Renewals vs. Extensions Of Lease Terms

As commercial tenants do not have a default legal entitlement to renew or extend an existing lease, a common element of many leases is a right in favour of the tenant to continue its occupancy beyond the expiry of the current term. While the terms used to describe such rights ("Right to Renew" and "Option to Extend") are often used interchangeably, the concepts have distinct legal ramifications which merit careful consideration by tenants and landlords.

The legal effect of exercising an option to renew is to terminate the original lease upon its expiry and immediately begin a new lease. Generally speaking, the renewal lease will contain all of the terms of the existing lease, with the exception of: (i) any rights which are personal to the tenant and (ii) the rental rate to be paid during the renewal term. In contrast, the effect of a lease extension is to continue the original lease for an extended term, generally on the same terms and conditions as the initial