To give certainty to business, a commercial lease should and usually will contain an option to renew the term of the lease.
The option is to be negotiated at the commencement of a lease. The number of options contained in a lease, or the lack thereof, can impact the value of the landlord’s commercial property or a tenant’s business. It can also impact the stability and viability of the tenant’s business.
Where the tenant has complied with the terms of the lease, particularly payment of rent the landlord is obliged to renew the lease if an option is included in the lease and properly exercised by the tenant. Option’s must be exercised correctly by the tenant in order for that exercise of option to be valid. Therefore, it’s very important to understand the exercise of option process.
Tenants and landlords may not have a full understanding of their rights and obligations in relation to exercising their option or market rent reviews.
Issues such as those listed above can may complicate the renewal of lease. If you are in doubt, then you should seek further advice early.
If you are anticipating an option renewal or there are issues or disputes over the lease, we can provide legal advice.
Obtaining advice is key to helping you resolve issues and improve your chances of success. Our commercial lease lawyers will clarify your legal position and outline the rights and responsibilities of each party under the lease.
As a tenant, if you decide not to exercise your option to renew, your lease will most likely lapse, subject to some exceptions, including for example, in a retail lease situation in circumstances when a landlord has not provided the formal notification of the right to renew . Legal advice is strongly advisable in such circumstances.
Time is of essence where a tenant wants to exercise an option to renew their lease. Under the Retails Shops Act (WA) a retail tenant often has statutory protection than the non-retail commercial tenant.
The option renewal can trigger some issues such as determining what the new rent should be and the requirement for a new lease disclosure statement. There can be further issues if the notice is not correctly served or the tenant is in breach of the lease.
If a landlord and tenant cannot agree on the new rent; either party has the right to elect for the appointment of a valuer to formally assess what the new market rent should be.
Our commercial lease lawyers can assist with rent review issues in addition to ensuring that all the relevant key issues are considered by the valuer.
There are key issues to consider when exercising lease options and our lease lawyers regularly assist clients in drafting leases and all types of lease disputes.
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