Lease options

Exercise your options

When you negotiate a Lease, an Option may be offered or you may ask for one or more. The initial term, say 5 years, may be followed by an Option for say a further 5 years and even a further option after that of another 5 years.

An option is valuable as it allows you to either continue trading, to sell your business during the next term or end the lease. The Option is at the discretion of the tenant, so if there have been no breaches during the term, the tenant can, at the appropriate time, exercise the option for the further term.

It is always advisable to exercise the option in writing. It must be unambiguous – a statement saying ‘I exercise the option subject to renovations as discussed being completed” may not be construed as a proper exercise of option. You must clearly demonstrate you intention to exercise the option. The landlord must agree to allow you to stay if you have followed the rules for exercising the option. The Lease will set out the procedure for exercising the option. It is important that you follow to the letter the procedure set down. If you miss the date to exercise the option, the landlord may not renew your lease. This means that you will be a month to month tenant and the terms of your lease can be changed by the landlord.

Upon exercise of Option the lease may state that the rent will be determined according to market. This means that an assessment is undertaken by the landlord or his managing agent to determine a fair market rent for those premises by comparing them to similar size premises nearby which are being used for a similar use and taking into account the rental conditions which exist at that time. You have the right to a pre determination of the rent during the notice period set out in the Lease (normally 3- 6 months prior to the lease expiring). You can obtain this assessment before you decide whether to exercise the option. Once the amount is decided, you have 21 days to exercise the option.