For many tenants, securing the right premises is only half the battle. The real value lies in being able to stay in a property long enough to build goodwill, grow a client base, and recover the investment in fit-out. Landlords, on the other hand, want the flexibility to review rent, update terms, or secure a new tenant if circumstances change.
This balance is managed through options to renew. On the surface, an option is simple: it gives the tenant the right to extend the lease for a further term. In practice, poorly drafted clauses or missed deadlines can strip tenants of valuable security and leave landlords facing disputes.
What Is an Option to Renew?
An option to renew is a contractual right allowing a tenant to continue the lease beyond the initial term. The renewed term is not automatic. The tenant must exercise the option strictly in accordance with the lease, usually by giving written notice within a set timeframe.
If validly exercised, the new lease takes effect as though it were granted from the outset. If not, the tenant may lose its right to remain, regardless of the time and money invested in the premises.
The Importance of Precision
Courts require option clauses to be drafted with certainty. Key elements include:
The renewal term – e.g. a further five years.
The notice period – often falling between three and twelve months before expiry.
The method of notice – usually written notice delivered to the landlord.
Rent determination – whether it continues at existing rent, increases by a fixed amount, or is reviewed to market rent.
If any of these elements are uncertain, the option may be unenforceable by either party.
Strict Compliance with Deadlines
Time is of the essence when exercising an option. If the lease says notice must be given at least six months before expiry, a notice served one day late will usually be ineffective. Courts take a strict approach: failure to comply with the lease terms almost always results in forfeiture of the option, even if the tenant has traded from the premises for years.
This makes diarising option dates critical. Tenants should never rely on reminders from landlords and they are under no obligation to give one in commercial leases.
Preconditions to Renewal
Some leases impose preconditions before an option can be exercised, such as:
The tenant must not be in breach of the lease.
Rent and outgoings must be up to date.
The tenant must provide written confirmation of compliance.
Where these conditions exist, they must be satisfied in full. A tenant in arrears, or even in minor breach, may find its option notice invalid.
Market Rent Reviews on Renewal
Many leases provide for rent to be reviewed to “market rent” at the start of the renewed term. This can create disputes if the parties cannot agree on what market rent is.
Well-drafted clauses usually set out a mechanism for appointing an independent valuer. Without this, the rent review process can become uncertain or unenforceable. Tenants should also note that rent rarely decreases: leases often stipulate that reviewed rent cannot be less than the rent payable immediately before renewal.
Practical Guidance
For tenants:
Diarise option deadlines as soon as the lease is signed.
Ensure compliance with all lease obligations before exercising.
Seek advice early if the rent review process is unclear or disputed.
For landlords:
Draft option clauses with clarity to avoid disputes.
Consider whether a market rent review at renewal is appropriate.
Monitor tenant compliance before acknowledging an option exercise.
Conclusion
Options to renew are a powerful tool for tenants, providing continuity and stability. For landlords, they offer a balance between securing long-term income and maintaining flexibility. But options are unforgiving: they must be clear, certain, and exercised strictly in line with the lease.
Handled carefully, they provide security and predictability for both sides. Handled poorly, they can become a source of costly disputes.
Understanding how to exercise an option to renew is a critical step in a commercial lease. To build on that knowledge, you may also wish to explore our related guides that cover other key lease components:
Together, these resources will give you a more comprehensive view of the many moving parts in a commercial lease — not just renewal options, but the broader legal and practical framework that shapes your rights and obligations.
Speak to a commercial leasing solicitor
At Thornton + King our Law Society Accredited Specialist Property Lawyers have decades of experience advising clients in relation to options to renew in commercial leases. To speak to a specialist commercial leasing lawyer in relation to your option to renew, give us a call or submit an enquiry now.
