A business owner entered into a commercial lease with an initial term of 3 years, with a right of renewal of a further 3 years. Although she never signed any renewal documentation, she continued renting the space after the initial term expired. She sought legal advice on whether the Lease term had been renewed.      

Most commercial leases offer tenants ‘rights of renewal’ in addition to the lease term. A right of renewal is an option granted to a tenant to enter a new lease with the landlord after the initial term of a lease has expired.

A right of renewal is not an extension of the existing lease but is treated as a new lease.

Generally, the Deed of Lease will include any provisions which a tenant will need to abide by to exercise this right. These include:

  • Any pre-conditions which must be met for a tenant to maintain the right of renewal. This most commonly will be that a tenant cannot have breached any of the covenants of the lease;
  • The minimum time frame for giving notice that a tenant will exercise their right of renewal. Most landlords will require at least three calendar months’ notice of the intention to renew the lease; and
  • The landlord may also require that the notice to exercise the right of renewal be in writing.

If the initial or renewed term expires and the landlord continues to accept rental payments, then the tenancy generally switches to a monthly tenancy, which either party can terminate with one months’ notice. The parties need to be careful in this situation as the Lease may be held to have been impliedly renewed by the parties’ conduct.

It is always best practice for tenants to diarise the renewal and final expiry dates so that they can ensure they correctly exercise their right of renewal.

If the lease is renewed, the parties should sign a Deed of Renewal of Lease to document the renewal.

Rights of renewal are beneficial to tenants and landlords alike as it provides a tenant with additional security about the premises of their business without being tied into a longer lease from the outset that may not be economically viable for the business long term. Established businesses should seek multiple rights of renewal that are for longer periods of time.

If you are entering into, renewing, or attempting to exit a commercial lease, you should always seek legal advice regarding your obligations.

Leading law firms committed to helping clients cost-effectively will have a range of fixed-price Initial Consultations to suit most people’s needs in quickly learning what their options are.  At Rainey Collins we have an experienced team who can answer your questions and put you on the right track.