Exercise of Options for Leases

Options to renew that arise under commercial leases are far too often not exercised properly, lapse and therefore are null/void.

An option to renew is a clause that is contained in some Leases and is negotiated when entering into the initial Leasing agreement between the parties. An option to renew allows the Tenant to renew the Lease on the same or similar terms as the original/current Lease. For example, if a Lease is entered into for a Term of five (5) years, with an option to renew for a further period of five (5) years, the total potential tenancy under the Lease is ten (10) years, should the option be exercised in accordance with the Lease.

The three (3) key takeaways for any Tenants who are purporting to exercise an option are as follows:

  • Exercise the option within the prescribed period as stated in the Lease. This is commonly between three (3) and six (6) months before the Terminating Date under the Lease but it does vary, so it is vital to not only keep a copy of the current Lease but diarise the upcoming Terminating Date and exercise of option period dates.
  • Ensure that the option is correctly exercised in accordance with the requirements under the relevant clauses of the Lease. For example, most commercial Leases require that any option to renew be exercised in writing and “served” on the Landlord (or Landlord’s representative). The method of service will be detailed in the body of the Lease, so careful attention must be paid to ensure that the Notice of Exercise of Option is in the required form.
  • It is also important to obtain legal advice on any options arising under a Lease. This will ensure that the option to renew under the Lease is exercised correctly.

Baker Love Lawyers have experience in assisting clients in exercising options to renew and we can assist you before the period expires to ensure that the Notice is in accordance with the requirements under the Lease.

If you or anyone that you know require any assistance with exercising options under commercial leasing agreements or any other Leasing transactions, please contact us at Baker Love Lawyers on 4944 3322 or jtwilson@bakerlove.com.au

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