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Exercising your option to renew a retail lease

Property Law News | December 2015

An Option to Renew a Lease can be a valuable asset for a Retail Tenant as it allows the Tenant to seek a further Lease from the Landlord on the same terms as the current Lease. However, it is critically important that the option is properly exercised if you plan to take advantage of it.

Issues surrounding options to renew leases are some of the more commonly litigated lease disputes, and you need to be mindful of the process and the timelines which are involved with the exercise of an option.

Where to begin?

  • Don't breach your terms. Ensure that you are familiar with the terms of your current Lease and ensure that you are not in breach of any of these terms as this will allow the Landlord to refuse to grant you an option to renew the Lease.
  • Notify the landlord in time. You should pay particular attention to the “window” of time prescribed in the Lease during which you are required to notify the Landlord (in writing) of your intention to renew the Lease as well as the method of rent review at the commencement of the new term.
  • Clarify the new rent. If you are unsure about the new rent to be paid on a renewed Lease then section 32 of the Retail Leases Act 1994 (NSW) allows you to request a rental determination for the new Lease from the Landlord up to 6 months before the time to exercise your option. If a rental determination is not provided before the option date then the Act extends the notice period until the determination is received by the Tenant.
  • BEWARE!!! If you seek a rental determination and it is provided to you early (before the time to exercise your option) then you will only have 21 days from the date of the determination within which to exercise the option under the Lease.

Timing is critical

This cannot be overstated. It is crucial that you serve your written notice of exercise of option within the times stated on the Lease. If you serve the notice a day early or a day late the Landlord can refuse to grant you the option on the Lease. There is also no obligation on the Landlord to advise you that the notice period has either started or is due to expire soon.

The notice must be served on the Landlord or its agent in accordance with the requirements for service outlined in the Lease and the intention to renew the Lease must be explicitly stated.

Once you have validly exercised the option to renew the Lease as a Tenant you are contractually obliged to continue with the Lease even if any new terms (such as rent) allowed under the original Lease are not determined by the Commencing Date of the new Lease.

What happens next?

If you have complied with all of the requirements for the valid exercise of your option to renew the lease then the Landlord will issue you with a new Lease. You should seek legal advice to ensure that your option Lease has been correctly drafted and on the same or similar terms to the existing Lease.

Forum Law Solicitors can advise and assist you with all aspects of retail leasing and commercial leasing including ensuring that your rights under an option to renew are protected. Call us on (02) 9560 3388 or email us for prompt, friendly and professional advice.

Forum Law is an active member of several reputable law and industry associations. We have recently obtained ISO9001 accreditation.