In uncertain financial times, it is imperative to protect the goodwill of your business by securing the premises from which it trades if those premises are critical to it’s success.

Entering into a Lease is a significant business decision as a Lease is a legally binding Contract which will effect the value of a business.

What many business owners don’t understand is the process for renewing a Lease and the consequences of exercising an option to renew.

Some of the relevant issues are:

• When the option is to be exercised - Time is of the essence: if the date is missed, the Landlord is under no obligation to grant the option or extend the Lease.

There are certain protections for retail shop tenants who occupy premises under Leases commencing after 1 April 2006.

• How. The Lease will state how the option must be exercised. Usually notices must be in writing and sent by registered post or delivered to the Landlord at the address specified in the Lease.

• What. Once an option is exercised the law recognises the creation of an equitable Lease for a renewal period. This means both parties are bound under the Lease for the renewal period even if the current Lease is not yet expired and new Lease documents have not been signed.

To avoid some of the risks associated with renewing Leases it is important that all tenants:

1. Seek legal advice in relation to the original Lease before exercising any options to renew and before the date for exercising those options has expired;

2. Diarise all important dates including rent review dates and the earliest and latest dates under which each option may be exercised;

3. Make a note of how an option must be exercised;

4. Make enquiries well before the time for exercising the option expires including:

a. The current market rent;

b. The landlord’s plans for redevelopment;

c. Council or other authorities plans for road widening or closures or other works that will affect traffic or access to the premises;

5. If in a shopping centre confirm other tenants have exercised their options.

6. Can you afford the financial obligations associated with taking on a new Lease for a further term? Can you afford to relocate if the option is lost.

Inviting your questions and comments.

Michelle Lember
Partner
Lember And Williams

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