What is a Renewal of Lease? Everything You Need to Know

Do you have a commercial Lease, either as a tenant or landlord? You may have heard of a Renewal of Lease. But what is it and how do they work? Let’s take a look.

What is a Commercial Lease?

Firstly, let’s look at what a commercial lease is. A commercial lease is a legal agreement between the owner or landlord or commercial property and the tenant. The lease sets out the following key points:

Who owns the premise, known as the landlord;

Who is leasing the premise, known as the tenant;

The address of the premise being leased;

The amount of rent payable by the tenant to lease the premise;

Any installations the landlord has already installed;

Any installations the tenant will install;

How long the lease is for;

Whether the tenant is to pay outgoings under the lease, such as council rates as outlined in the Disclosure Statement to the Lease;

Tenant requirements to obtain insurance;

The permitted use of the premise, that is what the tenant is permitted to use the premise for;

Rent review dates, such as annual rental amount reviews;

How rent is to be increased through that term;

Any terms and conditions of the lease covering things such as payments, defaults or what happens in the event either the landlord or the tenant breaches the lease and more; and

Further terms offered to the tenant after the initial lease expires.

When there are further terms in the lease, this is where a Renewal of Lease will come in.

What is a Renewal of Lease?

A Renewal of Lease is a further agreement between the landlord and tenant outlining the terms and conditions of the lease for the period of the next term offered in the original lease, once the initial lease period has expired. This is often called an option or further term and is documented in the original lease.

For example, if an original lease is for five years with an option for two further terms of five years, the tenant can elect to take up the option to enter into a renewal of lease for another five-year period after the initial five-year lease period expires. An option is the benefit of the tenant and exercisable at the tenant’s discretion.

A Renewal of Lease is based upon the same terms and conditions as the original lease, expect for rent payable and the further terms then available. A lease renewal is not a new lease agreement, and the other terms and conditions of the original agreement still apply.

I have a commercial lease. How do I know if my lease allows any further terms?

The original lease agreement will clearly state for how many further terms, if any, a tenant has the option of renewing the lease. The further terms should be clearly outlined in the lease schedule, which summarises the main terms of the lease.

If it is a Lease that is governed by the Retail Leases Act Vic 2003, landlords must provide the tenant with a disclosure statement on the lease. This disclosure statement outlines all the costs and outgoings associated with the lease that the tenant will have to pay, along with all the dates for initial lease and any further terms.

I am a tenant and wish to renew my lease. What do I need to do?

If you wish to renew your lease, it is important to ensure that you check the original lease. The original lease will outline when and how you are able to exercise your right to renew your lease. Your intention to renew the lease is to be given in writing to the landlord. That notice must be given within a given time as set out in the lease and if the Retail Leases Act 2003 applies within the time frame stipulated in that Act.

At Wollerman Shacklock Lawyers, we guide you on the dates that you must provide written notice to the landlord that you wish to renew the lease and key dates after that to ensure a valid renewal of lease is entered into. We can also prepare the renewal of lease for you or provide advice to you. There are also obligations on the landlord to notify you of your latest date to exercise your option.

My lease does not have any option for further terms, but I wish to stay. Is there anything I can do?

If you have a commercial lease that does not have any option for any further terms, don’t panic. You can discuss this with the landlord and try to negotiate details of a new lease agreement. Wollerman Shacklock Lawyers can also assist with corresponding and negotiating with the landlord on a new lease option. In this instance, the landlord has an obligation to advise you whether they will be offering you a new lease or not.

If an agreement can be reached, this will not be a renewal of lease, this will be a new lease. However, we would negotiate with the landlord having options for further terms in the new lease so that you have security for the future in the event you do wish to renew the lease again in the future.

My lease has the option for further terms, but I do not wish to lease the premise after the initial lease period expires. What can I do?

If your lease has options to renew the lease but you do not wish to continue leasing the property after the initial lease period, that is no issue. To end the lease, you must provide notice to the landlord of your intention to vacate the premise at the expiration of the lease period.

However, it is crucial to ensure that you check the original lease which will outline how much notice you are required to give the landlord of your intention to vacate the premise. Providing you give the landlord the correct notice period, you can vacate the premise with no penalty.

We also recommend that you consider your make good obligations, how long that will take you and how much that might cost you.

Can a landlord refuse to renew a commercial lease?

A landlord cannot ordinarily refuse to renew a commercial lease where the lease has the option for further terms, unless any of the following circumstances have occurred;

The tenant has breached the lease, and the landlord has given written notice to the tenant that they must remedy the breach, and the tenant has not done so;
The tenant has breached the lease on numerous occasions during the term of the lease of which the landlord has issued written notices to the tenant to remedy;
The tenant did not provide the landlord with proper notice of their intention to renew the lease or within the required time period as set out in the lease, providing that the landlord has complied with its obligations to notify you of your latest date to exercise your option for a further term.

If any of the above situations have not occurred, the landlord cannot legally refuse to renew the lease.

What happens if the tenant wishes to renew a lease but failed to give the correct notice to the landlord?

It can be common for tenants to verbally advise the landlord of a commercial lease that they intend to renew the lease. However, a verbal agreement is not legally binding! If the tenant does not provide written notice to the landlord in the required timeframe as set out in the lease, the landlord does not have to agree to renew the lease.

If a tenant has not provided proper notice to the landlord but wishes to renew the lease, the only option the tenant has is to try to negotiate with the landlord to accept the notice being given. If you find yourself in this situation, contact our team today. We can assist with corresponding and negotiating with the landlord to try to come to an agreement for the renewal of lease.

Do I need to obtain legal advice for a renewal of lease?

It is not mandatory to obtain legal advice on a lease or renewal of lease, however as a lease or renewal of lease binds you into an agreement, sometimes for lengthy periods of time, we strongly recommend that you obtain legal advice, whether you are the landlord or tenant.

At Wollerman Shacklock Lawyers we ensure you understand the lease, the terms and conditions, and your obligations under the lease. If you are a tenant, we also ensure that you are aware of the risks and obligations placed upon you if the lease requests you guarantee the lease in your personal capacity where your company is the tenant. This is a big risk that is often not understood when people enter into lease agreements.

Whether you are landlord of tenant, we ensure you know what it is you are signing before you sign, advise on your rights and assist with any negotiations required with the landlord or tenant.

If you would like assistance, please contact Wollerman Shacklock Lawyers on 9707 1155 or admin@wslegal.com.au.