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Insights

Your commercial or business lease will ordinarily be for a fixed period expiring on a specified date.

Although there will usually be a provision in the lease allowing the tenancy to continue, for instance, on a month to month basis following the end of its fixed term, there is often a clause allowing the tenant a further fixed term or terms if the tenant should elect for this.

This provision is known as an option or options to renew.  The lease will provide that if the tenant is up to date with rent payments and compliant with all the other terms of the lease then the tenant may take up the option to renew by providing a Notice of Exercise of Option to Renew to the landlord. This notice can be prepared by your lawyer and must state in written terms that the tenant elects to exercise the option to renew as provided for in the lease, call for a further lease of the option term and must be formally dispatched to the landlord.

Furthermore, the lease will provide that the notice be provided to the landlord within a certain time (for example – not more than six months but not less than three months prior to the  end of the existing fixed term lease).  It is most important that a tenant records these dates in advance to ensure that the Notice of Exercise of Option is provided to the landlord within the prescribed time period.

Unfortunately, many commercial tenants do not fully appreciate the above. Although some may understand that there is a right for the fixed term to be extended, many do not appreciate that the further option term must be the subject of a new lease document. The landlord accordingly prepares a brand new lease for the option term which must be signed by the landlord and the tenant and sometimes registered with the NSW State Government.

Failing to exercise an option to renew can be tragic for a tenant and its business leading to an  eviction and loss of security of tenure for the business.

In the case of a retail shop lease subject to the Retail Leases legislation in NSW, there is a requirement for the landlord to send the tenant the following notice. Not less than six months and not more twelve months before the expiry of the lease the tenant must be notified that the landlord offers the tenant a renewal or extension of the lease on terms specified in the notification or be informed that the landlord does not propose to offer the tenant a renewal or extension of the lease.

The above provision does not apply to a lease which contains on option to renew. It places a responsibility on a landlord to notify the tenant in a retail shop business of its intentions when the fixed term of the lease is starting to approach its end.

Tenants need to be aware of the above provision, for if the landlord fails to provide the required notification, the term of the lease is extended until six months following the provision by the vendor of the notification. However this only applies if the tenant requests that extension in writing from the landlord prior to expiry of the lease.

As a commercial tenant you should be familiar with the lease terms covering the Option to Renew and if relevant act on them. Further as a retail shop tenant, you should be aware of the above law which affords you (the tenant) some protection from an otherwise unexpected early eviction.

 

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