Commercial Lease Renewal & Options
A commercial lease renewal is the extension of a lease beyond its initial term, usually by exercising an option to renew written into the lease. We help tenants and landlords exercise, challenge, and document lease renewals across Australia.
Renewal is often the highest-stakes moment in a lease’s life. Get the option exercise wrong and the tenant can lose the premises. Get the renewal rent wrong and either side can be locked into a number that doesn’t match the market. As commercial lease lawyers, we guide both sides through the process.
What an option to renew is
An option to renew is a clause in the lease that gives the tenant the right (not the obligation) to extend the lease for a further fixed period on agreed terms. To exercise the option, the tenant generally must:
- Give written notice
- Within a specific window before the end of the term
- Not be in material breach of the lease
- Sometimes follow a prescribed form
If the tenant misses the window or fails to comply, the right to renew can be lost, even if it was a genuine oversight. In some retail leases the relevant Act gives a safety net (the landlord must remind the tenant of the option), but this isn’t universal and shouldn’t be relied on. The Victorian Small Business Commission outlines the key rules for retail lease renewals in Victoria.
See: Options to Renew
Rent on renewal
The lease usually specifies how rent is set for the renewal term:
- Fixed increase - a specified amount or percentage
- CPI - adjusted by the Consumer Price Index over the term
- Market review - set by negotiation, with a fallback to a specialist retail valuer if the parties can’t agree
- Hybrid - for example, the higher of fixed and market
For retail leases, the relevant state Act often imposes additional rules: bans on ratchet clauses, restrictions on more than one type of review in the same year, and a process for appointing a specialist retail valuer. We work through the lease and the Act before advising on the renewal rent. If you’re entering a new lease, our lease negotiation team can help get the renewal mechanism right from the start.
See: Rent Reviews on Renewal
Holdover tenancies
If the lease ends and the tenant stays on without exercising an option or signing a new lease, the tenant generally becomes a “holdover tenant” or tenancy at will. Most commercial leases say the holdover is monthly, often at a higher rent. Holdover suits short-term flexibility but leaves both sides exposed: the tenant can be asked to leave on a month’s notice, and the landlord can’t easily force a longer commitment.
See: Holdover Tenancies
How we help with lease renewal
For tenants
- Diarise the option exercise window early
- Draft and serve the option exercise notice in the right form
- Negotiate the renewal rent and any other terms up for review
- Challenge a market rent that’s not supported by the evidence
- Brief a specialist retail valuer if the matter has to go to determination
- Document the renewal in a deed or short-form variation
For landlords
- Draft and send the option reminder notice where required
- Set and defend the market rent on review
- Manage the rent review process through to specialist retail valuer determination
- Refuse renewal if the tenant is in material breach
- Document the renewal in a deed or short-form variation
What can go wrong on renewal
- Option missed because the window wasn’t diarised
- Option exercised in the wrong form (verbal, email instead of written notice, addressed to the wrong party)
- Tenant in breach at the date of exercise, giving the landlord grounds to refuse
- Market rent review not commenced in time, with the lease defaulting to CPI or to the previous rent
- New lease prepared that quietly changes the make good or other clauses from the previous lease
- Disclosure statement not given on the renewal where the relevant Act requires it
A thorough lease review before the option window opens catches most of these issues. If something does go wrong, our lease disputes team steps in. We protect against each of these.
Frequently asked questions
When should I exercise my option to renew?
Read the lease. Most options must be exercised in a specific window (commonly six to twelve months before the end of the term). Diarise it now and exercise as soon as the window opens.
What if I missed the option window?
You may still have a path. Some retail leases give the tenant a safety net (a landlord notice requirement). Otherwise, the only option is usually to ask the landlord to grant a new lease, which is at their discretion. Move quickly and get advice.
Can the landlord refuse to renew?
If the option is validly exercised and the tenant isn’t in material breach, generally no. The renewal is a contractual right. If there’s no option, renewal is at the landlord’s discretion.
How is rent set on renewal?
By the rent review mechanism in the lease (fixed, CPI, market, or hybrid). For retail leases, the relevant Act adds a layer of rules. We work through the lease and the Act before advising on what’s payable.
Can I challenge the new rent?
Yes, where the rent is set by market review. If the parties can’t agree, the Act and the lease usually provide for a specialist retail valuer to determine market rent. We brief valuers and run the determination process.
Do I need a new disclosure statement on renewal?
In some states, yes. Victoria, for example, requires a lessor disclosure statement for the renewal in certain circumstances. We confirm what’s required for the relevant state.
What is a holdover tenancy?
A holdover (or tenancy at will) is what happens when the lease ends and the tenant stays on without renewing. It’s usually monthly and either side can end it on short notice. Useful as a short bridge, risky as a long-term arrangement.
How much does lease renewal advice cost?
Fixed fee on most renewal matters. Send us the lease and the option exercise window and we’ll come back with a quote within one business day.
Talk to a lease renewal lawyer
Whether you’re approaching the option window or already in dispute about the renewal rent, the earlier we’re involved the more we can do.