An ‘option to renew’ a lease refers to a right included in a commercial lease or retail shop lease which allows the current tenant an opportunity to call on a further or extended lease period. Where an option to renew is exercised a new tenancy will be created between the landlord (the ‘lessor’) and the tenant (the ‘lessee’). An option will usually contain at least two preconditions; the time and manner in which to exercise the option and that the tenant will comply with the covenants in the lease.
Commercial leases and retail shop leases most commonly include an option to renew and can be a great way to ensure a long lasting tenancy. Commercial leases will generally have a ‘call’ option but they can sometimes have a ‘put’ option. A call option is the type of option which allows the tenant to renew the lease. A ‘put’ option is a renewal which allows the landlord to exercise the option to renew. The article will deal solely with ‘call’ options.
It is essential that there is strict compliance with the manner and time provided for in the option to renew to be exercised. A failure to adhere to the requirements can result in a loss of the right to renew the lease. Where there is an exercise of the option late in time, it can still be rendered effective by way of agreement between the lessee and lessor.
In Queensland retail shop leases are governed by the Retail Shop Leases Act 1994 (Qld) (the ‘RSLA’). Leases express or implied, in writing or not which deal with a grant of right to use premises as a “retail shop” will fall under the RSLA. The RSLA allows certain protections for lessees where an option to renew is included in the retail lease. These protections include:
Queensland provides further sources of relief to lessees under the Property Law Act 1974 (Qld) (the ‘PLA’). Pursuant to section 128 of PLA, tenants who have failed to comply with the lease covenants and conditions will still be afforded the right to exercise the option to renew. This relief, will not, however, extend to lessees who have failed to comply with the option’s time and manner requirements.
Lessor’s Obligations under s.128
Where a lessee has breached a term of the lease and the lessor intends to deny the lessee the option of a further lease the lessor must provide the lessee with a notice of this intention within fourteen (14) days of the lessee’s exercise of the option to renew. Where the lessor fails to meet this requirement, the lessor is no longer entitled to rely on the breach to prevent the lessee from exercising the option to renew. Where, however, the lessor does comply with the requirement of notice, the lessee still has the right to seek relief from the breach by commencing proceedings within one (1) month of receiving the notice.
Tip: Breaches which occur after the provision of the notice will still be included under s.128 of the PLA and entitle the lessee to seek relief.
It is essential you have experienced solicitors when dealing with a commercial lease or retail shop lease or a dispute about one. If your lease contains an option to renew or you would like to include one, our commercial law team will make sure your rights are protected.
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Brisbane QLD 4000