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Options to renew your lease – what you must do

If you are currently leasing commercial premises you may be unaware of what you need to do if your lease contains an option to renew provision and you wish to exercise that option.


What is an option to renew a lease?

An option to renew a lease, if properly exercised, allows you as the tenant to continue to occupy the premises after the initial term of your lease expires. Tenants have no automatic entitlement to renewal of a lease. That is, your rights only exist if a specific ‘option to renew’ clause is contained in the lease.

What do you need to do?

  1. You must ensure that you exercise the option in the timeframe as specified in the lease.  For example, a lease may specify that the option to renew must be exercised no more than 6 nor less than 3 months from the expiration date of the lease.  It is during this time frame that you must exercise your option to renew your lease.
  2. You must comply with your obligations under the lease during the term of the lease.  A landlord may reject your notice to renew the lease on the grounds that during the term of the lease you had not complied with your obligations, for example, committing an act of default under your lease.

How do you give notice?

You must ensure that:

  1. the notice to exercise the option to renew your lease is in writing; and
  2. the notice is served in accordance with the lease. The clause of the lease which outlines what is required of you when exercising your option may specify on whom the notice must be served. If it does not, the notice clause will specify how notice is given under the lease.

What happens if you do not exercise your option properly?

In the event you fail to comply with your requirements to correctly exercise an option to renew your lease, it may result in your losing your rights to occupy the premises. Therefore, you may be required to vacate the premises at the end of your original lease – which may prove to be inconvenient and expensive.

For more information

Leases and option to renew clauses are serious commercial matters – where experienced legal advice is always beneficial. For more information, contact Amy Holland of our office on +617 3223 6100 or amyh@redchip.com.au.

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