Options to renew in a commercial lease typically give the tenant
the right, on written notice, to renew the lease for a specific
period "on the same terms and conditions" as the lease,
except for the renewal rents and the inducements initially provided
to the tenant, and except for the exercised option to renew,
thereby ensuring that the tenant will not acquire an additional
renewal option to renew. Insufficient attention to the terms of the
renewal option may lead to unintended consequences.
We were recently asked to review various leases of premises
within a potential redevelopment site. Some of the leases did not
contain a "demolition" clause (i.e., a clause allowing
the landlord to terminate the lease and demolish the building),
which was troublesome in itself. In addition, a handful of the
leases contained poorly drafted options to renew that effectively
granted the tenants a perpetual right of renewal. This left the
landlord with no ability to redevelop the site without coming to a
settlement with these tenants; an uncertain and potentially
Courts treat perpetual rights to renew as
"extraordinary" and tend to favour the landlord when
interpreting them. For example, if a renewal option states that the
renewal lease will be on the "same terms and conditions as
this lease," the option will be treated as not including the
exercised option to renew, thereby avoiding the issue of perpetual
renewal rights. If, however, the renewal option states that the
renewal lease will be "on the same terms and conditions as
this lease, including the covenant for
renewal," a perpetual renewal option will be
While it is a simple matter to draft leases so that perpetual
renewal rights do not arise, a lack of attention to detail when
drafting renewal options may stifle site redevelopment, and thus
adversely impact value.
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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Russell v. Township of Georgian Bay provides a useful reminder of the fact that while municipal officials sometimes appear to hold all of the cards in disputes with home owners, that is not always the case.
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