation that prohibits a lease to exceed 10 years, this only applied to leases of part-only lots, or 21 years in the instance of a lease for a building. The tenant of the lot conducted a business which was held in a building only taking up a small part of the property. The tenant later sold the business and assigned the portion of the property to which the business was located to the new owner. The assignment contained the right to extend the lease for two additional terms of five years. This was considered important to the assignee at the time.

As the lease now exceeded the 21 years with the options, the assignee sought to sever the options to continue the lease.

The court found that in some instances there is the ability to sever the options under which “distinct promises or engagements” where included which are illegal. However, in this case, the severance was not possible. The court noted from its assessment that the options to renew were so ingrained in the decision to purchase the business that the arrangements were too dependent on the options to sever them from the assignment.

If you would like to discuss this case further, you should contact our property team at Matthews Folbigg on 9635 7966.

Anna Zdrilic

Director, Property and Commercial Groups

Phone:  02 9806 7461


DISCLAIMER: This article is provided to clients and readers for their general information and on a complimentary basis. It contains a brief summary only and should not be relied upon or used as definitive or complete statement of the relevant law.