Summary - 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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