Do you have an Option to Renew on your Retail Lease?

Are you aware of the critical aspects of an Option to Renew in your Retail Lease? If not, this blog provides insights on how to exercise an option to renew and highlights the key obligations of the landlord and tenant.  

 

What Is an Option to Renew?  

An option to renew grants the tenant the right to request the landlord to extend the lease when it expires. Typically, the terms of the new lease will mirror those of the existing one, with the exception of a rent adjustment determined by the lease’s rent review mechanism. 

 

Is Having an Option to Renew a Must?  

Technically, no. It does not fall under the mandate of lease agreements. However, it stands as a practical and strategic choice. Experienced tenants and landlords often weave this option into the fabric of their initial lease agreements. Why? Because it serves as a structured blueprint for the post-expiry landscape, adding an element of certainty to commercial arrangements. 

 

Do Landlords Have an Obligation to Renew a Lease? 

If the lease includes an option for the tenant to renew the lease for a further term, then the law specifies that:  

  • the landlord must notify the tenant in writing, no later than three months before the date that the option is no longer valid, of: 
    • the deadline for exercising the option to extend the lease 
    • the rent amount applicable for the initial 12 months of the extended lease 
    • the availability of an early rent review 
    • the availability of a cooling off period 
    • any modifications to the most recent disclosure statement provided to the tenant other than any changes in relation to rent
  • the date by which the option can be exercised will be specified in the lease. 

Nevertheless, the landlord is not obligated to renew a lease in cases where the tenant has failed to address any lease default, as notified in writing by the landlord, or if the tenant has continuously defaulted under the lease despite receiving written notice from the landlord. 

 

How Can I Exercise My Option to Renew? 

Generally, in order to exercise an option to renew, the tenant is required to: 

  • inform the landlord (or its agent) of their decision to exercise the option within a specified timeframe, commonly six or three months before the lease concludes;
  • adhere to any predetermined conditions for the renewal, and 
  • steer clear of any breach or default of the lease throughout the initial term until its expiration. 

 

What If I Don’t Have an Option to Renew, Can I Still Renew My Lease?  

In the absence of a renewal option in the lease, the landlord is required to issue written notice to the tenant, outlining their intentions regarding lease renewal. The notice can either propose the renewal of the lease with specified terms or communicate that the landlord has no intention to offer a renewal. This notice must be delivered to the tenant at least six months before the lease’s expiration date, but no more than 12 months in advance. 

Therefore, you can still renew your lease provided that the landlord agrees to the renewal. 

 

Key takeaways 

  • Including an option to renew provides a structured plan, offering certainty in post-expiry leases. 
  • If the lease has a renewal option, the landlord must notify the tenant three months before expiration, detailing key renewal terms. 
  • Tenants can usually renew by notifying the landlord in writing, meeting specific conditions and maintaining a breach-free lease term.  

 

Gladwin Legal are experts in Retail Law and have extensive experience in advising businesses. If you require assistance in understanding your legal obligations, please contact us at or 1300 033 934.