Steps to take when exercising an option to renew a lease

When a landlord and tenant agree to sign a lease, they will agree to an initial period of time ('term') that the lease will go for. Often the landlord and tenant may contemplate a lease for a longer term but do not want to unconditionally commit to that further term right from the start. A common solution favoured by tenants and landlords is to agree on a process for renewing the lease, known as an option to renew. This refers to the optional decision whether to:

• continue the lease for a further term (generally equivalent to the first term); or
• allow the lease to come to a natural conclusion at the end of the first term (also referred to as 'expiry').

This process of deciding on an option allows the tenant and landlord to agree on what conditions or commercial terms will remain the same or change between the initial and renewal terms. This article will look at the key steps for the landlord and tenant to take when exercising an option to renew the lease.