Options to Renew
Many commercial and retail Leases contain "Options to Renew".
An option to renew is a right that a Landlord grants to a Tenant under a Lease to renew the Lease once the term of the current Lease expires. Generally, but not always, the new Lease is on the same terms as the existing Lease other than the rental amount and the term of the Lease.
It is extremely important that Landlords:
Diarise the time frame within which Tenants have to exercise the Option; and
Be aware of any obligations that the Lease imposes upon them, particularly in respect to notices.
If a Tenant fails to exercise the Option within the prescribed time frame then the Landlord is not bound to grant the Option to the Tenant and the terms of any new Lease may be re-negotiated.
Important points for a Landlord to remember when a Lease contains an Option period are:
Has the Tenant exercised the Option within the requisite time frame?
Are there any obligations imposed upon the Landlord with regard to notice requirements?
Does the Lease provide for how a notice under the Lease is to be served? For example, in most Leases, email is not a valid form of notice.
Is the Tenant in breach of the Lease? If so, then the Landlord may not be obliged to grant the Option. This is particularly important if the Tenant has consistently breached the Lease throughout the term.
Is the Lease a Lease of a retail shop? If so, the Landlord has additional obligations imposed upon it including not only the obligation to notify Tenants of the upcoming Option expiry but also to provide a disclosure statement within seven days of the Tenant exercising the Option. It is also important to be aware that the Tenant also has the right to ask for the market rent to be determined prior to exercising the Option.
The condition of the Premises at the Lease expiry. We strongly recommend that an inspection of the Premises is undertaken at the time of Lease renewals.
There are many matters to consider when it comes to Options to renew. If you have a Lease coming up for renewal, please do not hesitate to contact our Commercial Department for assistance.