An option to renew a lease in NSW gives you, the tenant, the right to stay for a further term. But that right only works if you exercise it within the time, and in the way, your lease requires. Miss the window or get the notice wrong, and you can lose the right to renew.
This article explains how to find your option notice period, how to exercise the option properly, what happens if you have breached the lease, and what to do if the deadline has passed.
An option to renew (sometimes called an option to extend) is a right in your lease to take a further term. A lease described as “3 + 3”, for example, has an initial three-year term and an option for three more years.
The choice is yours. If you exercise the option properly, the landlord is generally bound to grant the further term, usually on the same terms except for the rent, which is often reviewed.
The Retail Leases Act 1994 (NSW) applies to many retail shop leases and overrides conflicting lease terms. If you have an option to renew a retail lease in NSW at market rent, you can ask for the new rent to be worked out early. The request must be made between six and three months before the last day for exercising the option (shorter periods apply to leases of 12 months or less). You then have 21 days after being told the rent in writing to decide.
For other commercial premises, such as offices and warehouses, that Act does not apply. Your rights come mainly from the lease, and you may have to commit before you know the new rent.
Your option notice period (the option window) is usually in the lease’s schedule or the option clause. It is often stated as a period before the lease ends, such as “not more than six months and not less than three months before the end of the term”.
Check:
Don’t rely on your landlord or agent to remind you. The deadline in your lease is the one that counts.
To exercise an option to renew a commercial lease, you give the landlord written notice within the option window. Courts generally expect the notice and its delivery to comply with the lease.
Your notice of exercise of option should:
Keep it unconditional. A notice that says you will renew “subject to agreeing the rent”, or that you “would like to discuss renewing”, may not count as exercising the option.
Check both the option clause and the general notices clause. These often say where and how notices must be sent, such as by post, by hand or by email.
Use a method your lease allows, send it to the right person at the right address (including any new address the landlord has given you), and keep proof of delivery.
If you’re unsure, get lease advice before the window closes.
Many option clauses say you can only exercise the option if you have not breached the lease, for example by paying rent late. That doesn’t mean a past breach automatically cancels your option. Even so, fix any breach, such as rent arrears, before you send your notice.
Under the Conveyancing Act 1919 (NSW), a breach generally can’t stop you exercising the option unless the landlord gives you a formal notice, within a short period, setting out the breach and saying it intends to treat the breach as preventing the option. For a breach that happened before you exercised the option, that period is 14 days after your notice.
If you receive one of these notices, act quickly. You can apply to the Supreme Court for relief, but the time limit is short, and serious or deliberate breaches may count against you. If your landlord is relying on a breach of contract, get advice straight away.
If the option window has closed, you have generally lost the right to renew. Your lease will end on its end date unless you and the landlord agree otherwise.
Before you assume the worst, check:
You can still ask the landlord for a new lease, but they don’t have to agree. Get advice before you write to them, as what you say can affect your position.
If the landlord disputes that you exercised the option, the issue can often be resolved through negotiation or mediation. If not, it may need to go to court.
We advise tenants and landlords on retail and commercial lease options, including checking the option window, preparing and serving the notice, and responding if a landlord disputes it. To have your lease option checked, book a free consultation.
