A business owner entered into a commercial lease with an initial term of three years and a right of renewal for an additional three years. Despite not signing any renewal documentation, she continued renting the space after the initial term expired and sought legal advice to determine if the lease term had been renewed.

What Are Rights of Renewal?

Most commercial leases offer tenants “rights of renewal,” allowing them to enter a new lease with the landlord after the initial lease term expires. A right of renewal is not an extension of the existing lease but is considered a new lease.

Exercising the Right of Renewal

The Deed of Lease typically includes provisions that tenants must follow to exercise their right of renewal, such as:

– Pre-conditions: The tenant must not have breached any lease covenants.

– Notice Period: Tenants must usually provide at least three calendar months’ notice of their intention to renew the lease.

– Written Notice: The landlord may require the renewal notice to be in writing.

Post-Term Considerations

If the initial or renewed term expires and the landlord continues to accept rental payments, the tenancy generally becomes a monthly tenancy, which either party can terminate with one month’s notice. This situation may lead to an implied renewal of the lease based on the parties’ conduct.

Best Practices for Tenants

To ensure they correctly exercise their right of renewal, tenants should:

– Diarise the renewal and final expiry dates.

– Sign a Deed of Renewal of Lease to document the renewal formally.

Benefits of Rights of Renewal

Rights of renewal offer benefits to both tenants and landlords by providing tenants with additional security without committing to a longer lease that may not be economically viable long-term. Established businesses should seek multiple rights of renewal for extended periods.

Legal Advice

If you are entering into, renewing, or exiting a commercial lease, it is essential to seek legal advice regarding your obligations. Leading law firms offer fixed-price Initial Consultations to help clients understand their options quickly and cost-effectively.

Conclusion

Understanding and properly exercising rights of renewal in commercial leases can ensure security and continuity for your business. Always consult with a legal professional to navigate the complexities of commercial lease agreements.