Some advice on what your options are now.

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 lease.

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 extended.

What if a Lessee has breached their lease? Can it still be renewed?

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.