Answers · Option to renew
How does an option to renew work in a commercial lease?
Direct answer
An option to renew gives a tenant the right, but not the obligation, to extend a commercial lease for a further term on terms largely fixed in advance, usually with a rent review at the start. The tenant must exercise it in writing within a defined window before expiry — miss that window and the option generally lapses.
Options exist to give tenants security beyond the initial term without forcing a full renegotiation. A lease might run five years with two further five-year options, meaning the tenant can secure up to fifteen years of tenure in total, exercising each option only if the business still wants the premises. The new term's rent is typically set by a market review or a fixed formula agreed when the original lease was signed.
The part that catches tenants out is the exercise window — commonly a period of, say, three to six months before the current term ends, during which written notice must be given in the exact form the lease requires. Some leases treat time as strictly 'of the essence,' meaning a notice given even one day late can be invalid, regardless of intention.
The safest habit is calendaring option dates the day the lease is signed, with reminders well ahead of the window, and confirming notice in writing regardless of any informal conversations with the landlord. A landlord acting in good faith will often flag an approaching option date, but the legal responsibility to exercise it correctly sits with the tenant.
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