Chris Drayton
11 May 2012

Is the Lease Option Exercise Binding?

Chris Drayton


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There are a number of well accepted technical requirements with which notice of exercise of an option to renew needs to comply in order to be valid.  For example, these relate to time and mode of service, and the form of the notice.

What is the effect of a valid notice of exercise of option?  It is not uncommon for a tenant who has validly exercised an option to renew a lease to subsequently decide that they do not wish to proceed with the option lease because, for example, it is no longer financially viable or the premises no longer meet the requirements of the tenant.

It may even be a landlord who is delaying or failing to issue the lease for the option term or the tenant or landlord failing to sign the lease.

It is essential that both tenants and landlords understand the legal effect of the exercise of an option to renew.

The valid exercise of the option results in an enforceable agreement for lease for the option term.  Neither party can unilaterally decide it does not wish to proceed.

It follows that a tenant needs to carefully consider whether it wishes to exercise an option before doing so.

If a tenant wants to know the rent that will apply prior to being bound to proceed with the option term, then the tenant needs to either negotiate this right into the lease or negotiate the rental to apply prior to the option exercise window expiring.

The option clause frequently sets out the conditions to be satisfied before it can be exercised.  For example, that there is no default at particular times.

Issues arise when the wording of the notice is not clear or it is not given by the tenant but by someone on its behalf.

It is also prudent for the tenant to obtain from the landlord written acknowledgement of receipt of the notice.

Please contact us if you have any queries or require advice in relation to options to renew or their enforcement.

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