Options and renewals for retail leases
A retail premises lease includes terms for a specific period of occupancy and may include an option to renew.
This is something the landlord and tenant can negotiate before entering into a lease.
Landlord’s obligations to renew a lease
The landlord must renew a lease if the lease contains an option to renew, and the tenant has requested this option.
Option to renew: notices and timing
When the lease contains an option for the tenant to renew the lease for a further term, the Retail Leases Act 2003 (the Act) specifies that:
- The landlord must notify the tenant in writing reminding the tenant of the date after which the option is no longer valid. The date by which the option may be exercised will be specified in the lease.
- This notice must be given at least six months, but no more than 12 months before the date the option is no longer valid.
- If the tenant exercises the option before the tenant receives the notice from the landlord, the landlord is not required to provide the notice.
If the landlord does not give notice, the date after which the option is no longer valid is extended by six months, starting from the date the landlord gives the notice to the tenant.
Where the extended date is after the expiry date in the lease, the lease should continue until that date on the same terms and conditions as before the expiry date.
If the tenant does not wish for the lease to be extended beyond the expiry date, the tenant can give the landlord written notice terminating the lease. This is providing the lease is not terminated earlier than the date the lease expires.
When the option to renew the lease is exercised, the new term will commence the day after the expiry of the previous lease, regardless of the extension.
No option to renew: notices and timing
When the lease does not contain any option to renew the lease for a further term, the landlord must give written notice to the tenant, setting out the landlord’s intentions for renewal. The notice is to either:
- offer the tenant a renewal of the lease (on the terms in the notice)
- inform the tenant that the landlord does not plan to offer the tenant a renewal of the lease.
The landlord must provide the option to renew a lease, or not renew the lease, at least six months but no more than 12 months before the expiry date of the lease.
If the landlord does not give the notice within this time, the lease is extended by six months after the date on which the landlord gives the notice to the tenant.
- If a lease expires on 31 December 2019, the landlord must give the notice any time between 31 December 2018 and 30 June 2019.
- If the landlord fails to give the notice between these dates, and eventually gives the notice to the tenant on 30 September 2019, the lease is extended by six months from this date.
- This means the lease will expire on 31 March 2020, on the same terms and conditions as applied immediately before the expiry date.
If the landlord does not provide the notice within the notice period, and the tenant does want the lease to be extended beyond the expiry date, the tenant can give the landlord written notice to terminate the lease. The date of lease termination must not be any earlier than the date of expiry of the original lease.
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