It is often a stressful time for both the Lessee and the Lessor
at the expiration of a lease. The Lessee may be unsure as to where
and when they are going to find another property to lease. The
Lessor might be relying on the current tenant financially and be
concerned as to when they will be able to find someone to fill this
space. It can be confusing to both the Lessee and the Lessor as to
what rights each party has, and the best way to handle this
situation is to be prepared.
If you are a Lessee, there is no obligation to stay on at the
end of your lease. However, if you decide you do want to stay, you
have a few options:
With the Lessor's approval you may remain in the premises
on a monthly holding over basis.
You can possibly negotiate a new lease with the Lessor.
If the original lease contained an option for renewal for a
further term, the Lessee may consider resigning their lease within
the nominated period of the existing lease. If you don't know
when this is, check with your real estate! It is usually somewhere
between three to six months prior to the expiration of your
As a Lessee, if you decide to exercise the option to renew, the
terms of the lease, including the renewed rental, will be
determined according to the terms already agreed in the
existing lease. This is important, because once this
option is exercised, the Lessee cannot back out of the renewed term
because they do not agree with the rent that the Lessor is charging
or the lease period they have nominated.
You need to be prepared if you are going to choose to exercise
this option. An option clause typically sets out a time frame that
you have to make a decision, what sort of notice you need to give
and also requires you not to be in default at the end of the lease
or when making this decision.
So what happens if there is no option to renew the lease?
In a retail lease it is the Lessor's responsibility to
advise the tenants, not less than six months and not more than 12
months prior to expiration of the Lease where the term exceeds 12
months, as to whether they will be offered a renewal or extension
of the lease to the Lessee. If the Lessor fails to provide this
notice, in certain circumstances, the term of the lease can be
What if a Lessee has breached their lease? Can it still be
A Lessee can exercise an option for renewal even if there has
been a breach of the lease in circumstances where s.133E of the
Conveyancing Act 1919 applies. On the other hand, if the Lessor
wants to rely on the breach to prevent the exercise of the option,
then the Lessor must give the Lessee a prescribed notice within 14
days after the option is exercised.
Whether you are a Lessee exercising your option for renewal, or
a Lessor who has received a notice from a Lessee to renew, it is
important to obtain legal advice - particularly in instances where
s 133E of the Conveyancing Act 1919 may apply or correct notice has
not been given.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Whilst option to purchase clauses are more in commercial properties, they are now being included in residential leases.
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