When should a Lessee Renew their Lease Option?

Leases often come with a possibility to extend the lease for a certain period of time. This is considered a lease option period and if the lessee wants to pursue extending their lease, there will be obligations and deadlines the lessee must achieve to be granted the lease extension.

Renewal Requirements

Note that a renewal option is not an inherent right under law, it is at the lessor’s discretion when entering into the original lease whether they will offer the lessee the option to renew the lease.

The first step is determining if your lease allows for an option period. If an option period is applicable the lease will detail the option in a clause in the lease. It will state the following:

• how long the renewal option is for;
• how rent will be calculated for the renewed period;
• any terms of the original lease that may be amended by the renewal; and
• the time period you have to notify the lessor of their intention to renew the lease.

Typically, your notice will be required to be in writing, however the lease may give specific instructions for how the notice must be given (for example by letter to the lessor’s email address). If the lease clause prescribes a certain method of delivering the notice to take up the option, those requirements should be complied with as failing to do so may result in the notice being invalid.

When should a Lessee Notify the Lessor of their Decision to Renew the Lease?

The typical timeframe for delivering to the lessor the notice to take up the option period ranges between:

• not earlier than 6 to 9 months prior to the expiry date of the current term of the lease; and
• not later than 3 to 6 months prior to the expiry date of the current term of the lease.

The option clause in your lease will specify the timeframe the notice must be given and if your lease is a retail lease, the disclosure statement provided by the lessor should also include any renewal options and when notice must be given by.

Effect of Late Notice

If a Lessee fails to notify the lessor of their intention to take up the option to renew the lease by the last day prescribed by the lease, then the lessor may elect to refuse to renew the lease.

Does the Lessor need to remind the Lessee of the Notice Period?

If your lease is a retail lease then the lessor should give you written notice reminding you of the due dates for notifying the lessor of your decision to renew the lease. The written notice should be given not later than 6 months and not earlier than 2 months from the last day the lessee can give their decision on the option to renew the lease. However, if your lessor fails to give this notice there is no legal remedy. So, the obligation is still on you to remember the due dates for notifying the lessor of your intention to take up the option period to renew the lease.

A commercial lease is not as lenient. There is no requirement for the lessor to remind the lessee of the due dates for notification of taking up the option period. The obligation on the lessor to remind the lessee would only be applicable if the lease terms require the lessor to provide such notice to the lessee.

Can the Lessor Refuse to Grant the Option to Renew even if given on Time?

Even if you give the lessor notice within the due date there may be circumstances where the lessor can still refuse to grant the renewal. This is dependent upon whether you have breached any of the essential lease terms.

If you have breached an essential term of the lease (for example being behind on rent payments) then the lessor can refuse to grant the option. But if the lessor intends to refuse your renewal, the lessor must give you a notice under section 128 of the Property Law Act 1974 (Qld). The lessor must give the notice within 14 days of receiving your lease option notice and must provide you 14 days to make good on the breaches.

Takeaways

You should be proactive in reviewing your lease and determining:

1. if the lease has an option to renew;
   
   
2. the due dates for giving the lessor notice to take up the option to renew; and
   
   
3. what the lease states in terms of who and how to deliver the notice.

If there is an option to renew and you fail to notify the lessor of your intention to take up the option by the due date then the lessor has no obligation to renew the lease and can negotiate a new lease on stricter and more favourable terms to the lessor.

If you have any questions or require assistance with drafting, reviewing or renewing your lease in Queensland, please contact the property team at My Property Protect for more information.

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