Lease Renewal and Option to Renew Explained

Raymond Duffy
Oct 5
2 min read

Introduction

One of the most valuable rights in a commercial lease is the option to renew. It gives a tenant the ability (but not the obligation) to continue leasing the premises for a further term — often on similar terms and conditions.

Understanding how lease renewals and options work can protect your business from losing its location or facing sudden rent hikes.

What Is an Option to Renew?

An option to renew allows a tenant to extend the lease for another period once the current term ends. Example: “A 3-year lease with one 3-year option” means you can potentially stay for 6 years total if you exercise the option correctly.

How to Exercise the Option

Notice Period: - The lease will specify when and how notice must be given (e.g., between 6 and 3 months before expiry). Miss the deadline and the option may be lost.
Method of Notice: - Usually requires written notice to the landlord — email may not suffice unless expressly allowed.
No Breach Condition: - The tenant must not be in breach of the lease when giving notice.

Rent on Renewal

Rent for the new term is usually determined by a market rent review or other agreed formula.If market rent applies, both parties may need to appoint a valuer to determine the new rent objectively.

Key Tips for Tenants

Diary the option date well in advance — missing it can cost your business its premises.
Seek legal advice early — ideally 6–9 months before expiry.
Clarify renewal conditions — e.g., are there refurbishment requirements before renewal?

Renewal Without an Option

Even if you don’t have a formal option, you may be able to negotiate a new lease directly. However, you lose the guaranteed right to stay, so the landlord can change terms or refuse renewal entirely.